Republic of the Philippines

SUPREME COURT
Manila
SPECIAL FIRST DIVISION
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.
x x x           x x x          x x x
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
x x x           x x x          x x x
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.
x x x           x x x          x x x
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. Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We 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 RA5 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 9480 7 (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 Association23  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 Jersey27  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.
x x x           x x x          x x x
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 the possibility 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") 46 enacted 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:
x x x           x x x          x x x
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 9243 48 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 CA 64 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.73 Indeed, 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.
 FIRST DIVISION
G.R. No. 125678      March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary
or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive
health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from
March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a
concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April
13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner
and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses
plus moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioner’s motion for reconsideration was denied. 5 Hence, petitioner brought the instant petition for review, raising the
primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code6 does not apply.1âwphi1.nêt

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

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The
health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. 9 Once the member incurs
hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay
for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health
coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has
any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination.10 Specifically, the Health Care Agreement signed by respondent’s husband states:
 We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members;
that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing
in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health
care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as stated in the space for Home Office

Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicant’s
medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. This authorization is in connection with the application for
health care coverage only. A photographic copy of this authorization shall be as valid as the original. 12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or medical examination,
whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for. 13

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the
policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this
is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is
a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a
matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 Concealment as
a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to
rescind should be exercised previous to the commencement of an action on the contract. 17 In this case, no rescission was made.

Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on
which cancellation is based.18

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-compliance with his obligation. 19 Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the contract – the insurer. 20 By reason
of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. 21 This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie. 23

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a
contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent
paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses
incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14,
1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Kapunan, JJ.,  concur.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 183526               August 25, 2009
VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R.
AVILON, Respondent.
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court are the Decision 2 dated 30 August 2007 and
the Orders dated 10 April 20083 and 3 July 20084 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In
its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent
Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively,
the RTC declared the finality of the aforesaid Decision and denied petitioner’s Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan
(Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, 5 which contained a 20-Year Endowment Variable
Income Package Flexi Plan worth ₱500,000.00,6 with two riders valued at ₱500,000.00 each.7 Thus, the value of the policy amounted to
₱1,500,000.00. Violeta was named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of ₱8,062.00, payable
every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year period of the policy. According to the
Policy Contract, there was a grace period of 31 days for the payment of each premium subsequent to the first. If any premium was not
paid on or before the due date, the policy would be in default, and if the premium remained unpaid until the end of the grace period,
the policy would automatically lapse and become void. 8

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998,
even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application for
Reinstatement9 of Policy No. 9011992, together with the amount of ₱8,062.00 to pay for the premium due on 24 January 1998. In a
letter10 dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully processed because,
although he already deposited ₱8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon
amounting to ₱322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that subsequently became due on 24 April 1998 and 24
July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for Reinstatement 11 of Policy No.
9011992, including the amount of ₱17,500.00, representing payments for the overdue interest on the premium for 24 January 1998,
and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business errand, her husband
received Eulogio’s second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.
Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando, on 18
September 1998, Eulogio’s second Application for Reinstatement of Policy No. 9011992 and ₱17,500.00 deposit. However, Insular Life
no longer acted upon Eulogio’s second Application for Reinstatement, as the former was informed on 21 September 1998 that Eulogio
had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.
In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio’s
death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate the same. According to the Application for Reinstatement,
the policy would only be considered reinstated upon approval of the application by Insular Life during the applicant’s "lifetime and good
health," and whatever amount the applicant paid in connection thereto was considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the amount of
₱25,417.00, drawn in Violeta’s favor, representing the full refund of the payments made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter 13 dated 10 March 1999, Insular
Life stated that it could not find any reason to reconsider its decision rejecting Violeta’s claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of ₱25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of Insular Life.
Violeta’s counsel subsequently sent a letter14 dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.
9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a re-evaluation of Violeta’s
claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a Complaint for
Death Claim Benefit,15 which was docketed as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement
practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed that Insular Life be ordered to
pay her death claim benefits on Policy No. 9011992, in the amount of ₱1,500,000.00, plus interests, attorney’s fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim,16 asserting that Violeta’s Complaint had no legal or factual bases. Insular
Life maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered void by the non-payment of the 24 January
1998 premium and non-compliance with the requirements for the reinstatement of the same. By way of counterclaim, Insular Life
prayed that Violeta be ordered to pay attorney’s fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No. 9011992 had been
complied with and the defenses put up by Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24, 1998 were not paid by [Eulogio]
even after the lapse of the 31-day grace period, his insurance policy necessarily lapsed. This is clear from the terms and conditions of
the contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x. 17
The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular Life and the Application for
Reinstatement Eulogio subsequently signed and submitted to Insular Life, held that Eulogio was not able to fully comply with the
requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties. In the instant case, the terms of the insurance contract
between [Eulogio] and [Insular Life] were spelled out in the policy provisions of Insurance Policy No. 9011992. There is likewise no
dispute that said insurance contract is by nature a contract of adhesion[,] which is defined as "one in which one of the contracting
parties imposes a ready-made form of contract which the other party may accept or reject but cannot modify." (Polotan, Sr. vs. CA,
296 SCRA 247).

xxxx
The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than one meaning" and "an idea, statement or
expression capable of being understood in more than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme
Court stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result thereby, must be read and construed
against the party who drafted it on the assumption that it could have been avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second application for reinstatement.
Examining the said provisions, the court finds the same clearly written in terms that are simple enough to admit of only one
interpretation. They are clearly not ambiguous, equivocal or uncertain that would need further construction. The same are written on
the very face of the application just above the space where [Eulogio] signed his name. It is inconceivable that he signed it without
reading and understanding its import.1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear layman’s language, rendering it
free from any ambiguity that would require a legal interpretation or construction. Thus, the court believes that [Eulogio] was well
aware that when he filed the said application for reinstatement, his lapsed policy was not automatically reinstated and that its approval
was subject to certain conditions. Nowhere in the policy or in the application for reinstatement was it ever mentioned that the payment
of premiums would have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was clearly stated in the
application for reinstatement is that pending approval thereof, the premiums paid would be treated as a "deposit only and shall not
bind the company until this application is finally approved during my/our" lifetime and good health[.]"
Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the words used or in the
manner they were written. [Violeta] did not present any proof that [Eulogio] was not conversant with the English language. Hence, his
having personally signed the application for reinstatement[,] which consisted only of one page, could only mean that he has read its
contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy provisions of Policy No. 9011992
and in the application for reinstatement subject of this case, the court finds no merit in [Violeta’s] contention that the policy provision
stating that [the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should be construed in his favor. It
is true that [Eulogio] submitted his application for reinstatement, together with his premium and interest payments, to [Insular Life]
through its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of that same day.
It was only on the following day, September 18, 1998 that Ms. Malaluan brought the said document to [the regional office of Insular
Life] in San Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no more application to approve
because the applicant was already dead and no insurance company would issue an insurance policy to a dead person. 18 (Emphases
ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the same by interpreting the
insurance agreement in her favor where there is no need for such interpretation. It is conceded that [Eulogio’s] payment of overdue
premiums and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that [the] application for
reinstatement was filed by [Eulogio] a day before his death. However, there is nothing that would justify a conclusion that such receipt
amounted to an automatic reinstatement of the policy that has already lapsed. The evidence suggests clearly that no such automatic
renewal was contemplated in the contract between [Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan was the officer
authorized to approve the application for reinstatement and that her receipt of the documents submitted by [Eulogio] amounted to its
approval.19 (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance of evidence her
cause of action against the defendant, let this case be, as it is hereby DISMISSED. 20
On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-mentioned RTC Decision. Insular Life opposed 22 the
said motion, averring that the arguments raised therein were merely a rehash of the issues already considered and addressed by the
RTC. In an Order23 dated 8 November 2007, the RTC denied Violeta’s Motion for Reconsideration, finding no cogent and compelling
reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order of the RTC was received
by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the Motion for Reconsideration, wherein she reiterated the
prayer in her Motion for Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for Reconsideration, Violeta still filed with
the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had already
attained finality in view of Violeta’s failure to file the appropriate notice of appeal within the reglementary period. Thus, any further
discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying that the Order dated 10 April 2008 be set aside
and that she be allowed to file an appeal with the Court of Appeals.
In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion given that the Decision dated 30 August 2007
had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for
consideration:
1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed despite having allegedly
attained finality and despite the fact that the mode of appeal that has been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a question of law not in accord
with law and applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC Decision
dated 30 August 2007; and in the computation of the reglementary period for appealing the said judgment. Violeta claims that her
former counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the latter’s death just shortly
after the filing of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to admit and give
due course to her appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this case involving the interpretation of the second
sentence of Section 19 of the Insurance Code, which provides:
Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just
before he passed away on 17 September 1998. The RTC should have construed the provisions of the Policy Contract and Application
for Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and considered the special circumstances of the
case, to rule that Eulogio had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that
Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not justified. Rule
41, Section 1 of the Rules of Court,28 provides that no appeal may be taken from an order disallowing or dismissing an appeal. In such
a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court. 29
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and executory. Violeta filed a
Motion for Reconsideration thereof, but the RTC denied the same in an Order dated 8 November 2007. The records of the case reveal
that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta had 15 days 30 from said date of receipt,
or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months
after receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.
Violeta’s claim that her former counsel’s failure to file the proper remedy within the reglementary period was an honest mistake,
attributable to the latter’s deteriorating health, is unpersuasive.

Violeta merely made a general averment of her former counsel’s poor health, lacking relevant details and supporting evidence. By
Violeta’s own admission, her former counsel’s health rapidly deteriorated only by the first week of July 2008. The events pertinent to
Violeta’s Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violeta’s
Motion for Reconsideration of the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta’s Notice of Appeal
was filed on 20 May 2008. There is utter lack of proof to show that Violeta’s former counsel was already suffering from ill health during
these times; or that the illness of Violeta’s former counsel would have affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta, which failure the
latter cannot now disown on the basis of her bare allegation and self-serving pronouncement that the former was ill. A client is bound
by his counsel’s mistakes and negligence.31

The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s Notice of Appeal for being filed beyond the
reglementary period. Without an appeal having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177
already became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period to appeal lapses
and no appeal is perfected within such period. As a consequence, no court (not even this Court) can exercise appellate jurisdiction to
review a case or modify a decision that has become final.32 When a final judgment is executory, it becomes immutable and unalterable.
It may no longer be modified in any respect either by the court, which rendered it or even by this Court. The doctrine is founded on
considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite
point in time.33
The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-called nunc
pro tunc entries, which cause no prejudice to any party, and void judgments. 34 The instant case does not fall under any of these
exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the Petition
must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing insurable
interest in his own life until the day of his death.
An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is
that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in
it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. 35 The existence of
an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. 36 Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in his own life. 37 Section 19 of the same code also states that an
interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the
loss occurs.38

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is entirely irrelevant in the case at
bar. It is actually beyond question that while Eulogio was still alive, he had an insurable interest in his own life, which he did insure
under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on
his life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision that Policy No. 9011992
lapsed because of Eulogio’s non-payment of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992
had lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the premium,
which fell due on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first Application for Reinstatement with
Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did
not act on Eulogio’s first Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover only
the ₱8,062.00 overdue premium for 24 January 1998, but not the ₱322.48 overdue interests thereon. On 17 September 1998, Eulogio
submitted a second Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same time ₱17,500.00, to
cover payment for the overdue interest on the premium for 24 January 1998, and the premiums that had also become due on 24 April
1998 and 24 July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. 39 Both the Policy
Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the policy lapse:
10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the following conditions are met: (1) the policy has not
been surrendered for its cash value or the period of extension as a term insurance has not expired; (2) evidence of insurability
satisfactory to [Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not exceeding that which
would have been applicable to said premium and indebtedness in the policy years prior to reinstatement; and (4) indebtedness which
existed at the time of lapsation is paid or renewed. 40
Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which Eulogio signed and
submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application is approved by the Company during my/our lifetime
and good health and until all other Company requirements for the reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection with this application shall be considered as deposit only and
shall not bind the Company until this application is finally approved by the Company during my/our lifetime and good health. If this
application is disapproved, I/We also agree to accept the refund of all payments made in connection herewith, without interest, and to
surrender the receipts for such payment.41 (Emphases ours.)
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992.
True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company, 42 citing McGuire v. The
Manufacturer's Life Insurance Co.43:

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny the reinstatement if
it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness to
the insurer. After the death of the insured the insurance Company cannot be compelled to entertain an application for reinstatement of
the policy because the conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases ours.)
It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for the overdue premiums and interests
were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power or authority of its insurance agents,
thus:

Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to waive any
lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president, vice-president or persons
authorized by the Board of Trustees and only in writing. 44 (Emphasis ours.)

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still had to turn over to Insular Life
Eulogio’s Application for Reinstatement and accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were
written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously
embody. A construction in favor of the insured is not called for, as there is no ambiguity in the said provisions in the first place. The
words thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his
Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance
law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company,
yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the
parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.45

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests
with Malaluan, does not constitute a special circumstance that can persuade this Court to already consider Policy No. 9011992
reinstated. Said circumstance cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement,
and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application for Reinstatement. Even
though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-handed, the Court
cannot arbitrarily burden Insular Life with the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally
apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the courts consist
simply in enforcing and carrying out the contracts actually made. 46

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and Application for
Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of Policy No.
9011992; but she is entitled to receive the full refund of the payments made by Eulogio thereon.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court.
The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177,
denying petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was
already final and executory. No costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 198174               September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31, 2011 and
Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with petitioner,
involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the
amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period covered,
which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-
described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and
despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported the incident to the
police and concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in the total sum of
₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the culprit, who stole
the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy under Exceptions to Section-III,
which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to damage of
the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial Court (RTC) of
Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter
as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the amount is
fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of Branch 215 of
the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION
WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES
NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR
UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and its
accessories and spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and
tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or
elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each
and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market
Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service. 6
In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions to
Section III," means loss due to injury or harm to person, property or reputation, and should be construed to cover malicious "loss" as
in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the
policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the insured is not
an exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who would commit the theft.
Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this case. This is
evident from the very provision of Section III – "Loss or Damage." The insurance company, subject to the limits of liability, is obligated
to indemnify the insured against theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of exception, the same must be covered. As correctly
pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the parties entered
into the contract which is to insure against risks of loss or damage to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions are open to two interpretations, that which is most
favorable to the insured is adopted." The defendant would argue that if the person employed by the insured would commit the theft
and the insurer would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured himself,
the same would be an exception to the coverage since in that case there would be fraud on the part of the insured or breach of
material warranty under Section 69 of the Insurance Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes
therein are to be given their meaning as understood in common speech. 9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word "loss" refers
to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or injury to property. 1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of "Exceptions to
Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor vehicle caused by a person
under the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from coverage, is
the damage that is the direct result from the deliberate or willful act of the insured, members of his family, and any person in the
insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate between the terms
"loss" and "damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it should
have used the term "damage" alone in the entire policy or otherwise included a clear definition of the said term as part of the
provisions of the said insurance contract. Which is why the Court finds it puzzling that in the said policy’s provision detailing the
exceptions to the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract, the insurer, after
liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-appellant would like this Court to believe that it really intended
the word "damage" in the term "malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and
meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the
contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy.
However, when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, the policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal
Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court ruled –
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 non-compliance with its obligations.
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.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated May 31,
2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 195872               March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari 1 under Rule 45 of the Rules of Court, which challenges the Decision2 dated September 27,
2010 and Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation engaged in
providing health maintenance services to its members. The terms of Amorin's medical coverage were provided in a Corporate Health
Program Contract4 (Health Care Contract) which was executed on January 6, 2000 by Fortune Care and the House of Representatives,
where Amorin was a permanent employee.
While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an emergency surgery,
specifically appendectomy, at the St. Francis Medical Center, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to
Manila, but the company merely approved a reimbursement of ₱12,151.36, an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure were performed in an accredited hospital in Metro Manila. 5 Amorin received
under protest the approved amount, but asked for its adjustment to cover the total amount of professional fees which he had paid, and
eighty percent (80%) of the approved standard charges based on "American standard", considering that the emergency procedure
occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the Health Care Contract, to
wit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member shall be entitled to full
coverage under the benefits provisions of the Contract at any FortuneCare accredited hospitals subject only to the pertinent
provision of Article VII (Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician (MSU), the
member shall be reimbursed 80% of the professional fee which should have been paid, had the member been treated by an
affiliated physician. The availment of emergency care from an unaffiliated physician shall not invalidate or diminish any claim if
it shall be shown to have been reasonably impossible to obtain such emergency care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee
(based on the total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage
applies only to Emergency confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign territory,
Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall cover the
hospitalization costs and professional fees. x x x 6
Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint 7 for breach of contract with damages with the
Regional Trial Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional fees incurred in
foreign countries, as the contract’s operation was confined to Philippine territory. 8 Further, it argued that its liability to Amorin was
extinguished upon the latter’s acceptance from the company of the amount of ₱12,151.36.
The RTC Ruling
On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section 3, Article V of the
Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as basis. Section 3 of
the Corporate Health Care Program Contract provides that:
xxxx
On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have been paid, had
the member been treated by an affiliated physician, the Court concludes that the basis for reimbursement shall be Philippine rates.
That provision, taken with Article V of the health program contract, which identifies affiliated hospitals as only those accredited clinics,
hospitals and medical centers located "nationwide" only point to the Philippine standard as basis for reimbursement.
The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of the approved
standard charges which shall cover hospitalization costs and professional fees, can only be reasonably construed in connection with the
preceding clause on professional fees to give meaning to a somewhat vague clause. A particular clause should not be studied as a
detached and isolated expression, but the whole and every part of the contract must be considered in fixing the meaning of its parts. 10
In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already paid by Fortune Care to
Amorin as equivalent to 80% of the hospitalization and professional fees payable to the latter had he been treated in an affiliated
hospital.11
Dissatisfied, Amorin appealed the RTC decision to the CA.
The CA Ruling
On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portion of its decision reads:
WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006 assailed Decision of the
Regional Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE, and a new one entered ordering Fortune
Medicare, Inc. to reimburse [Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and professional fee
of $1,777.79 paid by him to St. Francis Medical Center pursuant to Section 3, Article V of the Corporate Health Care Program Contract,
or their peso equivalent at the time the amounts became due, less the [P]12,151.36 already paid by Fortunecare.
SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care Contract, being like
insurance contracts, must be liberally construed in favor of the subscriber. In case its provisions are doubtful or reasonably susceptible
of two interpretations, the construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should be
strictly construed against the provider.14 Second, the CA explained that there was nothing under Article V of the Health Care Contract
which provided that the Philippine standard should be used even in the event of an emergency confinement in a foreign territory. 15
Fortune Care’s motion for reconsideration was denied in a Resolution 16 dated February 24, 2011. Hence, the filing of the present
petition for review on certiorari.
The Present Petition
Fortune Care cites the following grounds to support its petition:
I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to interpretation, and that it did
not automatically mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its decision that the
American Standard Cost shall be applied in the payment of medical and hospitalization expenses and professional fees
incurred by the respondent.17
The Court’s Ruling
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject Health Care
Contract should be based on the expenses for hospital and professional fees which he actually incurred, and should not be limited by
the amount that he would have incurred had his emergency treatment been performed in an accredited hospital in the Philippines.
We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence holds that a health
care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.18
To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare Health Systems v.
CA19:

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. This is equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.20 (Citations omitted and emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares 21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an
established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against
the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from
evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy" and "care" and with a "jaundiced
eye." x x x.22 (Citations omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed by Section 3(B),
Article V of the subject Health Care Contract, considering that the appendectomy which the member had to undergo qualified as an
emergency care, but the treatment was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital.
We restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee
(based on the total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage
applies only to Emergency confinement within Philippine Territory. However, if the emergency confinement occurs in foreign territory,
Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall cover the
hospitalization costs and professional fees. x x x 23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall be the base for
the allowable 80% benefit. The trial court ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to
the extent that may be allowed for treatments performed by accredited physicians in accredited hospitals. As the appellate court
however held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly construed against
Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of
emergency care in a foreign country. As the contract recognized Fortune Care’s liability for emergency treatments even in foreign
territories, it expressly limited its liability only insofar as the percentage of hospitalization and professional fees that must be paid or
reimbursed was concerned, pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different meanings.
Plainly, the term "standard charges" could be read as referring to the "hospitalization costs and professional fees" which were
specifically cited as compensable even when incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the
Health Care Contract could it be reasonably deduced that these "standard charges" referred to the "Philippine standard", or that cost
which would have been incurred if the medical services were performed in an accredited hospital situated in the Philippines. The RTC
ruling that the use of the "Philippine standard" could be inferred from the provisions of Section 3(A), which covered emergency care in
an accredited hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction between emergency
care in an accredited hospital, and that obtained from a non-accredited hospital. 1âwphi1 The limitation on payment based on
"Philippine standard" for services of accredited physicians was expressly made applicable only in the case of an emergency care in an
accredited hospital.

\The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred from the other
provisions of Section 3(B), considering that Amorin’s case fell under the second case, i.e., emergency care in a non-accredited hospital.
Rather than a determination of Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the
total hospitalization cost including the professional fee (based on the total approved charges) to a member who receives emergency
care in a non-accredited hospital" within the Philippines. Thus, for emergency care in non-accredited hospitals, this cited clause
declared the standard in the determination of the amount to be paid, without any reference to and regardless of the amounts that
would have been payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments in foreign
territories, the only qualification was only as to the percentage, or 80% of that payable for treatments performed in non-accredited
hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable in the Philippines,
the amount payable by Fortune Care should not be limited to the cost of treatment in the Philippines, as to do so would result in the
clear disadvantage of its member. If, as Fortune Care argued, the premium and other charges in the Health Care Contract were merely
computed on assumption and risk under Philippine cost and, that the American cost standard or any foreign country's cost was never
considered, such limitations should have been distinctly specified and clearly reflected in the extent of coverage which the company
voluntarily assumed. This was what Fortune Care found appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on emergency care in non-accredited hospitals was modified to
read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or pay one hundred
(100%) percent under approved Philippine Standard covered charges for hospitalization costs and professional fees but not to exceed
maximum allowable coverage, payable in pesos at prevailing currency exchange rate at the time of availment in said territory where
he/she is confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any ambiguity in a
contract whose terms are susceptible of different interpretations must be read against the party who drafted it." 25
WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24, 2011 of the Court of
Appeals in CA-G.R. CV No. 87255 are AFFIRMED.
SO ORDERED.
 THIRD DIVISION
February 27, 2017
G.R. No. 190702
JAIME T. GAISANO, Petitioner
vs.
DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent
DECISION
JARDELEZA, J.:
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11, 2009 Decision 2 and November 24,
2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the September 24, 2003 Decision 4 of the Regional Trial Court (RTC) in Civil
Case No. 97-85464. The RTC granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive commercial vehicle
policy issued by Development Insurance and Surety Corporation (respondent), viz.:
IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant ordered to pay the plaintiff-
appellee the sum of ₱55,620.60 with interest at 6 percent per annum from the date of the denial of the claim on October 9, 1996 until
payment.
SO ORDERED.5
I
The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 (vehicle), while
respondent is a domestic corporation engaged in the insurance business. 6 On September 27, 1996, respondent issued a comprehensive
commercial vehicle policy7 to petitioner in the amount of ₱1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997.8 Respondent also issued two other commercial vehicle policies to petitioner covering
two other motor vehicles for the same period.9

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific Underwriters Agency (Trans-Pacific),
issued a statement of account to petitioner's company, Noah's Ark Merchandising (Noah's Ark). 10 Noah's Ark immediately processed the
payments and issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day. 11 The check bearing
the amount of ₱140,893.50 represents payment for the three insurance policies, with ₱55,620.60 for the premium and other charges
over the vehicle.12 However, nobody from Trans-Pacific picked up the check that day (September 27) because its president and general
manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get the check
the next day, September 28.13

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles Pacquing (Pacquing)
as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported
the loss to the Philippine National Police Traffic Management Command at Camp Crame in Quezon City. 14 Despite search and retrieval
efforts, the vehicle was not recovered.15

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt numbered 124713
dated September 28, 1996, acknowledging the receipt of ₱55,620.60 for the premium and other charges over the vehicle. 16 The check
issued to Trans-Pacific for ₱140,893.50 was deposited with Metrobank for encashment on October 1, 1996. 17
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and filed a claim with
respondent for the insurance proceeds of ₱1,500,000.00.18 After investigation, respondent denied petitioner's claim on the ground that
there was no insurance contract.19 Petitioner, through counsel, sent a final demand on July 7, 1997. 20 Respondent, however, refused to
pay the insurance proceeds or return the premium paid on the vehicle.

On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages 21 with the RTC where it sought . to collect
the insurance proceeds from respondent. In its Answer,22 respondent asserted that the non-payment of the premium rendered the
policy ineffective. The premium was received by the respondent only on October 2, 1996, and there was no known loss covered by the
policy to which the payment could be applied.23

In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the premium paid as of September 27,
even if the check was received only on September 28 because (1) respondent's agent, Trans-Pacific, acknowledged payment of the
premium on that date, September 27, and (2) the check that petitioner issued was honored by respondent in acknowledgment of the
authority of the agent to receive it.25 Instead of returning the premium, respondent sent a checklist of requirements to petitioner and
assigned an underwriter to investigate the claim.26 The RTC ruled that it would be unjust and inequitable not to allow a recovery on the
policy while allowing respondent to retain the premium paid. 27 Thus, petitioner was awarded an indemnity of ₱l,500,000.00 and
attorney's fees of ₱50,000.00.28

After respondent's motion for reconsideration was denied, 29 it filed a Notice of Appeal.30 Records were forwarded to the CA.31
The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance contract becomes valid and binding only
after the premium is paid pursuant to Section 77 of the Insurance Code (Presidential Decree No. 612, as amended by Republic Act No.
10607).33 It found that the premium was not yet paid at the time of the loss on September 27, but only a day after or on September
28, 1996, when the check was picked up by Trans-Pacific.34 It also found that none of the exceptions to Section 77 obtains in this
case.35 Nevertheless, the CA ordered respondent to return the premium it received in the amount of ₱55,620.60, with interest at the
rate of 6% per annum  from the date of the denial of the claim on October 9, 1996 until payment. 36

Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract between him and respondent. 37 He
submits that it comes within the exceptions to the rule in Section 77 of the Insurance Code that no contract of insurance becomes
binding unless and until the premium thereof has been paid. The prohibitive tenor of Section 77 does not apply because the parties
stipulated for the payment of premiums.38 The parties intended the contract of insurance to be immediately effective upon issuance,
despite non-payment of the premium, because respondent trusted petitioner. 39 He adds that respondent waived its right to a pre-
payment in full of the terms of the policy, and is in estoppel.40

Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the return of the premiums paid, then
he should be able to recover the full amount of ₱140,893.50, and not merely ₱55,620.60. 41 The insurance policy covered three vehicles
yet respondent's intention was merely to disregard the contract for only the lost vehicle. 42 According to petitioner, the principle of
mutuality of contracts is violated, at his expense, if respondent is allowed to be excused from performance on the insurance contract
only for one vehicle, but not as to the two others, just because no loss is suffered as to the two. To allow this "would be to place
exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not x x x. " 43
For failure of respondent to file its comment to the petition, we declared respondent to have waived its right to file a comment in our
June 15, 2011 Resolution.44
The lone issue here is whether there is a binding insurance contract between petitioner and respondent.

II
We deny the petition.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.45 Just like any other contract, it requires a cause or consideration. The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy. 46 If not so paid, the policy will lapse and be forfeited
by its own terms.47

The law, however, limits the parties' autonomy as to when payment of premium may be made for the contract to take effect. The
general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding. 48 Section 77 of the
Insurance Code, applicable at the time of the issuance of the policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.

In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an insurance contract, both the insured
and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular peril, who contributes
premiums under the risk of receiving nothing in return in case the contingency does not happen; on the other, there is the insurer, who
undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing mechanism operates under a
system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation to maintain a legal reserve fund
needed to meet its contingent obligations to the public. The premium, therefore, is the elixir vitae  or source of life of the insurance
business:

In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk-
distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From
these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk:
the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that
of parting with the amount required as premium. without receiving anything therefor in case the contingency does not happen. To
ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming
under their policies. It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial
offerings of premiums were to be construed as a legal nexus  between the applicant and the insurer despite an express agreement to
the contrary. For what could prevent the insurance applicant from deliberately or willfully holding back full premium payment and wait
for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds
of the insurance? x x x
Xxx

And so it must be. For it cannot be disputed that premium is the elixir vitae  of the insurance business because by law the insurer must
maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and
full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the
risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are
enabled to offer the assurance of security to the public at favorable rates. x x x 50 (Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on September
28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996. While petitioner
claims that Trans-Pacific was informed that the check was ready for pick-up on September 27, 1996, the notice of the availability of the
check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not be considered in delay in accepting
the check because when it informed petitioner that it will only be able to pick-up the check the next day, petitioner did not protest to
this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the insurance
policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is paid. In UCPB General Insurance
Co., Inc. v. Masagana Telamart, Inc.,51 we said:
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the
period to pay the premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period
provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,  wherein we ruled that Section 77
may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the
time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the
petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years,
the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and
accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid
in full.

Not only that. In Tuscany,  we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying
the motion for reconsideration of its decision:
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of
insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not
expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public
order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments
not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany  has provided a fourth exception to Section
77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has
granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the tem1, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit term.
Xxx

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner, which
had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel
bars it from taking refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.52 (Citations omitted.)

In UCPB General Insurance Co., Inc.,  we summarized the exceptions as follows: (1) in case of life or industrial life policy, whenever the
grace period provision applies, as expressly provided by Section 77 itself; (2) where the insurer acknowledged in the policy or contract
of insurance itself the receipt of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has been made at the time of loss, as
held in Makati Tuscany Condominium Corp. v. Court of Appeals;53(4) where the insurer granted the insured a credit term for the
payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.;  and (5)
where the insurer is in estoppel  as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General Insurance Co., Inc.:  (1) the
policy is not a life or industrial life policy; (2) the policy does not contain an acknowledgment of the receipt of premium but merely a
statement of account on its face;54 and (3) no payment of an installment was made at the time of loss on September 27.
Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended the contract of insurance to be
immediately effective upon issuance, despite non-payment of the premium. This waiver to a pre-payment in full of the premium places
respondent in estoppel
.
We do not agree with petitioner.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany Condominium Corp.  and UCPB
General Insurance Co., Inc.  Both contemplate situations where the insurers have consistently granted the insured a credit extension or
term for the payment of the premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit term in
his favor, or that the grant has been consistent. While there was mention of a credit agreement between Trans-Pacific and respondent,
such arrangement was not proven and was internal between agent and principal.55 Under the principle of relativity of contracts,
contracts bind the parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has
acted with knowledge.56

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective upon issuance despite
nonpayment of the premiums.1âwphi1 Even if there is a waiver of pre-payment of premiums, that in itself does not become an
exception to Section 77, unless the insured clearly gave a credit term or extension. This is the clear import of the fourth exception in
the UCPB General Insurance Co., Inc.  To rule otherwise would render nugatory the requirement in Section 77 that "[n]otwithstanding
any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, x x x." Moreover, the policy itself states:
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the basis of this Contract and deemed
incorporated herein, has applied to the company for the insurance hereinafter contained, subject to the payment of the Premium as
consideration for such insurance.57 (Emphasis supplied.)

The policy states that the insured's application for the insurance is subject to the payment of the premium. 1âwphi1 There is no waiver
of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot be placed in estoppel.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy became effective for lack of
premium payment.

The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the vehicle in the amount of
₱55,620.60 under the principle of unjust enrichment. There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental principles of justice, equity and good
conscience.58 Petitioner cannot claim the full amount of ₱140,893.50, which includes the payment of premiums for the two other
vehicles. These two policies are not affected by our ruling on the policy subject of this case because they were issued as separate and
independent contracts of insurance.59 We, however, find that the award shall earn legal interest of 6% from the time of extra judicial
demand on July 7, 1997.60

WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009 and the Resolution dated
November 24, 2009 are AFFIRMED with the MODIFICATION that respondent should return the amount of P55,620.60 with the legal
interest computed at the rate of 6% per annum  reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total amount
shall earn interest at the rate of 6% per annum  from the finality of this judgment until its full satisfaction.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 181132               June 5, 2009
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA
ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents.
DECISION
NACHURA, J.:
This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution 2 dated January 8,
2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal for lack of jurisdiction.
The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of
insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were
Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter,
thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and
Great Pacific Life Assurance Corporation (Grepalife);5 (3) the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—
were entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released
to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes,
which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance
proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and
Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00
as actual litigation expenses and attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his
legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that
Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and that it released Odessa’s share as she was of age, but withheld the release of
the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or
petition failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to
declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate had been
filed nor had the respective shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary;
that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he
signed it in September 2001; that the case was premature, there being no claim filed by the legitimate family of Loreto; and that the
law on succession does not apply where the designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was
resorted to. Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared
them in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved
first. The trial court ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal – whether the complaint itself was
proper or not – and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of
Articles 7528 and 7729 of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the
policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it
ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to
defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de
Guzman, Insular Life and Grepalife.
SO ORDERED.10

In so ruling, the trial court ratiocinated thus –

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided
for in such special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in
case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under
Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary
(sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included
as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right
to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil.
[sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of
herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of
donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a donation. As
such, the insurance indemnity cannot be considered as an advance of the inheritance which can be subject to collation (Del Val v. Del
Val, 29 Phil. 534). In the case of Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made
the following pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual
and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the
heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by
virtue of Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants
Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken
by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to
said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still remain
valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the
naming of the improper beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of the donor
or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same action (Comment of Edgardo
L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the
action for the declaration for the nullity of a void donation falls within the general jurisdiction of this Court. 11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause
of action. Insular further averred that the proceeds were divided among the three children as the remaining named beneficiaries.
Grepalife, for its part, also alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to
state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular
and Grepalife would be better threshed out during trial.1avvphi1

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are
hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of
the case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby
ordered DISMISSED.
SO ORDERED.14

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto
revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire
proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is
only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified, that the proceeds
should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate children should be
reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by the
Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court
noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of
the case as to the illegitimate children. It further held that the matter of Loreto’s misrepresentation was premature; the appropriate
action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the
decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate
court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial court’s Resolution,
dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had
already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which
were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional
Trial Court engage in the examination and determination of what were the facts and their probative value, or the truth
thereof, when it premised the dismissal on allegations of the defendants in their answer – which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine? 15

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of
action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was
revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and
Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the allegations in the complaint should be
considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been
distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance
with law and jurisprudence.
The petition should be denied.

The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as provided
in Rule 16, Section 1(g), of the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A complaint states a cause of action when it
contains the three (3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant;
and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure to state a cause of action. 17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint.
The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of
action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment
upon the same, in accordance with the prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the
allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related
to the case.18

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they
were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners’ claim is that Eva,
being a concubine of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies,
and that Eva’s children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also
argued that pursuant to Section 12 of the Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former
having brought about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loreto’s illegitimate
children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil
Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states—

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the
beneficiary, if the insured is already deceased, upon the maturation of the policy. 20 The exception to this rule is a situation where the
insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or
indemnity. In such a case, third parties may directly sue and claim from the insurer. 21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof.
Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The
revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment considering that the
designation of the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal proscription exists
in naming as beneficiaries the children of illicit relationships by the insured, 22 the shares of Eva in the insurance proceeds, whether
forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the
exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, 23 or when the designated beneficiary
is disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to the benefit of the estate of the
insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA
dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue
of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place. 25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
 
G.R. No. 119655 May 24, 1996
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M.
RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners,
vs.
COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.
 
BELLOSILLO, J.:p
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No.
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati
City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to
23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the
balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly
referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with
the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed
a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the
claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies
held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be,
an admission of liability on the part of said companies or any of them .1

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the
Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violets and the other
petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus
12% interest per annum, P100,000.00 moral damages, and attorney's fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and
personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until
full payment, and attorney's fees equivalent to 20% of the total amount claimed plus costs of suit. 2
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein
but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full
payment.3

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE
remains liable under the subject fire insurance policy in spite of the failure of petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.4 The consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms. 5
The pertinent provisions in the Policy on premium read —
THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the Company in accordance with Policy
Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring
against Loss or Damage by Fire or Lightning as herein appears, the Property herein described . . .
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has
been fully paid to and duly receipted by the Company  in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall
be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force
provide for the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared,
agreed and warranted that this policy shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged  in a receipt signed by any authorized
official or representative/agent of the Company in such manner as provided herein. (emphasis supplied). 6

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the
balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect
at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides —
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid , except in the case of a life or an
industrial life policy whenever the grace period provision applies (emphasis supplied).

Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has been paid." This leads us to the
manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may
be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not
distinguish the court should neither distinguish assumes that the legislature made no qualification on the use of a general word or
expression. In Escosura v. San Miguel Brewery, Inc.,7 the Court through Mr. Justice Jesus G. Barrera, interpreting the phrase "with
pay" used in connection with leaves of absence with pay granted to employees, ruled —
. . . the legislative practice seems to be that when the intention is to distinguish between full and partial payment,
the modifying term is used . . .
 Citing C.A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of
women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace,
and finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation each
month, which laws simply stated "with pay," the Court concluded that it was undisputed that in all these laws the phrase "with
pay" used without any qualifying adjective meant that the employee was entitled to full compensation during his leave of
absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the
express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co.,
Inc. v. Woodworks, Inc.8 where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial
payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company
commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that
nonpayment of premium produced the cancellation of the insurance contract. Ruling otherwise the Court held —

It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant,
and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the
total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the
insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of
the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount, for
which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon
it, while the obligation of the insured to pay the remainder of the total amount of the premium due became
demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different.
In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an
insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his
policy  . . . is not in force until the premium has been fully paid and duly receipted by the Company  . . .  Resultantly, it is correct to say
that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that
prepayment of the premium in full was a condition precedent to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other
precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing
contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not
so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected
prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals9 the parties mutually agreed that the premiums could be paid in
installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect to
the policy, the Court quoted with approval the Court of Appeals —

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the
parties . . . agreed to make the premiums payable in installments, and there is no pretense that the parties never
envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the
second and third policies being a renewal/replacement for the previous one. And the insured never informed the
insurer that it was terminating the policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance
contract valid and binding without payment of premiums, there is nothing in said section which suggests that the
parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and
binding upon
payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the contract, had
a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial
payments, a result eschewed by basic considerations of fairness and equity . . .

These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the
insurer: impliedly, by suing for the balance of the premium as in Phoenix, and expressly, by agreeing to make premiums payable in
installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench.
Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement
thereon is not in force until the premium has been fully paid to and duly receipted by the Company  . . . and that this policy shall be
deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly
acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment
of partial premium by the assured in this particular instance should not be considered the payment required by the law and the
stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the
full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be
made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional
payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was
paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether
or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as
expressed in the

policy. 10 Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the
insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and
then construe it in favor of the insured. 11 Verily, it is elemental law that the payment of premium is requisite to keep the policy of
insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective.
Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the
part payment bears to the whole
payment.12
Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable. The case
of South Sea Surety and Insurance Company, Inc. v. Court Of Appeals, 13 speaks only of two (2) statutory exceptions to the
requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in
case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when the insurer
makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive
evidence of the premium payment. 14

A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firmat regulim in
casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within
the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid,
and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver
of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk
distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From
these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk:
the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that
of parting with the amount required as premium, without receiving anything therefor in case the contingency does not happen. To
ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming
under their policies. 15 It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial
offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to
the contrary. For what could prevent the insurance applicant from deliberately or wilfully holding back full premium payment and wait
for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds
of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required premium, and when
the risk occurs simply points to the proceeds from where to source the balance? Can an insurance company then exist and survive
upon the payment of 1%, or even 10%, of the premium stipulated in the policy on the basis that, after all, the insurer can deduct from
the proceeds of the insurance should the risk insured against occur?

Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly defined
obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak, "kill the goose
that lays the golden egg." We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly
yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is manifestly on the
side of the insurer. For as long as the current Insurance Code remains unchanged and partial payment of premiums is not mentioned
at all as among the exceptions provided in Sees. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until
premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must
maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and
full satisfaction. 16 It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the
risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are
enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice
of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium
of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the
principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak
havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of
risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem
best upon their obligations not inconsistent with public policy. 17 The validity of these limitations is by law passed upon by the
Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance which insurers intend
to issue or deliver. That the policy contract in the case at bench was approved and allowed issuance simply reaffirms the validity of
such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
 
 
 
 
 \
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-67835 October 12, 1987
MALAYAN INSURANCE CO., INC. (MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J.:
When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber
future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of
smoke, only a gray desolation. The dying embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By such
insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the
house does burn, the insured, while losing his house, wins the wagers. The prize is the recompense to be given by the insurer to make
good the loss the insured has sustained.

It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss.
Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the
reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many times.
In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her
burned property. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at
the time of the loss.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy
No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to
Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. 4
On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But
Adora refused to accept it. 7

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It is
because she was ultimately sustained by the public respondent that the petitioner has come to us for relief.
From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10,
1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was received
by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant petition was
filed with this Court on July 2, 1982. 11

The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which to
appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private
respondents insist that the applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies
like the Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a
signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does
not indicate from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no
explanation has been given.

Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a rubber-
stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-
82." The signature may or may not habe been written by the same person who signed at the bottom of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes
but also because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-
serving; at best, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been
received earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal
department need not detain us here.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission.
The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to
run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition
was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or
also four days from July 2, when the petition was filed.

If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received
notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the
petition eighteen days  late by July 2.

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy.
The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to
appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making
the petition filed on July 2, 1982, nine days late.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled
before the occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.

The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premium
invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung of
P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured
that such payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was
actually made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment had
been made and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the
payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured
property had not been burned, would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and
not on December 24, 1982?

It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so would
have been valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others words, the
policy would have run for only eight months although the premium paid was for one whole year.
It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to
which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its
behalf. It is clearly provided in Section 306 of the Insurance Code that:

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance
shall be demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is
due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself;
such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness
owing to the principal. 15

There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had
elapsed since the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to
Adora at her own riskl as she was bound to first check his authority to receive it. 16
MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the
same time insists that the policy never came into force because the premium had not been paid. One surely, cannot have his cake and
eat it too.

We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy never
became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and
removing it from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening grounds enumerated
in Article 64 (except "nonpayment of premium") provided the cancellation was made in accordance therewith and with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to
the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective
date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer
in violation of this Code.

As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the
named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-
four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on
which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the
insurer will furnish the facts on which the cancellation is based. 20

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it
presented one of its employees, who testified that "the original of the endorsement and credit memo" — presumably meaning the
alleged cancellation — "were sent the assured by mail through our mailing section" 21 However, there is no proof that the notice,
assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to
show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail
through our mailing section." without more. The petitioner then says that its "stand is enervated (sic) by the legal presumption of
regularity and due performance of duty." 22 (not realizing perhaps that "enervated" means "debilitated" not "strengthened").
On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not
have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior
notice, it behooved MICO's to make sure that the cancellation was actually sent to and received by the insured. The presumption cited
is unavailing against the positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she
had received notice of the claimed cancellation.

It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on
December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken
advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy
issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its stipulated
commencement date. After all, agent Adora was very accomodating and had earlier told her "to call him up any time" she was ready
with her payment on the policy earlier issued. She was obviously only reciprocating in kind when she paid her premium for the period
beginning July 22, 1981, and not December 24, 1981.

MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981,
her purpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof
did not legally bind MICO. which had not ratified it. To support this argument, MICO's cites the following exchange:
Q: Now, Madam Witness, on December 25th you made the alleged payment. Now, my question is
that, did it not come to your mind that after the lapse of six (6) months, your policy was cancelled?
A: I have thought of that but the agent told me to call him up at anytime.
Q: So if you thought that your policy was already intended to revive cancelled policy?
A: Misleading, Your Honor.
Hearing Officer: The testimony of witness is that, she thought of that.
Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was
cancelled. Now, when you made the payment of December 24, 1981, your intention was to revive
the policy if it was already cancelled?
A: Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it
was stffl effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was
consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on the original transaction and it
could be, and was, validly received on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the
cancellation either and saw no reason not to accept the said payment.

The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case
of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as
may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case,
the insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and without
unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90 of the Insurance Code.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered
sufficient. Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the
Insurance Commission. It is also worth observing that Pinca's property was not the only building bumed in the fire that razed the
commercial district of Lao-ang, Samar, on January 18, 1982. 27

There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or
indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters.
We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad
faith if not plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the
Insurance Commission and that there was a feeble attempt to show that the notice of denial of the said motion was not received on
June 13, 1982, to further hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18, 1982.
We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had no knowledge, and the curious
fact that although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on
February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982. These
circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona
fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981,
are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 120959 November 14, 1996
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
YIP WAI MING, accused-appellant.
 
MELO, J.:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to Manila on vacation on July 10, 1993. The
two were engaged to be married. Hardly a day had passed when Lam Po Chun was brutally beaten up and strangled to death in their
hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro Manila with Filipino welcomers while Lam Po
Chun was left in the hotel room allegedly because she had a headache and was not feeling well enough to do the sights.
For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which averred :

That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously with intent to kill with treachery and evident premeditation, did then and there attack,
assault and use personal violence upon one Lam Po Chun by then and there mauling and strangling the latter,
thereby inflicting upon her mortal and fatal wounds which were the direct and immediate cause of her death
thereafter.

On May 15, 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial Region stationed in Manila and presided over by
the Honorable Lolita O. Gal-lang rendered a decision in essence finding that Yip Wai Ming killed his fiancee before he left for the Metro
Manila tour. Disposed thus the trial court:

WHEREFORE, in view of the forgoing established evidence, judgment is hereby rendered convicting the accused Yip
Wai Ming beyond reasonable doubt of the crime of Murder as charged in the information and as defined in Article
248, paragraph 5 of the Revised Penal Code, and in accordance therewith the aggravating circumstance of evident
premeditation which attended the commission of the offense, the said accused Yip Wai Ming is hereby sentenced to
suffer the penalty of Reclusion Perpetua  with all the accessory penalties provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong the death indemnity for
damages at Fifty Thousand (P50,000.00) Pesos; Moral and compensatory damages of Fifty Thousand (P50,000.00)
Pesos each or a total of One Hundred Thousand Pesos (P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of the period under which he was under detention, in
accordance with the rules governing convicted prisoners.
SO ORDERED.
(p. 69, Rollo.)
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the killing is circumstantial. The key issue in the
instant appeal is, therefore, whether or not the circumstantial evidence linking accused-appellant to the killing is sufficient to sustain a
judgment of conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of accused-appellant's guilt beyond reasonable doubt is summarized
in the Solicitor-General's brief as follows :

On or about 7 o'clock in the evening of July 10, 1993, appellant and his fiancee Lam Po Chun who are both
Hongkong nationals, checked in at Park Hotel located at No. 1032-34 Belen St., Paco, Manila. They were billeted at
Room 210. Angel Gonzaga, the roomboy on duty, assisted the couple in going up to their room located at the second
floor of the hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September 1, 1993). When they reached Room 210,
appellant got the key from Angel Gonzaga and informed the latter that they do not need any room service,
particularly the bringing of foods and other orders to their room (pp. 67-69, tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went down to the lobby of the hotel. Appellant asked
the front desk receptionist on duty to call a certain Gwen delos Santos and to instruct her to pick them up the
following day, July 11, 1993, a Sunday at 10 o' clock in the morning (pp. 21-25, tsn, September 8, 1993).
At about past 8 o'clock in the same evening of July 10, 1993, Cariza Destresa, occupant of Room 211 which is
adjacent to Room 210, heard a noise which sounds like a heated argument between a man and a woman coming
from the room occupied by appellant and Lam Po Chun. The heated discussions lasted for thirty (30) minutes and
thereafter subsided.

In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destreza again heard a banging
which sounds like somebody was thrown and stomped on the floor inside Room 210. Cariza, who became curious,
went near the wall dividing her room and Room 210. She heard a cry of a woman as if she cannot breathe (pp. 23-
24, tsn, August 30, 1993).
At about 10 o'clock a.m., Gwen delos Santos, together with two lady companions, arrived at the lobby of the Park
Hotel. The receptionist informed appellant by telephone of her arrival. In response, appellant came down without his
fiancee Lam Po Chun. After a while, he together with Gwen delos Santos and the latter's companions, left the hotel.
Before leaving, he gave instruction to the front desk receptionist not to disturb his fiancee at Room 210. He also
ordered not to accept any telephone calls, no room cleaning and no room service (pp. 37- 43, tsn, October 18,
1993).

When appellant left, the front desk receptionist, Enriquieta Patria, noticed him to be in a hurry, perspiring and
looking very scared (p. 32, tsn, September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the hotel until his return at 11 o'clock in the evening,
he did not call his fiancee Lam Po Chun to verify her physical condition (p. 44 tsn, October 18, 1993, p. 18, tsn,
November 23, 1993).

When appellant arrived at 11 o'clock p.m. on that day, he asked the receptionist for the key of his room. Then
together with Fortunato Villa, the roomboy, proceeded to Room 210. When the lock was opened and the door was
pushed, Lam Po Chun was found dead lying face down on the bed covered with a blanket. Appellant removed the
 blanket and pretended to exclaim "My God, she is dead" but did not even embrace his fiancee. Instead, appellant
asked the room boy to go down the hotel to inform the front desk, the security guard and other hotel employees to
call the police (pp. 8-27, tsn, October 18, 1993).
When the police arrived, they conducted an examination of the condition of the doors and windows of the room as
well as the body of the victim and the other surroundings. They found no signs of forcible entry and they observed
that no one can enter from the outside except the one who has the key. The police also saw the victim wrapped in a
colored blanket lying face down. When they removed the blanket and tried to change the position of her body, the
latter was already in state of rigor mortis, which indicates that the victim has been dead for ten (10) to twelve (12)
hours. The police calculated that Lam Po Chun must have died between 9 to 10 in the morning of July 11, 1993 (pp.
2-29), tsn, September 22, 1993).

Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the body of the victim. His
examination (Exh. V) revealed that the cause of death was "asphyxia by strangulation." Dr. Lagonera explained that
asphyxia is caused by lack of oxygen entering the body when the entrance of air going to the respiratory system is
blocked (pp. 6-19, tsn, December 14, 1993).

Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was insured with the Insurance
Company of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The premium paid for the
insurance was more than the monthly salary of the deceased as an insurance underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was charged before the Regional Trial Court in Manila for
the crime of murder committed against the person of Lam Po Chun.
(pp. 3-7, Appellee' Brief, ff. p. 176, Rollo.)

In his brief, accused-appellant offers explanatory facts and argues that the findings of fact of the trial court are based mainly on the
prosecution evidence displaying bias against accused-appellant. He contends that the court made unwarranted and unfounded
conclusions on the basis of self-contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a customer relations officer of Well Motors Company in Kowloon,
Hongkong. He met Lam Po Chun at a party in 1991. Both were sportsminded and after a short courtship, the two began to have a
relationship, living together in the same apartment. The two toured China and Macao together in 1992. In April, 1993 the two decided
to get married. In May 1993, they registered with the Hongkong Marriage Registry. The wedding was set for August 29, 1993.
An office-mate of accused-appellant named Tessie "Amay" Ticar encouraged him and Lam Po Chun to tour the Philippines in
celebration of their engagement. After finishing the travel arrangements, the two were given by Ticar the names (Toots, Monique, and
Gwen) of her cousins in Manila and their telephone number. Photos of their Manila contacts were shown to them. In addition to his
Citibank credit card, accused-appellant brought P24,000.00 secured at a Hongkong money exchange and HK$4,000.00. Lam Po Chun
had HK$3,000.00.

The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific Flight CX 903. They arrived at Park Hotel around
7 P.M. From their hotel room, accused-appellant called their contact, Gwen delos Santos, by telephone informing her of their arrival.
The two ate outside at McDonald's restaurant.
Accused-appellant woke up the following morning — Sunday, July 11, 1993 — at around 8 o'clock. After the usual amenities, including
a shower, the two had breakfast in the hotel restaurant, then they went back to their room. At around 10 o'clock that same morning,
accused-appellant received a phone call from the hotel staff telling him that their visitors had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos Santos sisters, Gwen and Monique, and their
mother. A few minutes later, Lom Po Chun joined them. Two bottles of perfume were given to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay behind as it was very hot and she had a
headache. She excused herself and went up to her room, followed later by accused-appellant to get another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at the front desk to give Lam Po Chun some medicine for
headache and, as much as possible, not to disturb her.

Accused-appellant, Gwen, Monique, and the sisters' mother took a taxicab to Landmark Department Store where they window
shopped. Accused-appellant states that from a telephone booth in the store, he called Lam Po Chun but no one answered his call. From
Landmark where they had lunch, the four went to Shoemart Department Store in Makati. Accused-appellant bought a Giordano T-shirt
at Landmark and chocolates at Shoemart. Gwen delos Santos brought the group to the house of her aunt, Edna Bayona, at Roces,
Quezon City. From Roces St., Gwen delos Santos brought the group to her home in Balut, Tondo. Using the delos Santos telephone,
accused-appellant called his office in Hongkong. The PLDT receipt showed that the call was made at 6:44 P.M. on July 11, 1993.
Accused-appellant claims that, afterwards, he called up Lam Po Chun at their hotel room but the phone just kept on ringing with
nobody answering it. The group had dinner at the delos Santos house in Tondo. After dinner, Gwen delos Santos' brother and sister-in-
law arrived. They insisted in bringing their guest to a restaurant near Manila Bay for coffee, but it was full so they proceeded to Tia
Maria, a Mexican restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there at around 10:30 PM. Before the delos Santos
group left, there was an agreement that the following morning accused-appellant and Lam Po Chun would join them in another city
tour.

After accused-appellant's knocks at the door of their room remained unanswered, he went back to the hotel front desk and asked the
hotel staff to open the door for him. The room was dark. Accused-appellant put on the light switch. He wanted to give the roomboy
who accompanied him a P20 or P30 tip but his smallest bill was P100. He went to a side table to get some smaller change. It was then
when he noticed the disordered room, a glass case and wallet on the floor, and Lam Po Chun lying face down on one of the beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did not respond, he lifted up her face, moving her
body sidewards. He saw blood. Shocked, he shouted at the roomboy to call a doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she was dead. The foreigner placed his arms around
accused-appellant who was slumped on the floor and motioned for him to leave the room. Accused-appellant refused, but he was
made to move out and to go to the lobby, at which place, dazed and crying, he called up Gwen delos Santos to inform her of what
happened. Gwen could not believe what she heard, but she assured accused-appellant that they were going to the hotel. Policemen
then arrived.
In the instant appeal, accused-appellant, through his new counsel, former Justice Ramon C. Fernandez, assigns the following alleged
errors:
I
 THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT WAS ARRESTED WITHOUT WARRANT,
WAS TORTURED AND WAS NOT INFORMED THAT HE HAD THE RIGHT TO REMAIN SILENT AND BE ASSISTED BY
INDEPENDENT AND COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE VICTIM APPLE INSURED AND
LATER KILLED HER FOR THE INSURANCE PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT COMMITTED A CRIME OF MURDER
AGGRAVATED BY EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF OFFICER ALEJANDRO YANQUILING, JR.
V
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA DESTREZA WHO INCURRED SERIOUS
CONTRADICTIONS ON MATERIAL POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER PROSECUTION WITNESSES THAT
CONTRADICTED EACH OTHER ON MATERIAL POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE WITNESSES OF THE ACCUSED ARE
INCREDIBLE.
VIII
THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS ESTABLISHED THE GUILT OF THE ACCUSED-
APPELLANT BY PROOF BEYOND REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-APPELLANT OF THE CRIME CHARGED
IN THE INFORMATION.
(pp. 80-82, Rollo.)
The trial court, in arriving at its conclusions, took the various facts presented by the prosecution, tied them up together like parts of a
jig-saw puzzle, and came up with a complete picture of circumstantial evidence depicting not only the commission of the crime itself
but also the motive behind it.
Our review of the record, however, discloses that certain key elements, without which the picture of the crime would be faulty and
unsound, are not based on reliable evidence. They appear to be mere surmises and assumptions rather than hard facts or well-
grounded conclusions.

A key element in the web of circumstantial evidence is motive which the prosecution tried to establish. Accused-appellant and Lam Po
Chun were engaged to be married. They had toured China and Macao together. They were living together in one apartment. They
were registered with the Hongkong Marriage Registry in May 1993. Marriage date was set for August 29, 1993. This date was only a
month and a half away from the date of death of Lam Po Chun. In the absence of direct evidence indubitably showing that accused-
appellant was the perpetrator of the killing, motive becomes important. The theory developed by the prosecution was not only of a
cold-blooded crime but a well-planned one, including its timing up to the half hour. It is not the kind of crime that a man would commit
against his wife-to-be unless a strong motive for it existed.

The trial court would have been justified in finding that there was evident premeditation of murder if the story is proved that Lam Po
Chun insured herself for the amounts of US $498,750.00 and US $249,375.00 naming accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy for a big amount in US dollars and indicated accused-
appellant as the beneficiary. The prosecution presented Exhibit "X", a mere xerox copy of a document captioned "Proposal for Life
Insurance" as proof the alleged insurance. It is not a certified copy, nor was the original first identified.

The authenticity of the document has thus not been duly established. Exhibit "X" was secured in Hongkong when Lam Chi Keung, the
brother of the victim, learned that his sister was murdered in Manila. It is not shown how and from whom the information about any
alleged insurance having been secured came. There is no signature indicating that the victim herself applied for the insurance. There is
no marking in Exhibit "X" of any entry which purports to be the victim's signature. There is a signature of Apple Lam which is most
unusual for an insurance application because the victim's name is Lam Po Chun. To be sure nobody insures himself or herself under a
nickname. The entries in the form are in block letters uniformly written by one hand. Below the printed name "Lam Po Chun" are
Chinese characters which presumably are the Chinese translation of her name. Nobody was presented to identify the author of the
"block" handwriting. Neither the prosecution nor the trial court made any comparisons, such as the signature of Lam Po Chun on her
passport (Exh. "C"), with her purported signature or any other entry in the form.

It needs not much emphasis to say that an application form does not prove that insurance was secured. Anybody can get an
application form for insurance, fill it up at home before filing it with the insurance company. In fact, the very first sentence of the form
states that it merely "forms the basis of a contract between you and NZI Life." There was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-appellant. After all the trouble
that her brother went through to gather evidence to pin down accused-appellant, the fact that all he could come up with is an unsigned
insurance application form shows there was no insurance money forthcoming for accused-appellant if Lam Po Chun died. There is no
proof that the insurance company approved the proposal, no proof that any premium payments were made, and no proof from the
record of exhibits as to the date it was accomplished. It appearing that no insurance was issued to Lam Po Chun with accused-
appellant as the beneficiary, the motive capitalized upon by the trial court vanishes. Thus, the picture changes to one of the alleged
perpetrator killing his fiancee under cold-blooded circumstances for nothing.

There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the National insurance Company.
Why then should she insure her life with the New Zealand Insurance Company? Lam's monthly salary was only HK $5,000.00. The
premiums for the insurance were HK $5,400.00 or US $702.00 per month. Why should Lam insure herself with the monthly premiums
exceeding her monthly salary? And why should any insurance company approve insurance, the premiums of which the supposed
insured obviously con not afford to pay, in the absence of any showing that somebody else is paying for said premiums. It is not even
indicated whether or not there are rules in Hongkong allowing a big amount of insurance to be secured where the beneficiary is not a
spouse, a parent, a sibling, a child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court related to the matter of insurance. At page 33 of the decision, the trial
court stated:
 Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and told Yip and Lam Po Chun
should be married and there must be an insurance for her life . . . .
(p. 33, RTC Decision; p. 66, Rollo.)
The source of the above finding is stated by the court as "tsn hearing Sept. 22, 1992." But accused-appellant Yip Wai Ming did not
testify on September 22, 1992. The entire 112 pages of the testimony on that date came from SP02 Yanquiling. The next hearing was
on September 29, 1993. All the 100 pages of the testimony on that date came from Yanquiling. The next hearing on October 13, 1993
resulted in 105 pages of testimony, also from Yanquiling. This Court is at a complete loss as to the reason of the trial court sourcing its
statement to accused-appellant's alleged testimony.

Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged advice of Andy Kwong. It is usually the man who
insures himself with the wife or future wife or beneficiary instead of the other way around. Why should Lam Po Chun, with her
relatively small salary which is not even enough to pay for the monthly premiums, insure herself for such a big amount. This is another
reason why doubts arise as to the truth of the insurance angle.

Another key factor which we believe was not satisfactorily established is the time of death. This element is material because from 10
A.M. of July 11, 1993 up to the time the body was discovered late that evening, accused-appellant was in the company of Gwen delos
Santos, her sister Monique, and their mother, touring Metro Manila and going from place to place. This much is established.
To go around this problem of accused-appellant being away from the scene of the crime during the above mentioned hours, the
prosecution introduced testimonial evidence as to the probable time of death, always placing it within the narrow 45-minute period
between 9:15 and 10 A.M. of July 11, 1993, the time when Cariza Destresa, the occupant of the adjoining room, heard banging sounds
coming from the room of accused-appellant, and the time accused-appellant left with his Filipino friends.

The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen delos Santos who never saw the couple
before was categorical in declaring that she met both of them at the lobby before the group left for the tour (tsn, Feb. 14, 1994, p. 64;
p. 20, RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be excused because of a headache. In fact, delos Santos was able to
identify Lam Po Chun from pictures shown during the trial. She could not have done this unless she really saw and met the victim at
the hotel lobby at around 10 A.M. of July 11, 1993.

The prosecution introduced an expert in the person of Dr. Manuel Lagonera to establish the probable time of death. Dr. Lagonera,
medico-legal officer of the PNP Western Police District, after extensive questioning on his qualifications as on expert witness, what he
discovered as the cause of death (strangulation), the contents of the deceased's stomach, injuries sustained, and the condition of the
cadaver, was asked to establish the time of death, to wit:
Q. If we use thirty six (36) hours to forty eight (48) hours, will you agree with me that it is possible
that the victim was killed in the morning of July 10, 1993?
A. I cannot, I have no basis whether the victim was killed in he morning or in the afternoon
(tsn, Dec. 14, 1993, p. 31.)
Dr. Lagonera's testimony on the number of assailants was similar. He had no basis for an answer, thusly:
ATTY. PASCUA:
Q. Would you be able to determine also based on your findings your autopsy whether the
assailants, the number of the assailants?
WITNESS:
A. I have no basis, Sir.
ATTY. PASCUA:
Q. You have no basis. And would it also have been possible, that there were more than one
assailants?
WITNESS:
A. It is possible also.
ATTY. PASCUA:
Q. It is possible also, who simultaneously inflicted the wounds of the victim?
WITNESS:
A. It is possible.
ATTY. PASCUA:
Q. Based also on your autopsy report, were there signs that the victim put a struggle?
WITNESS:
A. There were no injuries in the hand or forearms or upper arms of the victim. So, there were no
sign of struggle on the part of the victim.
ATTY. PASCUA:
Q. And your basis in saying that there was no struggle on the part of the victim was that there
were no apparent or seen injuries in the hands of the victim?
WITNESS:
A. Yes, sir.
ATTY. PASCUA:
Q. But you did not examine the fingernails?
WITNESS:
A. No, I did not examine, Sir.
ATTY. PASCUA:
Q. Were there also injuries at the back portion of the head of the victim?
WITNESS:
A. No injuries at the back, all in front.
ATTY. PASCUA:
Q. All in front, meaning in terms of probability and based on your professional opinion, the attack
would have come from a frontal attack or the attacker would have come from behind to inflict the
frontal injuries of the victim?
WITNESS:
A. It can be the attack coming from behind in the front or both, sir.
ATTY. PASCUA:
Q. But in your professional opinion or in your experience, based on the injuries sustained including
the location of the injuries on the body of the victim, would it be more probable that the attack
came from in front of the victim?
 WITNESS:
A. Yes, it is possible, Sir.
(tsn, Dec. 14, 1993, pp. 60-63.)
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993, p. 108). It is undisputed that at around 8:30 A.M.
of July 11, 1993 accused-appellant and Lam Po Chun took breakfast together at the hotel restaurant. She could not have been killed on
July 10, 1993. The autopsy conducted by Dr. Lagonera and the testimony of accused-appellant coincided insofar as the food taken at
breakfast is concerned. The couple ate eggs, bacon, and toasted bread. But the doctor was insistent that the death occurred the
previous day.

Where a medico-legal expert of the police department could not, with any measure of preciseness, fix the time of death, the police
investigator was bold and daring enough to establish it. Surprisingly, the trial court accepted this kind of evidence. SP02 Alejandro
Yanquiling testified that he arrived at the Park Hotel at about 11:25 o'clock on the evening of July 11, 1993 to conduct the investigation
of the crime. At the time, the victim showed signs of rigor mortis, stiffening of the muscle joints, with liquid and blood oozing from the
nose and mouth. On the basis of his observations, he declared that the victim had been dead for 10 to 12 hours.
The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35 o'clock in the evening, it is safe to conclude that
she was killed between 9 and 10 o'clock on the morning of July 11, 1993. The mathematics of the trial court is faulty. Twelve hours
before 11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later — 1.35 P.M. Since accused-appellant was
unquestionably with Gwen delos Santos and her group touring and shopping in megamalls between 10 A.M. and 11:35 P.M., the
assailant or assailants must have been other people who were able to gain entry into the hotel room at that time.
The trial court stated that there was no sign of any forcible entry into the room, no broken locks, windows, etc. The answer is simple.
Somebody could have knocked on the door and Lam Po Chun could have opened it thinking they were hotel staff. Unfortunately,
Detective Yanquiling was so sure of himself that after pinpointing accused-appellant as the culprit, he did not follow any other leads. In
the course of his interviews with witnesses, his purpose was simply to nail down one suspect. His investigation was angled towards
pinning down Yip Wai Ming. In fact, Gwen delos Santos testified that Yanquiling talked to her over the telephone almost daily urging
her to change her testimony.

Officer Yanquiling testified on cross-examination that he did not apply any mode of scientific investigation. If a medico-legal expert of
the same police department who conducted an autopsy had no basis for giving the probable time of death, the police officer who
merely looked at the body and saw the blood oozing out of the victim's nose and mouth must have simply guessed such time, plucking
it out of thin air. The trial court accepted the erroneous timing, conveniently placing it where a finding of guilt would follow as a
consequence.
Before a conviction can be had upon circumstantial evidence, the circumstances should constitute an unbroken chain which leads to
but one fair and reasonable conclusion, which points to the accused, to the exclusion of all others, of the guilty person (U.S. vs. Villos,
6 Phil. 510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis consistent with innocence must be excluded if guilt
beyond reasonable doubt is based on circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17 Phil. 209
[1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must be consistent with the hypothesis that the accused is guilty, and
at the same time inconsistent with the hypothesis that he is innocent, and with every other rational hypothesis except that of guilt
(People vs. Andia, 2 SCRA 423 [1961]).
The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond reasonable doubt have not been met in the case at
bar.

The chain of circumstances is not unbroken. The most vital circumstantial evidence in this case is that which proves that accused-
appellant killed the victim so he could gain from the insurance proceeds on the life of the victim. Another vital circumstance is the time
of death precisely between 9:15 and 10 A.M. Both were not satisfactorily established by the prosecution. Where the weakest link in the
chain of evidence is at the same time the most vital circumstance, there can be no other alternative but to acquit the accused (People
vs. Maaborang, 9 SCRA 108 [1963]).
Since the sentence of conviction is based on the crime having been committed within a short time frame, accused-appellant cannot be
convicted on the strength of circumstantial evidence if doubts are entertained as to where he was at that particular time and
reasonable conclusions can be had that other culprits could have entered the room after accused-appellant left with the delos Santos
family. Other people could have killed the victim.
The trial court also relied heavily on the testimony of Cariza Destresa, a 19-year old cultural dancer occupying with her Australian
boyfriend Peter Humphrey, the adjoining Room 211. Destresa testified that while she was in Room 211 at about 9:15 o'clock on the
morning of July 11, 1993, she heard banging sounds in Room 210, as if somebody was being thrown, and there was stomping on the
floor. The banging sounds lasted about thirty (30) minutes, an improbably long time to kill a woman. Destresa stated that she placed
her ear near the wall and heard the cry of a woman having difficulty in breathing.
The witness heard the banging sounds between 9:15 and 9:45 A.M. of July 11, 1993, not before or after. The unreliability of Destresa's
memory as to dates and time is shown by the fact that when asked as to the date of her Australian boyfriend's arrival in the
Philippines, she stated, "July 29, 1993." Pressed by the prosecuting attorney if she was sure of said date, she changed this to "July 16,
1993." Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16, 1993?
A. I can't exactly remember the date of the arrival of my boyfriend here in the Philippines because
his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p. 10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter Humphrey was still in Australia on July 11, 1993, how could he
occupy with his girlfriend the next door room, Room 211, on that date at the Park Hotel. If Destresa cannot remember the date her
Australian boyfriend arrived, how could the trial court rely on her memory as to the 30-minute interval from 9:15 A.M. to 9:45 A.M. of
July 11, 1993 when the alleged murder took place. Asked what time on July 13, 1993 she gave her sworn statement to the police,
Destresa answered, "I am not sure, may be it was in the early morning between 2 or 3 o'clock of that day, Sir." Destresa was asked
how she could be certain of July 13, 1993 as the date of her sworn statement. She answered that this was the day her boyfriend left
for Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the same day, Destresa states that she stayed in Room 211 for 3
months. She later changed her mind and said she stayed there only when Peter Humphrey was in the Philippines. According to the
witness, Peter left on May 29, 1993; arrived in June and July; left in June; arrived in July; left on July 13, 1993. Destresa was confused
and evasive not only as to dates, but also as to her employment, stating at the start of her testimony that she was jobless, but later
declaring that she was a dancer with the "Rampage" group and performed in Dubai.

Destresa testified at one point that she heard an argument between a man and a woman in a dialect she could not understand. This
was supposed to be on the evening of July 11, 1993. At that time, the victim had long been dead. Destresa gave various contradictory
statements in her August 30, 1993; August 31, 1993; and September 1, 1993 testimony. To our mind, the trial court gravely erred in
relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the killing. There was no warrant of arrest. Officer Yanquiling testified
that there was no warrant and he arrested the accused-appellant based on "series of circumstantial evidence." He had no personal
knowledge of Yip Wai Ming having committed the crime. Accused-appellant stated that five police officers at the police station beat him
up. They asked him to undress, forced him to lie down on a bench, sat on his stomach, placed a handkerchief over his face, and
poured water and beer over his face. When he could no longer bear the pain, he admitted the crime charged. participated in a re-
enactment, and signed an extrajudicial statement. All the while, he was not informed of his right to remain silent nor did he have
counsel of his choice to assist him in confessing the crime.

The custodial interrogation of accused-appellant was violative of Section 12, Article III of the Constitution. The Constitution provides
that "(3) Any confession or admission obtained in violation of this section or Section 17 hereof shall be inadmissible against him."
Section 17, Article III provides: "No person shell be compelled to be a witness against himself." Any confession, including a re-
enactment without admonition of the right to silence and to counsel, and without counsel chosen by the accused is inadmissible in
evidence (People vs. Duero, 104 SCRA 379 [1981]).

This Court notes that accused-appellant did not file any complaint or charges against the police officers who allegedly tortured him. But
he was a foreign national, a tourist charged with a serious crime, finding himself in strange surroundings. In Hongkong, there would
have been family members and friends who could have given him moral support. He would have known that he was being questioned
in his own country, being investigated under the laws of that country. The degree of intimidation needed to coerce a person to confess
to the commission of a crime he did not commit would be much less if he is in a strange land. Accused-appellant states that his lawyers
told him not to file any charges against the policemen. He followed their advice, obviously not wanting to get into more trouble.

This Court has carefully gone over the record of this case. We simply cannot state that the circumstantial evidence is in its entirety
credible and unbroken and that the finding of guilt excludes any other possibility that the accused-appellant may be innocent.
Most of the circumstantial evidence in this case came from the investigation conducted by Officer Alejandro Yanquiling or from the
prodding by him of various witnesses. The desire of a police officer to solve a high profile crime which could mean a promotion or
additional medals and commendations is admirable. However, an investigator must pursue various leads and hypotheses instead of
singlemindedly pursuing one suspect and limiting his investigation to that one possibility, excluding various other probabilities. The
killing of a tourist is a blot on the peace and order situation in the Philippines and must be solved. Still, concentrating on pinning down
an alien companion of the victim and not pursuing the possibilities that other persons could have killed the victim for her money and
valuables does not speak well of our crime detection system. It is not enough to solve a crime. The truth is more important and justice
must be rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai Ming is acquitted of the
charge of murder on grounds of reasonable doubt and his immediate release from custody is ordered unless he is being held on other
legal grounds.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Francisco and Panganiban, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.
58), because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended
decision of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the
defendants (herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein
private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum
of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the
Pacific Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data
on the application form which was signed by private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75
going over to the Company, but he reatined the amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific
Life. Upon the payment of the insurance premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment plan is not available for
minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer
is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the
20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for
such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia.
Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action
for the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier refered to
against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life
insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions
state that:
A. If the Company or its agent, shan have received the premium deposit ... and the insurance application, ON or
PRIOR to the date of medical examination ... said insurance shan be in force and in effect from the date of such
medical examination, for such period as is covered by the deposit ..., PROVIDED the company shall be satisfied that
on said date the applicant was insurable on standard rates under its rule  for the amount of insurance and the kind of
policy requested in the application.
D. If the Company does not accept the application  on standard rate for the amount of insurance and/or the kind of
policy requested in the application but issue, or offers to issue a policy for a different plan and/or amount ..., the
insurance shall not be in force and in effect until the applicant shall have accepted the policy  as issued or offered by
the Company and shall have paid the full premium thereof. If the applicant does not accept the policy, the deposit
shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the
application the insurance applied for shall not have been in force at any time and the sum paid be returned to the
applicant upon the surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a provisional or
temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a
different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
reftmded; and (3) that if the applicant is not ble according to the standard rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of
the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application
subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo
Hing, the binding deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this
Court, where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk
and a receipt is given by the agent. The acceptance is merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life
Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the
insurance application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than
seven years of age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of
the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected
between thenl Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented
to by both parties either in person or by their agents ... The contract, to be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to him the rejection of
the insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-
14). In this first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondet,
being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life
insurance applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance
that Pacific Life will approve the recommendation of Mondragon for the acceptance and approval of the application in question along
with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having an insurable
interest on the life of his one-year old daughter, aside from being an insurance agent and an offense associate of petitioner
Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could
not pretend ignorance of the Company's rejection of the 20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin
who later came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of
appellant Mondragon reiterating the desire for applicant's father to have the application considered as one for a 20-
year endowment plan was ever duly communicated to Ngo; Hing, father of the minor applicant. I am not quite
conninced that this was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who wrote
this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-
M), specifically admits that said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan
be placed on the 20-year endowment plan." Under these circumstances, it is inconceivable that the progress in the
processing of the application was not brought home to his knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment plan otherwise Mondragon would not have asserted that it was
Ngo Hing himself who insisted on the application as originally filed, thereby implictly declining the offer to consider
the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing
should only be presumed to know what kind of policies are available in the company for minors below 7 years old.
What he and Mondragon were apparently trying to do in the premises was merely to prod the company into going
into the business of issuing endowment policies for minors just as other insurance companies allegedly do. Until such
a definite policy is however, adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at all. (Amended Decision, Rollo,
pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had deliberately
concealed the state of health and piysical condition of his daughter Helen Go. Wher private regpondeit supplied the required essential
data for the insurance application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld
the fact materal to the risk to be assumed by the insurance compary. As an insurance agent of Pacific Life, he ought to know, as he
surely must have known. his duty and responsibility to such a material fact. Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same and would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but
equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate
that which a partY knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930;
Satumino vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu
D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the
aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against
private respondent.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.
Fernandez, J., took no part.
Philamcare Health Systems, Inc. v. Court of Appeals
G.R. No. 125678, 18 March 2002, 379 SCRA 356
FACTS:
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems, Inc. He was asked if he was ever
treated for high blood, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was
approved and it was effective for one year. His coverage was subsequently renewed twice for one year each. While the coverage was
still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the hospitalization amounted to
P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for the latter to pay the hospitalization cost. Philamcare
refused to pay as it alleged that Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up
paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for damages. Philamcare alleged that the
health coverage is not an insurance contract; that the concealment made by Ernani voided the agreement.
ISSUE:
Whether or not Philamcare can avoid the health coverage agreement.
HELD:
No.
The health coverage agreement (health care agreement) entered upon by Ernani with Philamcare is a non-life insurance contract and is
covered by the Insurance Law. It is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon
under the contract. There is no concealment on the part of Ernani. He answered the question with good faith. He was not a medical
doctor hence his statement in answering the question asked of him when he was applying is an opinion rather than a fact. Answers
made in good faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the necessary steps to void the health coverage agreement
prior to the filing of the suit by Julita. Philamcare never gave notice to Julita of the fact that they are voiding the agreement. Therefore,
Philamcare should pay the expenses paid by Julita.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 34774           September 21, 1931
EL ORIENTE FABRICA DE TABACOS, INC., plaintiff-appellant,
vs.
JUAN POSADAS, Collector of Internal Revenue, defendant-appellee.
Gibbs and McDonough and Roman Ozaeta for appellant.
Attorney-General Jaranilla for appellee.
MALCOLM, J.:
The issue in this case is whether the proceeds of insurance taken by a corporation on the life of an important official to indemnify it
against loss in case of his death, are taxable as income under the Philippine Income Tax Law.
The parties submitted the case to the Court of First Instance of Manila for decision upon the following agreed statement of facts:

1. That the plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippine
Islands, having its principal office at No. 732 Calle Evangelista, Manila, P.I.; and that the defendant is the duly appointed,
qualified and acting Collector of Internal Revenue of the Philippine Islands.
2. That on March 18, 1925, plaintiff, in order to protect itself against the loss that it might suffer by reason of the death of its
manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the
Philippine Islands, and whose death would be a serious loss to the plaintiff, procured from the Manufacturers Life Insurance
Co., of Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of
$50,000, United States currency.
3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy on the life of
its said manager.
4. That during the time the life insurance policy hereinbefore referred to was in force and effect plaintiff paid from its funds all
the insurance premiums due thereon.
5. That the plaintiff charged as expenses of its business all the said premiums and deducted the same from its gross incomes
as reported in its annual income tax returns, which deductions were allowed by the defendant upon a showing made by the
plaintiff that such premiums were legitimate expenses of its (plaintiff's) business.
6. That the said A. Velhagen, the insured, had no interest or participation in the proceeds of said life insurance policy.
7. That upon the death of said A. Velhagen in the year 1929, the plaintiff received all the proceeds of the said life insurance
policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88.
8. That over the protest of the plaintiff, which claimed exemption under section 4 of the Income Tax Law, the defendant
Collector of Internal Revenue assessed and levied the sum of P3,148.74 as income tax on the proceeds of the insurance policy
mentioned in the preceding paragraph, which tax the plaintiff paid under instant protest on July 2, 1930; and that defendant
overruled said protest on July 9, 1930.

Thereupon, a decision was handed down which absolved the defendant from the complaint, with costs against the plaintiff. From this
judgment, the plaintiff appealed, and its counsel now allege that:
1. That trial court erred in holding that section 4 of the Income Tax Law (Act No. 2833) is not applicable to the present case.
2. The trial court erred in reading into the law certain exceptions and distinctions not warranted by its clear and unequivocal
provisions.
3. The trial court erred in assuming that the proceeds of the life insurance policy in question represented a net profit to the
plaintiff when, as a matter of fact, it merely represented an indemnity, for the loss suffered by it thru the death of its
manager, the insured.
4. The trial court erred in refusing to hold that the proceeds of the life insurance policy in question is not taxable income, and
in absolving the defendant from the complaint.

The Income Tax Law for the Philippines is Act No. 2833, as amended. It is divided into four chapters: Chapter I On Individuals, Chapter
II On Corporations, Chapter III General Administrative Provisions, and Chapter IV General Provisions. In chapter I On Individuals, is to
be found section 4 which provides that, "The following incomes shall be exempt from the provisions of this law: ( a) The proceeds of life
insurance policies paid to beneficiaries upon the death of the insured ... ." Section 10, as amended, in Chapter II On Corporations,
provides that, There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding
calendar year from all sources by every corporation ... a tax of three per centum upon such income ... ." Section 11 in the same
chapter, provides the exemptions under the law, but neither here nor in any other section is reference made to the provisions of
section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the
law. It is certain that the proceeds of life insurance policies are exempt. It is not so certain that the proceeds of life insurance policies
paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may be said that the law is indefinite
in phraseology and does not permit us unequivocally to hold that the proceeds of life insurance policies received by corporations
constitute income which is taxable.

The situation will be better elucidated by a brief reference to laws on the same subject in the United States. The Income Tax Law of
1916 extended to the Philippine Legislature, when it came to enact Act No. 2833, to copy the American statute. Subsequently, the
Congress of the United States enacted its Income Tax Law of 1919, in which certain doubtful subjects were clarified. Thus, as to the
point before us, it was made clear, when not only in the part of the law concerning individuals were exemptions provided for
beneficiaries, but also in the part concerning corporations, specific reference was made to the exemptions in favor of individuals,
thereby making the same applicable to corporations. This was authoritatively pointed out and decided by the United States Supreme
Court in the case of United States vs. Supplee-Biddle Hardware Co. ( [1924], 265 U.S., 189), which involved facts quite similar to those
before us. We do not think the decision of the higher court in this case is necessarily controlling on account of the divergences noted in
the federal statute and the local statute, but we find in the decision certain language of a general nature which appears to furnish the
clue to the correct disposition of the instant appeal. Conceding, therefore, without necessarily having to decide, the assignments of
error Nos. 1 and 2 are not well taken, we would turn to the third assignment of error.

It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager, who had had more than
thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of
the death of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on
the life of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual
beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In
reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death of its
manager.

To quote the exact words in the cited case of Chief Justice Taft delivering the opinion of the court:
It is earnestly pressed upon us that proceeds of life insurance paid on the death of the insured are in fact capital, and cannot
be taxed as income under the Sixteenth Amendment. Eisner vs. Macomber, 252 U.S., 189, 207; Merchants' Loan & Trust
Co. vs. Smietanka, 255 U.S., 509, 518. We are not required to meet this question. It is enough to sustain our construction of
the act to say that proceeds of a life insurance policy paid on the death of the insured are not usually classed as income.
. . . Life insurance in such a case is like that of fire and marine insurance, — a contract of indemnity. Central Nat. Bank vs.
Hume, 128 U.S., 195. The benefit to be gained by death has no periodicity. It is a substitution of money value for something
permanently lost, either in a house, a ship, or a life. Assuming, without deciding, that Congress could call the proceeds of such
indemnity income, and validly tax it as such, we think that, in view of the popular conception of the life insurance as resulting
in a single addition of a total sum to the resources of the beneficiary, and not in a periodical return, such a purpose on its part
should be express, as it certainly is not here.

Considering, therefore, the purport of the stipulated facts, considering the uncertainty of Philippine law, and considering the lack of
express legislative intention to tax the proceeds of life insurance policies paid to corporate beneficiaries, particularly when in the
exemption in favor of individual beneficiaries in the chapter on this subject, the clause is inserted "exempt from the provisions of this
law," we deem it reasonable to hold the proceeds of the life insurance policy in question as representing an indemnity and not taxable
income.
The foregoing pronouncement will result in the judgment being reversed and in another judgment being rendered in favor of the
plaintiff and against the defendant for the sum of P3,148.74. So ordered, without costs in either instance.
Avanceña, C.J., Street, Villamor, Ostrand, Romualdez, Villa-Real, and Imperial, JJ.,  concur.
Republic of the Philippines
 SUPREME COURT
Manila
FIRST DIVISION
 
G.R. No. 124520 August 18, 1997
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS Development
Corporation (hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or
store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE
obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merchandise inside the
leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written
consent of private respondent CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based
on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS the
amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs
of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the trial
court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was
denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF
LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO
LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A
CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF
THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS
NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A
STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL
OF THE RESPONDENT CORPORATION.2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between
CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the
prior written consent of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good
customs, public order or public policy.3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an
insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract
of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss
occurs.4 The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person
from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in
case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance
Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any
interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by
way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises
under the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of
injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy
taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the
Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for
being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and
Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a
person (CKS) who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurance policy over
their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered,
awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 200784               August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011 Decision 1 of the Court of
Appeals (CA), which affirmed with modification the September 17, 2009 Decision 2 of the Regional Trial Court, Branch 15, Manila (RTC),
and its February 24, 2012 Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company., Inc.
(Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.)
for the latter’s machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite
(Sanyo Building). The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one (1) year, was
procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as is"
basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period
May 13, 1997 to May 13, 1998.

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire.
Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the insured machineries
and equipment were transferred by PAP Co. to a location different from that indicated in the policy. Specifically, that the insured
machineries were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA,
Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the
transfer by RCBC, the party duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim.
Distraught, PAP Co. filed the complaint below against Malayan. 4

Ruling of the RTC

On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss
under the fire insurance policy as well as for attorney’s fees. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the loss under the fire insurance policy,
plus interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of attorney’s fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy because, although there
was a change in the condition of the thing insured as a result of the transfer of the subject machineries to another location, said
insurance company failed to show proof that such transfer resulted in the increase of the risk insured against. In the absence of proof
that the alteration of the thing insured increased the risk, the contract of fire insurance is not affected per Article 169 of the Insurance
Code.
The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied with the notice
requirement under the policy considering that it was RCBC which procured the insurance. PAP acted in good faith in notifying RCBC
about the transfer and the latter even conducted an inspection of the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in ordering it to indemnify PAP
for the loss of the subject machineries since the latter, without notice and/or consent, transferred the same to a location different from
that indicated in the fire insurance policy.

Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the attorney’s fees. The
decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must indemnify PAP Co. Ltd the
amount of Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the rate of
12% per annum from the time of loss on October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos
(Ph₱500,000.00) awarded to PAP Co., Ltd. as attorney’s fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured properties during the
efficacy of the insurance policy. Malayan also failed to show that its contractual consent was needed before carrying out a transfer of
the insured properties. Despite its bare claim that the original and the renewed insurance policies contained provisions on transfer
limitations of the insured properties, Malayan never cited the specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the insured properties, still Malayan could not
escape liability because the transfer was made during the subsistence of the original policy, not the renewal policy. PAP transferred the
insured properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan
was aware or should have been aware of such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since
an insurance policy was a contract of adhesion, any ambiguity must be resolved against the party that prepared the contract, which, in
this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk of the loss. It, thus,
could not use such transfer as an excuse for not paying the indemnity to PAP. Although the insurance proceeds were payable to RCBC,
PAP could still sue Malayan to enforce its rights on the policy because it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following

GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS
OF THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED
DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED,
THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A
REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE
UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT
THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION
31 OF THE INSURANCE CODE, RESPECTIVELY.

RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH
OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED
PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL
POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON
ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL
TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.

II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE
COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM
WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF
APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE
PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN
OPINION ON WHETHER RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER
THE CLAIM AS VOIDED.

III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS
OF THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE
CLAUSE IN THE INSURANCE POLICY.

IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE
QUESTIONED DECISION AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED. 7
Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed concealment,
misrepresentation and breach of an affirmative warranty under the renewal policy when it transferred the location of the insured
properties without informing it. Such transfer affected the correct estimation of the risk which should have enabled Malayan to decide
whether it was willing to assume such risk and, if so, at what rate of premium. The transfer also affected Malayan’s ability to control
the risk by guarding against the increase of the risk brought about by the change in conditions, specifically the change in the location
of the risk.

Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code 8 when it did not inform Malayan of
the actual and new location of the insured properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even
informed it that there would be no changes in the renewal policy. Malayan also argues that PAP is guilty of breach of warranty under
the renewal policy in violation of Section 74 of the Insurance Code 9 when, contrary to its affirmation in the renewal policy that the
insured properties were located at the Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds that PAP is
guilty of misrepresentation upon a material fact in violation of Section 45 of the Insurance Code 10 when it informed Malayan that there
would be no changes in the original policy, and that the original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured properties under the
insurance policy was with its knowledge and consent. Granting that PAP informed RCBC of the transfer or change of location of the
insured properties, the same is irrelevant and does not bind Malayan considering that RCBC is a corporation vested with separate and
distinct juridical personality. Malayan did not consent to be the principal of RCBC. RCBC did not also act as Malayan’s representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a result of the unilateral
transfer of the insured properties. According to Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by
the assured and factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A, while Pace Factory was occupied as factory that repacked silicone sealant to plastic cylinders with a rate of
0.657% under 6.1.2 A.
PAP’s position

On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or deception on its part and that its
claim is not fraudulent. It insists that it can still sue to protect its rights and interest on the policy notwithstanding the fact that the
proceeds of the same was payable to RCBC, and that it can collect interest at the rate of 12% per annum on the proceeds of the policy
because its claim for indemnity was unduly delayed without legal justification.

The Court’s Ruling

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties under the fire
insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 fire insurance policy
from Malayan covering its machineries and equipment effective for one (1) year or until May 13, 1997; that the policy expressly stated
that the insured properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that
before its expiration, the policy was renewed 11 on an "as is" basis for another year or until May 13, 1998; that the subject properties
were later transferred to the Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a
fire broke out at the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before
the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or on behalf
of the Company:
x x x           x x x          x x x
(c) If property insured be removed to any building or place other than in that which is herein stated to be insured. 12
Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place
required the consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any
liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties from
the Sanyo factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was duly
notified of the transfer of the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the
referral and the named beneficiary in the policy. Malayan and RCBC might have been sister companies, but such fact did not make one
an agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said
insurance company. After the referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel stipulated in open court that it was
Malayan’s authorized insurance agent, Rodolfo Talusan, who procured the original policy from Malayan, not RCBC. This was the reason
why Talusan’s testimony was dispensed with.

Moreover, in the previous hearing held on November 17, 2005, 14 PAP’s hostile witness, Alexander Barrera, Administrative Assistant of
Malayan, testified that he was the one who procured Malayan’s renewal policy, not RCBC, and that RCBC merely referred fire insurance
clients to Malayan. He stressed, however, that no written referral agreement exists between RCBC and Malayan. He also denied that
PAP notified Malayan about the transfer before the renewal policy was issued. He added that PAP, through Maricar Jardiniano
(Jardiniano), informed him that the fire insurance would be renewed on an "as is basis." 15
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan was not indubitably
established. At best, PAP could only come up with the hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr.
Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank loan and because of the insurance I told my secretary to
notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?
A
Yes, sir.
xxxx
Q
After the RCBC was informed in the manner you stated, what did you do regarding the new location of these properties at Pace Pacific
Bldg. insofar as Malayan Insurance Company is concerned?
A
After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance but we were not able to
contact Malayan Insurance so I instructed again my secretary to inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.
Q
Why do you know her?
A
Because she is my secretary.
Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos about the matter of informing the defendant Malayan
Insurance Co of the new location of the insured properties?
A
She informed me that the notification was already given to Malayan Insurance.
Q
Aside from what she told you how did you know that the information was properly relayed by the said secretary, Dory Ramos, to
Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance Company about the transfer of
the properties insured to the new location, do you know what happened insofar this information was given to the defendant Malayan
Insurance?
A
I heard that someone from Malayan Insurance came over to our company.
Q
Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.
Q
How did you know that this person from Malayan Insurance came to your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the notice to either Malayan or
RCBC. PAP should have presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was
unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were transferred to a different location
only after the renewal of the fire insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the renewal or after the renewal of the insurance?
A
After the renewal.
COURT
Q
You understand my question?
A

Yes, Your Honor.17 [Emphasis supplied]

This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to the Pace Factory was
insignificant as it did not increase the risk.

Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace Factory increased the hazard
to which the insured properties were exposed. Malayan wrote:

With regards to the exposure of the risk under the old location, this was occupied as factory of automotive/computer parts by the
assured, and factory of zinc & aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449%
under 6.1.2 A. But under Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders
with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as indicated by the increase in rate. 18

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively
affected the fire rating stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a
greater risk of loss. Such increase in risk would necessarily entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute
Malayan’s argument on the increased risk.
Malayan is entitled to rescind the insurance contract

Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with it the same
stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured
against is at the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it
was also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the
transfer was at PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of
Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated the fire incident at the Pace Factory, which
opined that "[g]iven that the location of risk covered under the policy is not the location affected, the policy will, therefore, not respond
to this loss/claim."19

It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after
the renewal of the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of
the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in
the use or condition of the thing insured. Section 168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.20
In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration
of the location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan
Insurance Company, Inc. is hereby declared NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED.