G.R. No.

82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision 1 of respondent Court of
Appeals 2 affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for
damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of his mother who was killed
in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab,
and the alleged insurer of the vehicle which featured in the vehicular accident into one
complaint. The erring taxicab was allegedly covered by a third-party liability insurance policy
issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by
the name of Feliza Vineza de Mendoza was on her way to hear mass at the
Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto
Streets, she was bumped by a taxi that was running fast. Several persons
witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and
Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the
pavement. Right away, the good Samaritan that he was, Mavilla ran towards the
old woman and held her on his lap to inquire from her what had happened, but
obviously she was already in shock and could not talk. At this moment, a private
jeep stopped. With the driver of that vehicle, the two helped board the old woman
on the jeep and brought her to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street

from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It
was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his
brother who were crying near the scene of the accident. Upon learning that the
two were the sons of the old woman, Lopez told them what had happened. The
Mendoza brothers were then able to trace their mother at the Mary Johnston
Hospital where they were advised by the attending physician that they should
bring the patient to the National Orthopedic Hospital because of her fractured
bones. Instead, the victim was brought to the U.S.T. Hospital where she expired
at 9:00 o'clock that same morning. Death was caused by "traumatic shock" as a
result of the severe injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the
vehicle, the latter was running fast, so much so that because of the strong impact
the old woman was thrown away and she fell on the pavement. . . . In truth, in
that related criminal case against defendant Dumlao . . . the trial court found as a
fact that therein accused "was driving the subject taxicab in a careless, reckless
and imprudent manner and at a speed greater than what was reasonable and
proper without taking the necessary precaution to avoid accident to persons . . .
considering the condition of the traffic at the place at the time
aforementioned" . . . Moreover, the driver fled from the scene of the accident and
without rendering assistance to the victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi
involved, though not necessarily the driver thereof. Marvilla saw a lone taxi
speeding away just after the bumping which, when it passed by him, said witness
noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with
 baggage bar attached on the baggage compartment and with an antenae [sic]
attached at the right rear side. The same descriptions were revealed by Ernesto
Lopez, who further described the taxi to have . . . reflectorized decorations on the
edges of the glass at the back . . . A third witness in the person of Eulogio
Tabalno . . . made similar descriptions although, because of the fast speed of the
taxi, he was only able to detect the last digit of the plate number which is "8". . . .
[T]he police proceeded to the garage of Lady Love Taxi and then and there they
took possession of such a taxi and later impounded it in the impounding area of
the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to
that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of

Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that
the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was
on the basis of this affidavit of the registered owner that caused the police to
apprehend Rodrigo Dumlao, and consequently to have him prosecuted and
eventually convicted of the offense . . . . . . . [S]aid Dumlao absconded in that
criminal case, specially at the time of the promulgation of the judgment therein so
much so that he is now a fugitive from justice.6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the
Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private
respondent's mother. Subsequently, private respondent amended his complaint to include
petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-
3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion
of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more

particularly the "Heirs of the late Feliza Vineza de Mendoza," and against
defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and
Surety Corporation, by ordering the latter to pay, jointly and severally, the former
the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages,

with interest thereon at the rate of 12% per annum from October
17, 1980, when the complaint was filed, until the said amount is
fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary

damages; and

(e) Another P10,000.00 by way of attorney's fees and other

litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The
decision of the trial court was affirmed by respondent appellate court. Petitioner's Motion for
Reconsideration 8 of September 22, 1987 was denied in a Resolution 9 dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the
Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-
party liability insurance, private respondent failed to file a written notice of claim with petitioner
as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

When private respondent filed his amended complaint to implead petitioner as party defendant
and therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab
that fatally hit private respondent's mother, private respondent did not attach a copy of the
insurance contract to the amended complaint. Private respondent does not deny this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer
depends on whether the contract of insurance is intended to benefit third persons also or only
the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all
sums . . . which the Insured shall become legally liable to pay in respect of: a.
death of or bodily injury to any person . . . is one for indemnity against liability;
from the fact then that the insured is liable to the third person, such third person
is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or on the insured And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot proceed
against the insurer, the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said third persons'
recourse being thus limited to the insured alone. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the
trial court could not have been able to apprise itself of the real nature and pecuniary limits of
petitioner's liability. More importantly, the trial court could not have possibly ascertained the right
of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab
because the trial court never saw nor read the insurance contract and learned of its terms and
conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the
Lady Love taxicab that fatally hit private respondent's mother, considering that petitioner
precisely presented the defense of lack of insurance coverage before the trial court. Neither did
the trial court issue a subpoena duces tecum to have the insurance contract produced before it
under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable
jointly and severally with the owner and the driver of the Lady Love taxicab, for damages
accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause of action
against the owner and the driver of the Lady Love taxicab and his cause of action against
petitioner. The former is based on torts and quasi-delicts while the latter is based on contract.
Confusing these two sources of obligations as they arise from the same act of the taxicab fatally
hitting private respondent's mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of
the terms and conditions of the insurance contract and forthwith found all three — the driver of
the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab — jointly and
severally liable for actual, moral and exemplary damages as well as attorney's fees and
litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent
appellate court grievously erred in not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity contracts against third-party
liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based
on contract; that of the insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in
one case that:

In solidary obligation, the creditor may enforce the entire obligation against one
of the solidary debtors. On the other hand, insurance is defined as "a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio
Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a
total amount of P29,103.00, with the qualification that petitioner's liability is only
up to P20,000.00. In the context of a solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,103.00,
notwithstanding the qualification made by the trial court. But, how can petitioner
be obliged to pay the entire obligation when the amount stated in its insurance
policy with respondent Sio Choy for indemnity against third-party liability is only
P20,000.00? Moreover, the qualification made in the decision of the trial court to
the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary is an evident breach of the concept
of a solidary obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner
that, assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is
limited to only P50,000.00, this being its standard amount of coverage in vehicle insurance
policies. It bears repeating that no copy of the insurance contract was ever proffered before the
trial court by the private respondent, notwithstanding knowledge of the fact that the latter's
complaint against petitioner is one under a written contract. Thus, the trial court proceeded to
hold petitioner liable for an award of damages exceeding its limited liability of P50,000.00. This
only shows beyond doubt that the trial court was under the erroneous presumption that
petitioner could be found liable absent proof of the contract and based merely on the proof of
reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private
respondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondent's cause of action against petitioner did not successfully accrue because he failed to
file with petitioner a written notice of claim within six (6) months from the date of the accident as
required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent's mother,
during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.)
Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter
shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the amount of his loss, and/or the
nature, extent and duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within six months from date of
the accident, otherwise, the claim shall be deemed waived. Action or suit for
 recovery of damage due to loss or injury must be brought in proper cases, with
the Commission or the Courts within one year from date of accident, otherwise
the claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled
that the one year prescription period to bring suit in court against the insurer should be counted
from the time that the insurer rejects the written claim filed therewith by the insured, the
beneficiary or the third person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the
Insurance Code as a cloak to hide itself from its liabilities. The facts of these
cases evidently reflect the deliberate efforts of petitioner company to prevent the
filing of a formal action against it. Bearing in mind that if it succeeds in doing so
until one year lapses from the date of the accident it could set up the defense of
prescription, petitioner company made private respondents believe that their
claims would be settled in order that the latter will not find it necessary to
immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate
prompt, fair and equitable settlement of claims, and with manifest bad faith,
petitioner company devised means and ways of stalling the settlement
proceeding . . . [N]o steps were taken to process the claim and no rejection of
said claim was ever made even if private respondent had already complied with
all the requirements. . . .

This Court has made the observation that some insurance companies have been
inventing excuses to avoid their just obligations and it is only the State that can
give the protection which the insuring public needs from possible abuses of the
insurers. 14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to
categorically provide that "action or suit for recovery of damage due to loss or injury must be
brought in proper cases, with the Commissioner or the Courts within one year from denial of the
claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under
an insurance policy, begins to run from the date of the insurer's rejection of the claim filed by the
insured, the beneficiary or any person claiming under an insurance contract. This ruling is
premised upon the compliance by the persons suing under an insurance contract, with the
indispensable requirement of having filed the written claim mandated by Section 384 of the
insurance Code before and after its amendment. Absent such written claim filed by the person
suing under an insurance contract, no cause of action accrues under such insurance contract,
considering that it is the rejection of that claim that triggers the running of the one-year
prescriptive period to bring suit in court, and there can be no opportunity for the insurer to even
reject a claim if none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the
insurer as this is the time when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by
the insurance company. This is because, before such final rejection, there was
no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case
of ACCFA vs. Alpha Insurance and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of
the plaintiff and a correlative obligation of the defendant but also an act or
omission of the defendant in violation of said legal right, the cause of action does
 not accrue until the party obligated refuses, expressly or impliedly, to comply with
its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and
rejected by petitioner, and private respondent does not dispute such asseveration through a
denial in his pleadings, we are constrained to rule that respondent appellate court committed
reversible error in finding petitioner liable under an insurance contract the existence of which
had not at all been proven in court. Even if there were such a contract, private respondent's
cause of action can not prevail because he failed to file the written claim mandated by Section
384 of the Insurance Code. He is deemed, under this legal provision, to have waived his rights
as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals
in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486
are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety Corporation was
found jointly and severally liable to pay actual, moral and exemplary damages, death indemnity,
attorney's fees and litigation expenses in Civil Case No. 135486. The complaint against
Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-2227             August 31, 1948

Intestate estate of the late Esperanza J. Villanueva. MARIANO J. VILLANUEVA, claimant-

appellant,
vs.
PABLO ORO, administrator.

Nicolas P. Nonato for claimant and appellant.

Rodrigo J. Harder for administrator and appellee.

PARAS, J.:

The West Coast Life Insurance Company issued two policies of insurance on the life of
Esperanza J. Villanueva, one for two thousand pesos and maturing on April 1, 1943, and the
other for three thousand pesos and maturing on March 31, 1943. In both policies (with
corresponding variation in amount and date of maturity) the insurer agreed "to pay two thousand
pesos, at the home office of the Company, in San Francisco, California, to the insured
hereunder, if living, on the 1st day of April 1943, or to the beneficiary Bartolome Villanueva,
father of the insured, immediately upon receipt of due proof of the prior death of the insured,
Esperanza J. Villanueva, of La Paz, Philippine Islands, during the continuance of this policy,
with right on the part of the insured to change the beneficiary.

After the death of Bartolome Villanueva in 1940, the latter was duly substituted as beneficiary
under the policies by Mariano J. Villanueva, a brother of the insured. Esperanza J. Villanueva
survived the insurance period, for she died only on October 15, 1944, without, however,
collecting the insurance proceeds. Adverse claims for said proceeds were presented by the
estate of Esperanza J. Villanueva on the one hand and by Mariano J. Villanueva on the other,
which conflict was squarely submitted in the intestate proceedings of Esperanza J. Villanueva
pending in the Court of First Instance of Iloilo. From an order, dated February 26, 1947, holding
the estate of the insured is entitled to the insurance proceeds, to the exclusion of the
beneficiary, Mariano J. Villanueva, the latter has interposed the present appeal.

The lower court committed no error. Under the policies, the insurer obligated itself to pay the
insurance proceeds (1) to the insured if the latter lived on the dates of maturity or (2) to the
beneficiary if the insured died during the continuance of the policies. The first contingency of
course excludes the second, and vice versa. In other words, as the insured Esperanza J.
Villanueva was living on April 1, and March 31, 1943, the proceeds are payable exclusively to
her estate unless she had before her death otherwise assigned the matured policies. (It is not
here pretended and much less proven, that there was such assignment.) The beneficiary,
Mariano J. Villanueva, could be entitled to said proceeds only in default of the first contingency.
To sustain the beneficiary's claim would be altogether eliminate from the policies the condition
that the insurer "agrees to pay . . . to the insured hereunder, if living".

There is nothing there in the Insurance Law (Act No. 2427) that militates against the
construction placed by the lower court on the disputed condition appearing in the two policies
now under advisement. On the contrary, said law provides that "an insurance upon life may be
made payable on the death of the death of the person, or on his surviving a specified period, or
otherwise, contingently on the continuance or cessation of life" (section 165), and that "a policy
of insurance upon life or health mat pass by transfer, will, or succession, to any person, whether
he has an insurable interest or not, and such person may recover upon it whatever the insured
might have recovered" (section 166).

Counsel for the beneficiary invokes the decision in Del Val vs. Del Val, 29 Phil., 534, 540, in
which it was held 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." This citation is clearly not controlling, first, because it does not appear therein that
the insurance contract contained the stipulation appearing in the policies issued on the life of
Esperanza J. Villanueva and on which the appealed order in the case at bar is based; and,
secondly, because the Del Val doctrine was made upon the authority of the provisions of the
Code of Commerce relating to insurance (particularly section 428) which had been expressly
repealed by the present Insurance Act No. 2427.

Our pronouncement is not novel, since it tallies with the following typical American authorities:
"If a policy of insurance provides that the proceeds shall be payable to the assured, if he lives to
a certain date, and, in case of his death before that date, then they shall be payable to the
beneficiary designated, the interest of the beneficiary is a contingent one, and the benefit of the
policy will only inure to such beneficiary in case the assured dies before the end of the period
designated in the policy." (Couch, Cyclopedia of Insurance Law, Vol. 2, sec. 343. p. 1023.)
"Under endowment of tontine policies payable to the insured at the expiration of a certain
period, if alive, but providing for the payment of a stated sum to a designated beneficiary in case
of the insured death during the period mentioned, the insured and the beneficiary take
contingent interests. The interest of the insured in the proceeds of the insurance depends upon
his survival of the expiration of endowment period. Upon the insured's death, within the period,
the beneficiary will take, as against the personal representative or the assignee of the insured.
Upon the other hand, if the insured survives the endowment period, the benefits are payable to
him or to his assignee, notwithstanding a beneficiary is designated in the policy." (29 Am. Jur.,
section 1277, pp. 952, 953.).

The appealed order is, therefore, hereby affirmed, and it is so ordered with costs against the
appellant.

Feria, Pablo, Perfecto, Bengzon, Briones, Padilla, and Tuason, JJ., concur.

G.R. No. L-20552             May 20, 1966

FILIPINAS LIFE ASSURANCE CO., ET AL., petitioners,

vs.
GONZALO P. NAVA, respondent.

Araneta, Mendoza and Papa for petitioners.

Bengzon, Villegas and Zarraga and G. Advincula for respondent.

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of Appeals which affirms that of the court a
quo (1) rescinding the insurance contracts entered into between plaintiff and defendants; (2)
ordering defendant Filipinas Life Assurance Co. to pay plaintiff the amount of P32,072.60 as the
total amount paid by said plaintiff on his insurance policies; and (3) ordering defendant Insular
Life Assurance Co., Ltd. to pay plaintiff the amount of P2,574.00 as the total amount paid by
plaintiff on account of his insurance policy.

On January 1, 1936, plaintiff and defendant Insular Life Assurance Co., Ltd. entered into a
contract of life insurance with a face value of P5,000.00 for which the insurer issued Policy No.
58999.

On February 28, 1939, plaintiff and defendant Filipinas Life Assurance Co. entered into 17
separate contracts of life insurance for which the insurer issued 17 life insurance policies, one of
said policies having a face value of P10,000.00 while the rest a face value of P5,000.00 each, or
a total of P90,000.00. Each and everyone of the 18 policies issued by defendants to plaintiff
contains a loan clause of the following tenor:

Policy loans. After three full years' premiums have been paid upon this Policy, if no
premium payment is in default, the Company, subject to its then existing rules, will
advance on proper assignment and delivery of this Policy and on the sole security
thereof a sum equal to, or at the option of the owner less than, the cash value specified
in the Schedule of Policy Values, less any existing indebtedness on or secured by this
Policy and any unpaid balance of the premium for the current policy-year; provided
interest at six per centum per annum on the whole amount of the loan is paid in advance
to the end of the current policy-year. At the end of the current policy-year interest at the
same rate for one year in advance will be due and payable, and annually thereafter, and
if not so paid will be added to the principal and bear the same rate of interest. Failure to
repay any such loan or interest shall not avoid this Policy unless the total indebtedness
shall equal or exceed the full amount of the loan value available hereunder.

Any indebtedness on this Policy shall first be deducted from any money payable or in
any settlement under this Policy.

On account of the policies abovementioned, plaintiff had so far paid to defendant Insular Life
Assurance Co., Ltd. the following amounts: from 1936 to December, 1941, P1,544.40, and from
January, 1942 to January, 1945, P1,029.60, or a total of P2,574.00; and to defendant Filipinas
Life Assurance Co. plaintiff had paid the following amounts: from February, 1939 to December,
1941, P13,976.40, and from January, 1942 to January, 1945, P18,096.20, or a total of
P32,072.60. In other words, the total amount paid by plaintiff to defendants on the 18 policies
before the war and during the Japanese occupation is P34,646.60.

On April 28, 1948, plaintiff applied to defendants for a loan in the sum of P5,000.00 in line with
the loan clause contained in said policies, but defendants refused to grant the loan on the
excuse that certain regulations issued by the Insurance Commissioner on May 20, 1946
required the insurance companies to withhold the payments on premiums made during the
Japanese occupation because the same shall be subject to future adjustments " as soon as
debtor-creditor relationship is established" and because of such process of "withholding" plaintiff
was not entitled to borrow any amount until such adjustment has been made.

On September 30, 1948, plaintiff called the attention of the insurance companies to the decision
of our Supreme Court in the case of Haw Pia v. China Banking Corporation1 establishing and
recognizing the relationship of debtor and creditor with respect to payments in fiat currency
made during the Japanese occupation on pre-war obligations, but in spite of that fact the
insurance companies refused to give to plaintiff the loan he solicited giving as reason the
excuse that said decision of our Supreme Court was not applicable to transactions undertaken
during Japanese occupation when they relate to life insurance policies. On February 4, 1949,
plaintiff reiterated his request for his much-needed loan of P5,000.00, and as said request was
again refused by the insurance companies notwithstanding the fact that the total amount of the
cash surrender values of the 18 policies issued in his favor reached the sum of P9,468.29,
plaintiff commenced the present action on February 10, 1949 before the Court of First Instance
of Manila praying for the rescission of the abovementioned 18 policies and for the refund to him
of all the premiums so far paid by him to defendants in the amount of P31,633.80, plus 6%
interest thereon as damages, and the costs of action.
On November 28, 1951, defendants passed a resolution which was approved by the Insurance
Commissioner, giving full credit to all premium payments made by their policyholders in fiat
currency during the Japanese occupation on account of pre-war policies for which reason they
filed an amended answer offering to pay plaintiff the amount of P9,468.29 which represents the
aggregate cash surrender values of all the policies in question as of February 10, 1949, but
apparently this offer was refused.

After trial, the court a quo rendered judgment the dispositive part of which already appears
recited in the early part of this decision. This is the decision that was later affirmed by the Court
of Appeals in its decision of November 14, 1962, from which defendants interposed the present
petition for review.

In the present petition for review, petitioners now contend that the Court of Appeals erred (1) in
ruling that as a consequence of the decision in the Haw Pia case petitioners violated the loan
clause contained in the insurance policies thereby entitling respondent to their rescission; (2) in
ruling that by virtue of Article 1295 of the old Civil Code petitioners should refund to defendant
all the premiums paid on his insurance policies as a consequence of their rescission; and (3) in
not ruling that, even if respondent is entitled to the rescission of said insurance policies, he can
only recover their cash surrender value at the time the complaint was filed on February 10,
1949.

The issues raised will be the subject of separate consideration.

1. It is contended that the failure of petitioners to give to respondent the loan of P5,000.00
applied for by him on April 28, 1948 was justified in view of certain regulations issued by the
Insurance Commissioner on May 20, 1946 which, among other things, provide that the amount
corresponding to occupation premiums paid on pre-war policies as well as those paid on pre-
war loans should be withheld subject to adjustment "as soon as debtor-creditor relationship is
established", for which reason petitioners were not in a position to grant the loan considering the
amount of the fiat currency employed by respondent to pay the premiums during the Japanese
occupation, and since this eventuality has not yet occurred it stands to reason that petitioners
cannot be made responsible to respondent for their alleged non-compliance with the loan clause
contained in the insurance policies issued to respondent.

But, as correctly stated by the Court of Appeals, even assuming the validity of the regulations
issued by the Insurance Commissioner which required the withholding of the payments made in
fiat currency of the premiums on insurance policies issued before the war subject to whatever
adjustment that may be made after the relationship between debtor and creditor shall have been
established, the fact however is that such requirement has already lost its legal effect and value
when on April 9, 1948 our Supreme Court rendered its decision in the Haw Pia case wherein it
was declared, among others, that all payments made in fiat currency during the Japanese
occupation in relation with any contractual obligation executed before the war were valid to all
intents and purposes, and yet petitioners apparently did not give any importance to such
decision for in their opinion it does not have any application to transactions which have any
relation to payment of premiums on life insurance policies. In other words, petitioners maintain
that the Haw Pia case did not settle the question of valuation or premium payments in Japanese
military notes during the war on life insurance policies because what said case merely settled
was the validity of payments in fiat currency by a debtor to a creditor. Stated in another way,
petitioners are of the opinion that the Haw Pia case did not settle the question of the valuation or
premium payments in Japanese military notes during the war on life insurance policies because
the insured is by no means a debtor of the insurer, nor is the insurer his creditor, considering
that there is absolutely no obligation on his part to pay the premiums.

There is no merit in this contention. In the Haw Pia case it was ruled in a clear manner that
payments made in Japanese military notes on account of contractual obligations entered into
before the war are valid payments for all legal intents and purposes, and this ruling was
reiterated in other similar cases.2 And it cannot be denied that a life insurance policy involves a
contractual obligation wherein the insured becomes duty bound to pay the premiums agreed
upon, lest he runs the risk of having his insurance policy lapse if he fails to pay such premiums.
The fact that if the insured had paid in full the premiums corresponding to the first three years of
the life of his policy he cannot be considered delinquent that would cause the lapse of his policy
if the same contains an automatic premium payment clause cannot divest such policy of its
contractual nature, for the result of such failure would only be for him to pay later the premium
plus the corresponding interest depending upon the condition of the policy. But certainly it does
not cease to be a contractual liability insofar as the payment of that premium is concerned for
whether he likes it or not that premium has to be paid lest he allows the lapse of his policy.
Consequently, the payment of premiums on the life insurance policies made by herein
respondent before and during the war up to the time he applied for the loan in question with
petitioners should be considered likewise as valid payments upon the theory that such
insurance policies are in the nature of a contractual obligation within the meaning of the civil
law. In effect, therefore, those payments were made by a debtor to a creditor within the meaning
of the requirement of the regulations of the Insurance Commissioner and as such they can offer
no excuse to petitioners for refusing to grant the loan as contemplated in the loan clause
embodied in the policies in question.  1äwphï1.ñët

The fact, however, is that the oft-repeated regulations of the Insurance Commissioner are of
doubtful validity if their effect is to suspend the effectivity of a provision or clause embodied in a
valid insurance policy for that would partake of the nature of a regulation the effect of which
would be to infringe or impair a contractual obligation in violation of Section 1(10), Article III, of
our Constitution. In the case of Lim, et al. vs. Register of Deeds of Rizal, 3 this Court has held
that an administrative official has no power to issue a circular or a regulation the effect for that
would be violative of our Constitution.

It is, therefore, clear from the foregoing that the petitioners violated the loan clause embodied in
each of the 18 life insurance policies issued to respondent to rescind all said policies under
Section 69 of the Insurance Act, which provides: "The violation of a material warranty, or other
material provision of a policy, on the part of either party thereto, entitles the other to rescind."

The citation that petitioners make from Vance on Insurance to the effect that "The general rule
is that a breach of the agreement to make the loan does not entitle the insured to rescind the
contract," is not controlling in this jurisdiction. Firstly, it was not shown that the insurance laws in
the states where said ruling prevails contain a provision identical to Section 69 of our Insurance
Law we quoted above, and secondly, the rule cited by Vance is not a rule uniformly followed by
all states in the United States, for on this matter there is a marked divergence of opinion. In fact,
in a case that occured in the State of Texas, held that the insured had the right to ask for the
rescission of said contract and ordered the insurer to refund all premiums paid by him.4

2. Petitioners likewise contend that even if respondent is entitled to rescind the policies in
question he is not entitled to recover all premiums paid by him to petitioners on account of the
18 life insurance policies question but merely to their cash surrender value upon the theory that
the respondent had fully enjoyed the protection of the insurance on his life during the period of
the policies to the extent that during that time petitioners had assumed the risk of the death of
said respondent. Petitioners in effect lay stress on the fact that had respondent died in the
meantime they would have paid total sum of P95,000.00 on account of his policies.

This contention has no basis. Considering that our Insurance Law does not contain an express
provision as to what the court should do in cases of rescission of an insurance policy under
Section 69, the provision that should apply is that embodied in Article 1225 of the old Civil Code,
as postulated in Article 16 of the same Code, which provides that on matters which are not
governed by special laws the provisions of said Code shall supplement its deficiency. And said
Article 1295 provides:

ART. 1295. Rescission makes necessary the return of the things which were the subject-
matter of the contract, with their fruits, and of the price paid, with interest thereon. ...xxx

We find, therefore, correct the ruling of the Court of Appeals which orders petitioners to refund
to respondent all premiums paid by him up to the filing of the action amounting to P34,644.60.

Petitioners, however, insist that the correct ruling is not what the Court of Appeals has stated
but what is hereinafter quoted because such is the weight of authority on that matter. Said the
petitioners: "Recovery of the full amount of the premium after the insurer has sustained for
sometime the risk of the insurance and the insured has enjoyed the benefit of protection is
obviously unjust and is so recognized by the better authorities."

Again we find this statement incorrect, for according to American Law Reports Annotated, the
ruling above quoted merely represents the minority rule in the United States, the majority rule
being that the insured can recover all premiums paid, in some cases with interest in case of
wrongful cancellation, repudiation, termination or rescission of the contract of life insurance. 5

Nor do we find tenable the contention that because respondent cannot restore to petitioners the
"value of the benefit of protection" which he might have received under the 18 life insurance
policies in question he is not entitled to rescind them under the provision of Article 1295 of the
old Civil Code, because it should be here stated that said article only contemplates a transaction
whether material things are involved, and do not refer to intangible ones which cannot be the
subject of restoration, for to interpret it otherwise would be to defeat the law itself with the result
that rescission can never be had under Section 69 of our Insurance Law. And it cannot be
denied that petitioners had in turn already derived material benefits from the use of premiums
paid to them by respondent before, during and after the last war from which they must have
realized huge profits, and in this light alone petitioners cannot claim prejudice or unfairness if
they are ordered to refund the premiums paid by respondents.

3. Anent this issue, petitioners point out that the Court of Appeals erred in not ruling that even if
respondent is entitled to the rescission of his 18 life insurance policies he can only recover
legally and equitably their cash surrender value at the time the complaint was filed on February
10, 1949.

Inasmuch as this contention is but a corollary to the conclusion we have reached in the
discussion of the preceding assignment of error, we believe that further refutation thereof is
unnecessary.

Wherefore, the decision appealed from is affirmed. Cost against petitioners.

Bengzon, C.J., Conception, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal and Sanchez, JJ.,
concur.
Bengzon, J.P. and Zaldivar, JJ., took no part.

Footnotes

G.R. No. L-22796             June 26, 1967

DELFIN NARIO, and ALEJANDRA SANTOS-NARIO, plaintiffs-appellants,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

Ricardo T. Bancod and Severino C. Zarasate for plaintiffs-appellants.

M. Lim, M. Y. Macias and Associates for defendant-appellee.

REYES, J.B.L., J.:

Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila,
in its Civil Case No. 54942, dismissing plaintiffs' complaint as well as from a later order of the
same court, denying a motion to set aside and/or reconsider said decision of dismissal.

The facts of this case may be stated briefly as follows:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine
American Life Insurance Co., a life insurance policy (No. 503617) under a 20-year endowment
plan, with a face value of P5,000.00. She designated thereon her husband, Delfin Nario, and
their unemancipated minor son, Ernesto Nario, as her irrevocable beneficiaries.

About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with
the Insurance Company, which loan she, as policy-holder, has been entitled to avail of under
one of the provisions of said policy after the same has been in force for three (3) years, for the
purpose of using the proceeds thereof for the school expenses of her minor son, Ernesto Nario.
Said application bore the written signature and consent of Delfin Nario in two capacities: first, as
one of the irrevocable beneficiaries of the policy; and the other, as the father-guardian of said
minor son and irrevocable beneficiary, Ernesto Nario, and as the legal administrator of the
minor's properties, pursuant to Article 320 of the Civil Code of the Philippines.

The Insurance Company denied said application, manifesting to the policy holder that the
written consent for the minor son must not only be given by his father as legal guardian but it
must also be authorized by the court in a competent guardianship proceeding.

After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her
policy to the Insurance Company, which she was also entitled to avail of under one of the
provisions of the same policy, and demanded its cash value which then amounted to P520.00.

The Insurance Company also denied the surrender of the policy, on the same ground as that
given in disapproving the policy loan application; hence, on September 10, 1963, Mrs. Alejandra
Santos-Nario and her husband, Delfin Nario, brought suit against the Philippine American Life
Insurance Co. in the above mentioned court of first instance, seeking to compel the latter
(defendant) to grant their policy loan application and/or to accept the surrender of said policy in
exchange for its cash value. 1äwphï1.ñët

Defendant Insurance Company answered the complaint, virtually admitting its material
allegations, but it set up the affirmative defense that inasmuch as the policy loan application and
the surrender of the policy involved acts of disposition and alienation of the property rights of the
minor, said acts are not within the powers of the legal administrator, under article 320 in relation
to article 326 of the Civil Code; hence, mere written consent given by the father-guardian, for
and in behalf of the minor son, without any court authority therefor, was not a sufficient
compliance of the law, and it (defendant Insurance Company) was, therefore, justified in
refusing to grant and in disapproving the proposed transactions in question.

There having been no substantial disagreement or dispute as to any material fact, the parties,
upon joint motion which the lower court granted, dispensed with the presentation of evidence
and submitted their respective memoranda, after which the case was considered submitted for
decision.

The lower court found and opined that since the parties expressly stipulated in the endorsement
attached to the policy and which formed part thereof that —

It is hereby understood and agreed that, notwithstanding the provisions of this Policy to
the contrary, inasmuch as the designation of the beneficiaries have been made by the
Insured without reserving the right to change said beneficiaries, the Insured may not
designate a new beneficiary or assign, release or surrender this Policy to the Company
and exercise any and all other rights and privileges hereunder or agree with the
Company to any change in or amendment to this Policy, without the consent of the
beneficiaries originally designated;

that under the above quoted provision, the minor son, as one of the designated irrevocable
beneficiaries, "acquired a vested right to all benefits accruing to the policy, including that of
obtaining a policy loan to the extent stated in the schedule of values attached to the policy
(Gercio vs. Sun Life Assurance of Canada, 48 Phil. 53, 58)"; that the proposed transactions in
question (policy loan and surrender of policy) involved acts of disposition or alienation of the
minor's properties for which the consent given by the father-guardian for and in behalf of the
minor son, must be with the requisite court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya
vs. Suguitan, G.R. No. L-8300, November 18, 1955; 99 Phil. 1004 [unrep] and in the case at
bar, such consent was given by the father-guardian without any judicial authority; said court,
agreeing with defendant's contention, sustained defendant's affirmative defense, and rendered,
on January 28, 1964, its decision dismissing plaintiffs' complaint.

Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this
Court, contending that the minor's interest amounted to only one-half of the policy's cash
surrender value of P520.00; that under Rule 96, Section 2 of the Revised Rules of Court,
payment of the ward's debts is within the powers of the guardian, where no realty is involved;
hence, there is no reason why the father may not validly agree to the proposed transaction on
behalf of the minor without need of court authority.

The appeal is unmeritorious. We agree with the lower court that the vested interest or right of
the beneficiaries in the policy should be measured on its full face value and not on its cash
surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of
its face value and in case the insured should discontinue paying premiums, the beneficiaries
may continue paying it and are entitled to automatic extended term or paid-up insurance
options, etc. and that said vested right under the policy cannot be divisible at any given time.
We likewise agree with the conclusion of the lower court that the proposed transactions in
question (policy loan and surrender of policy) constitute acts of disposition or alienation of
property rights and not merely of management or administration because they involve the
incurring or termination of contractual obligations.

As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest
therein, as one of the two (2) irrevocable beneficiaries, consists of one-half (½) of said amount
or P2,500.00.

Article 320 of the Civil Code of the Philippines provides —

The father, or in his absence the mother, is the legal administrator of the property
pertaining to the child under parental authority. If the property is worth more than two
thousand pesos, the father or mother shall give a bond subject to the approval of the
Court of First Instance.

and article 326 of the same Code reads —

When the property of the child is worth more than two thousand pesos, the father or
mother shall be considered a guardian of the child's property, subject to the duties and
obligations of guardians under the Rules of Court.

The above quoted provisions of the Civil Code have already been implemented and clarified in
our Revised Rules of Court which provides —

SEC. 7. Parents as guardians. — When the property of the child under parental authority
is worth two thousand pesos or less, the father or the mother, without the necessity of
court appointment, shall be his legal guardian. When the property of the child is worth
more than two thousand pesos, the father or the mother shall be considered guardian of
the child's property, with the duties and obligations of guardians under these rules, and
shall file the petition required by Section 2 hereof. For good reasons the court may,
however, appoint another suitable person. (Rule 93).

It appearing that the minor beneficiary's vested interest or right on the policy exceeds two
thousand pesos (P2,000.00); that plaintiffs did not file any guardianship bond to be approved by
the court; and as later implemented in the abovequoted Section 7, Rule 93 of the Revised Rules
of Court, plaintiffs should have, but, had not, filed a formal application or petition for
guardianship, plaintiffs-parents cannot possibly exercise the powers vested on them, as legal
administrators of their child's property, under articles 320 and 326 of the Civil Code. As there
was no such petition and bond, the consent given by the father-guardian, for and in behalf of the
minor son, without prior court authorization, to the policy loan application and the surrender of
said policy, was insufficient and ineffective, and defendant-appellee was justified in disapproving
the proposed transactions in question.

The American cases cited by appellants are not applicable to the case at bar for lack of analogy.
In those cases, there were pending guardianship proceedings and the guardians therein were
covered by bonds to protect the wards' interests, which circumstances are wanting in this case.

The result would be the same even if we regarded the interest of the ward to be worth less than
P2,000.00. While the father or mother would in such event be exempt from the duty of filing a
bond, and securing judicial appointment, still the parent's authority over the estate of the ward
as a legal-guardian would not extend to acts of encumbrance or disposition, as distinguished
from acts of management or administration. The distinction between one and the other kind of
power is too basic in our law to be ignored. Thus, under Article 1877 of the Civil Code of the
Philippines, an agency in general terms does not include power to encumber or dispose of the
property of the principal; and the Code explicitly requires a special power or authority for the
agent "to loan or borrow money, unless the latter act be urgent or indispensable for the
preservation of the thing under administration" (Art. 1878 no. 7). Similarly, special powers are
required to required to effect novations, to waive any obligation gratuitously or obligate the
principal as a guarantor or surety (Do., nos. 2, 4 and 11). By analogy, since the law merely
constitutes the parent as legal administrator of the child's property (which is a general power),
the parent requires special authority for the acts above specified, and this authority can be given
only by a court. This restricted interpretation of the parent's authority becomes all the more
necessary where as in the case before us, there is no bond to guarantee the ward against
eventual losses.

Appellants seek to bolster their petition by invoking the parental power (patria potestas) under
the Civil Code of 1889, which they claim to have been revived by the Civil Code of the
Philippines (Rep. Act 386). The appeal profits them nothing. For the new Civil Code has not
effected a restitutio in integrum of the Spanish patria potestas; the revival has been only in part.
And, significantly, the Civil Code now in force did not reenact Article 164 of the Civil Code of
1889, that prohibited the alienation by the parents of the real property owned by the child
without court authority and led the commentators and interpreters of said Code to infer that the
parents could by themselves alienate the child's movable property. The omission of any
equivalent precept in the Civil Code now in force proves the absence of any authority in the
parents to carry out now acts of disposition or alienation of the child's goods without court
approval, as contended by the appellee and the court below.

Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered.

Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Regala, J., took no part.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,

vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the
life insurance policy of a legally married man claim the proceeds thereof in case of death of the
latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co.,
Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the
same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his
policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a
failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to
pay the coverage in the total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the
unpaid premiums and interest thereon due for January and February, 1969, in the sum of
P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the
designated beneficiary therein, although she admits that she and the insured Buenaventura C.
Ebrado were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She
asserts that she is the one entitled to the insurance proceeds, not the common-law wife,
Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance of
Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which,
a pre-trial order was entered reading as follows:  ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is
no possibility of amicable settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this conference, parties Carponia
T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased
Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six
— (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured
with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated
September 1, 1968 for the sum of P5,882.00 with the rider for accidental death
benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant
Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of
Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado,
with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced
by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5)
that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co.
which was contested by Pascuala Ebrado who also filed claim for the proceeds
of said policy 6) that in view ofthe adverse claims the insurance company filed
this action against the two herein claimants Carponia and Pascuala Ebrado; 7)
that there is now due from the Insular Life Assurance Co. as proceeds of the
policy P11,745.73; 8) that the beneficiary designated by the insured in the policy
is Carponia Ebrado and the insured made reservation to change the beneficiary
but although the insured made the option to change the beneficiary, same was
never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the
designation of the parties agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured. The trial
court held: 
ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of
such guilt or commission of those acts be made in a separate independent action
brought for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to
declare the nullity of the donation).
 It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question for
the disqualification and incapacity to exist and that it is only necessary that such
fact be established by preponderance of evidence in the trial. Since it is agreed in
their stipulation above-quoted that the deceased insured and defendant Carponia
T. Ebrado were living together as husband and wife without being legally married
and that the marriage of the insured with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time the insurance in question was
purchased there is no question that defendant Carponia T. Ebrado is disqualified
from becoming the beneficiary of the policy in question and as such she is not
entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11,
1976, the Appellate Court certified the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new
Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that
"(t)he insurance shag be applied exclusively to the proper interest of the person in whose name
it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The
word "interest" highly suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory
laws against illicit relationships especially on property and descent will be rendered nugatory, as
the same could easily be circumvented by modes of insurance. Rather, the general rules of civil
law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil
Code states: "The contract of insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the
general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code,
"any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a fife insurance policy by the person who cannot make a donation to
him. 4 Common-law spouses are, definitely, barred from receiving donations from each other.
Article 739 of the new Civil Code provides:  ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at

the time of donation;

Those made between persons found guilty of the same criminal offense, in
consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by

reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee may be
proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured pays out
of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in life
insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot
receive a donation cannot be named as beneficiary in the life insurance policy of the person
who cannot make the donation. 5 Under American law, a policy of life insurance is considered as
a testament and in construing it, the courts will, so far as possible treat it as a will and determine
the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common law spouses in record to Property relations since such hip ultimately encroaches upon
the nuptial and filial rights of the legitimate family There is every reason to hold that the bar in
donations between legitimate spouses and those between illegitimate ones should be enforced
in life insurance policies since the same are based on similar consideration As above pointed
out, a beneficiary in a fife insurance policy is no different from a donee. Both are recipients of
pure beneficence. So long as manage remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married couple should likewise be imposed upon
extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities,
with more reason should an illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said:  ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L.
Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and improper pressure and
influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que
no se enganen desponjandose el uno al otro por amor que han de consuno'
(According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No
Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter
virum et uxorem); then there is very reason to apply the same prohibitive policy
to persons living together as husband and wife without the benefit of nuptials. For
it is not to be doubted that assent to such irregular connection for thirty years
bespeaks greater influence of one party over the other, so that the danger that
the law seeks to avoid is correspondingly increased. Moreover, as already
pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that
such donations should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains the cornerstone of our
family law, reason and morality alike demand that the disabilities attached to
marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above

pronouncement, any other conclusion cannot stand the test of scrutiny. It would
be to indict the frame of the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished. Moreover, if it is at all to
be differentiated the policy of the law which embodies a deeply rooted notion of
what is just and what is right would be nullified if such irregular relationship
instead of being visited with disabilities would be attended with benefits. Certainly
a legal norm should not be susceptible to such a reproach. If there is every any
occasion where the principle of statutory construction that what is within the spirit
of the law is as much a part of it as what is written, this is it. Otherwise the basic
purpose discernible in such codal provision would not be attained. Whatever
omission may be apparent in an interpretation purely literal of the language used
must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on
"persons who were guilty of adultery or concubinage at the time of the donation," Article 739
itself provides: 
ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilty of the donee may be
proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is
needed. On the contrary, the law plainly states that the guilt of the party may be proved "in the
same acting for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in
criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and
the beneficiary has been conveniently supplied by the stipulations between the parties in the
pre-trial conference of the case. It case agreed upon and stipulated therein that the deceased
insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six
legitimate children; that during his lifetime, the deceased insured was living with his common-
law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less
than judicial admissions which, as a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered
without going through the rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a
decision be rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T.
Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado
in his life insurance policy. As a consequence, the proceeds of the policy are hereby held
payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO,

CELIA CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent
Court of Appeals in CA-G.R. SP No. 229501 and its Resolution denying the petitioners' motion
for reconsideration.2 The challenged decision modified the decision of the Insurance
Commission in IC Case
No. RD-058. 3

The petitioners were the complainants in IC Case No. RD-058, an administrative complaint
against private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life),
which was filed with the Insurance Commission on 20 September 1989. 4 They prayed therein
that after due proceedings, Insular Life "be ordered to pay the claimants their insurance claims"
and that "proper sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its
contractual obligations to the complainants, and of the Insurance Code." 5 Insular Life's motion
to dismiss the complaint on the ground that "the claims of complainants are all respectively
beyond the jurisdiction of the Insurance Commission as provided in Section 416 of the
Insurance Code,"6 having been denied in the Order of 14 November 1989, 7 it filed its answer on
5 December 1989. 8 Thereafter, hearings were conducted on various dates.

On 20 June 1990, the Commission rendered its decision9 in favor of the complainants, the
dispositive portion of which reads as follows:

WHEREFORE, this Commission merely orders the respondent company to:

a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a
copy of this Decision until actual payment thereof;
 b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00
and P40,000.00, respectively;

c) Notify henceforth it should notify individual beneficiaries designated under any

Group Policy, in the event of the death of insured(s), where the corresponding
claims are filed by the Policyholder;

d) Show cause within ten days why its other responsible officers who have
handled this case should not be subjected to disciplinary and other administrative
sanctions for deliberately releasing to Capt. Nuval the check intended for
spouses ALARCON, in the absence of any Special Power of Attorney for that
matter, and for negligence with respect to the release of the other five checks.

SO ORDERED. 10

In holding for the petitioners, the Insurance Commission made the following findings and
conclusions:

After taking into consideration the evidences [sic], testimonial and documentary
for the complainants and the respondent, the Commission finds that; First: The
respondent erred in appreciating that the powers of attorney executed by five (5)
of the several beneficiaries convey absolute authority to Capt. Nuval, to demand,
receive, receipt and take delivery of insurance proceeds from respondent Insular
Life. A cursory reading of the questioned powers of authority would disclosed
[sic] that they do not contain in unequivocal and clear terms authority to Capt.
Nuval to obtain, receive, receipt from respondent company insurance proceeds
arising from the death of the seaman-insured. On the contrary, the said powers
of attorney are couched in terms which could easily arouse suspicion of an
ordinary
man. . . .

Second: The testimony of the complainants' rebuttal witness,

Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor
her husband, executed a special power of attorney in favor of Captain Rosendo
Nuval, authorizing him to claim, receive, receipt and take delivery of any
insurance proceeds from Insular Life arising out of the death of their
insured/seaman son, is not convincingly refuted.

Third: Respondent Insular Life did not observe Section 180 of the Insurance
Code, when it issued or released two checks in the amount of P150,000.00 for
the three minor children (P50,000.00 each) of complainant, Dina Ayo and
another check of P40,000.00 for minor beneficiary Marissa Lontok, daughter of
another complainant Lucia Lontok, there being no showing of any court
authorization presented or the requisite bond posted.

Section 180 is quotes [sic] partly as follows:

. . . In the absence of a judicial guardian, the father, or in the

latter's absence or incapacity, the mother of any minor, who is an
insured or a beneficiary under a contract of life, health or accident
insurance, may exercise, in behalf of said minor, any right, under
the policy, without necessity of court authority or the giving of a
bond where the interest of the minor in the particular act involved
does not exceed twenty thousand pesos . . . . 11

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

On 10 October 1991, the public respondent rendered a decision, 12 the decretal portion of which
reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom

the award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and
P40,000.00, respectively. 13

It found the following facts to have been duly established:

It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to
provide life insurance coverage to its sea-based employees enrolled under the
plan. On 17 February 1986, during the effectivity of the policy, six covered
employees of the PMSI perished at sea when their vessel, M/V Nemos, a Greek
cargo vessel, sunk somewhere in El Jadida, Morocco. They were survived by
complainants-appellees, the beneficiaries under the policy.

Following the tragic demise of their loved ones, complainants-appellees sought

to claim death benefits due them and, for this purpose, they approached the
President and General Manager of PMSI, Capt. Roberto Nuval. The latter
evinced willingness to assist complainants-appellees to recover Overseas
Workers Welfare Administration (OWWA) benefits from the POEA and to work
for the increase of their PANDIMAN and other benefits arising from the deaths of
their husbands/sons. They were thus made to execute, with the exception of the
spouses Alarcon, special powers of attorney authorizing Capt. Nuval to, among
others, "follow up, ask, demand, collect and receive" for their benefit indemnities
of sums of money due them relative to the sinking of M/V Nemos. By virtue of
these written powers of attorney, complainants-appellees were able to receive
their respective death benefits. Unknown to them, however, the PMSI, in its
capacity as employer and policyholder of the life insurance of its deceased
workers, filed with respondent-appellant formal claims for and in behalf of the
beneficiaries, through its President, Capt. Nuval. Among the documents
submitted by the latter for the processing of the claims were five special powers
of attorney executed by complainants-appellees. On the basis of these and other
documents duly submitted, respondent-appellant drew against its account with
the Bank of the Philippine Islands on 27 May 1986 six (6) checks, four for
P200,00.00 each, one for P50,000.00 and another for P40,00.00, payable to the
order of complainants-appellees. These checks were released to the treasurer of
PMSI upon instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department
Manager for Group Administration Department of respondent-appellant. Capt.
Nuval, upon receipt of these checks from the treasurer, who happened to be his
son-in-law, endorsed and deposited them in his account with the Commercial
Bank of Manila, now Boston Bank.

On 3 July 1989, after complainants-appellees learned that they were entitled, as

beneficiaries, to life insurance benefits under a group policy with respondent-
appellant, they sought to recover these benefits from Insular Life but the latter
denied their claim on the ground that the liability to complainants-appellees was
already extinguished upon delivery to and receipt by PMSI of the six (6) checks
issued in their names.14
On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction
over the case on the ground that although some of the claims exceed P100,000.00, the
petitioners had asked for administrative sanctions against Insular Life which are within the
Commission's jurisdiction to grant; hence, "there was merely a misjoinder of causes of
action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it
does not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that the
Alarcons had submitted a special power of attorney which they (Insular Life) later misplaced.

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5,"
relied upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of
the insurance pertaining to the beneficiaries. It stated:

When the officers of respondent-appellant read these written powers, they must
have assumed Capt. Nuval indeed had authority to collect the insurance
proceeds in behalf of the beneficiaries who duly affixed their signatures therein.
The written power is specific enough to define the authority of the agent to collect
any sum of money pertaining to the sinking of the fatal vessel. Respondent-
appellant interpreted this power to include the collection of insurance proceeds in
behalf of the beneficiaries concerned. We believe this is a reasonable
interpretation even by an officer of respondent-appellant unschooled in the law.
Had respondent appellant, consulted its legal department it would not have
received a contrary view. There is nothing in the law which mandates a specific
or special power of attorney to be executed to collect insurance proceeds. Such
authority is not included in the enumeration of Art. 1878 of the New Civil Code.
Neither do we perceive collection of insurance claims as an act of strict dominion
as to require a special power of attorney. Moreover, respondent-appellant had no
reason to doubt Capt. Nuval. Not only was he armed with a seemingly genuine
authorization, he also appeared to be the proper person to deal with respondent-
appellant being the President and General Manager of the PMSI, the
policyholder with whom respondent-appellant always dealt. The fact that there
was a verbal agreement between complainants-appellees and Capt. Nuval
limiting the authority of the latter to claiming specified death benefits cannot
prejudice the insurance company which relied on the terms of the powers of
attorney which on their face do not disclose such limitation. Under the
circumstances, it appearing that complainants-appellees have failed to point to a
positive provision of law or stipulation in the policy requiring a specific power of
attorney to be presented, respondents-appellant's reliance on the written powers
was in order and it cannot be penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the
requirement in Section 180 of the Insurance Code which provides in part that:

In the absence of a judicial guardian, the father, or in the latter's absence or

incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said
minor, any right under the policy, without necessity of court authority or the giving
of a bond, where the interest of the minor in the particular act involved does not
exceed twenty thousand pesos. Such a right, may include, but shall not be
limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds
of the policy, and giving the minor's consent to any transaction on the policy.

has been amended by the Family Code 17 which grants the father and mother joint legal
guardianship over the property of their unemancipated common child without the
necessity of a court appointment; however, when the market value of the property or the
annual income of the child exceeds P50,000.00, the parent concerned shall be required
to put up a bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due course after the private
respondent had filed the required comment thereon and the petitioners their reply to the
comment.
We rule for the petitioners.

We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were
executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn
Montenegro, respectively, on 14 May 198618 and uniformly granted to Capt. Rosendo Nuval the
following powers:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum
of money due me relative to the sinking of M.V. NEMOS in the vicinity of El
Jadida, Casablanca, Morocco on the evening of February 17, 1986; and

To sign receipts, documents, pertinent waivers of indemnities or other writings of

whatsoever nature with any and all third persons, concerns and entities, upon
terms and conditions acceptable to my said attorney.

We agree with the Insurance Commission that the special powers of attorney "do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent
company insurance proceeds arising from the death of the seaman-insured. On the contrary,
the said powers of attorney are couched in terms which could easily arouse suspicion of an
ordinary man." 19 The holding of the public respondent to the contrary is principally premised on
its opinion that:

[t]here is nothing in the law which mandates a specific or special power of

attorney to be executed to collect insurance proceeds. Such authority is not
included in the enumeration of art. 1878 of the New Civil Code. Neither do we
perceive collection of insurance claims as an act of strict dominion as to require a
special power of attorney.

If this be so, then they could not have been meant to be a general power of attorney
since Exhibits "1" to "5" are special powers of attorney. The execution by the principals
of special powers of attorney, which clearly appeared to be in prepared forms and only
had to be filled up with their names, residences, dates of execution, dates of
acknowledgment and others, excludes any intent to grant a general power of attorney or
to constitute a universal agency. Being special powers of attorney, they must be strictly
construed.

Certainly, it would be highly imprudent to read into the special powers of attorney in question the
power to collect and receive the insurance proceeds due the petitioners from Group Policy No.
G-004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection
and receipt of such proceeds was a deviation from its practice with respect to group policies.
Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the
Group Administrative Department, thus:

ATTY. CAGUIOA:

Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?

WITNESS:

a The practice of our company in claim pertaining to group

insurance, the policyholder is the one who files the claim for the
beneficiaries of the deceased. At that time, Capt. Noval [sic] is the
President and General Manager of Prime Marine.

q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of the
policyholders?

a Yes because group insurance is normally taken by the employer

as an employee-benefit program and as such, the benefit should
 be awarded by the policyholder to make it appear that the benefit
really is given by the employer. 20

On cross-examination, Urbano further elaborated that even payments, among other things, are
coursed through the policyholder:

q What is the corporate concept of group insurance insofar as

Insular Life is concerned?

WITNESS:

a Group insurance is a contract where a group of individuals are

covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company.
In our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between
Prime Marine and Insular Life.

q And so it is part of that concept that all inquiries, follow-up,

payment of claims, premium billings, etc. should always be
coursed thru the policyholder?

a Yes that is our practice.

q And when you say claim payments should always be coursed

thru the policyholder, do you require a power of attorney to be
presented by the policyholder or not?

a Not necessarily.

q In other words, under a group insurance policy like the one in

this case, Insular Life could pay the claims to the policyholder
himself even without the presentation of any power of attorney
from the designated beneficiaries?

x x x           x x x          x x x

WITNESS:

a No. Sir.

ATTY. AMPIL:

q Why? Is this case, the present case different from the cases
which you answered that no power of attorney is necessary in
claims payments?

WITNESS:

a We did not pay Prime Marine; we paid the beneficiaries.

q Will you now tell the Honorable Commission why you did not
pay Prime Marine and instead paid the beneficiaries, the
designated beneficiaries?

x x x           x x x          x x x

ATTY. AMPIL:
 I will rephrase the question.

q Will you tell the Commission what circumstances led you to pay
the designated beneficiaries, the complainants in this case,
instead of the policyholder when as you answered a while ago, it
is your practice in group insurance that claims payments, etc., are
coursed thru the policyholder?

WITNESS:

a It is coursed but, it is not paid to the policyholder.

q And so in this case, you gave the checks to the policyholder only
coursing them thru said policyholder?

a That is right, Sir.

q Not directly to the designated beneficiaries?

a Yes, Sir. 21

This practice is usual in the group insurance business and is consistent with the jurisprudence
thereon in the State of California — from whose laws our Insurance Code has been mainly
patterned — which holds that the employer-policyholder is the agent of the insurer.

Group insurance is a comparatively new form of insurance. In the United States, the first
modern group insurance policies appear to have been issued in 1911 by the Equitable Life
Assurance Society. 22 Group insurance is essentially a single insurance contract that provides
coverage for many individuals. In its original and most common form, group insurance provides
life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that
is issued by the insurer to a representative of the group or to an administrator of the insurance
program, such as an employer. 23 The employer acts as a functionary in the collection and
payment of premiums and in performing related duties. Likewise falling within the ambit of
administration of a group policy is the disbursement of insurance payments by the employer to
the employees. 24 Most policies, such as the one in this case, require an employee to pay a
portion of the premium, which the employer deducts from wages while the remainder is paid by
the employer. This is known as a contributory plan as compared to a non-contributory plan
where the premiums are solely paid by the employer.

Although the employer may be the titular or named insured, the insurance is actually related to
the life and health of the employee. Indeed, the employee is in the position of a real party to the
master policy, and even in a non-contributory plan, the payment by the employer of the entire
premium is a part of the total compensation paid for the services of the employee. 25 Put
differently, the labor of the employees is the true source of the benefits, which are a form of
additional compensation to them.

It has been stated that every problem concerning group insurance presented to a court should
be approached with the purpose of giving to it every legitimate opportunity of becoming a social
agency of real consequence considering that the primary aim is to provide the employer with a
means of procuring insurance protection for his employees and their families at the lowest
possible cost, and in so doing, the employer creates goodwill with his employees, enables the
employees to carry a larger amount of insurance than they could otherwise, and helps to attract
and hold a permanent class of employees. 26

In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly
ruled that in group insurance policies, the employer is the agent of the insurer. Thus:

We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the
 employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if the
employer relieves the insurer of these tasks, and this, of course, is advantageous
to both the employer and the employees, the insurer also enjoys significant
advantages from the arrangement. The reduction in the premium which results
from employer-administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer's own administrative costs are markedly
reduced.

xxx xxx xxx

The most persuasive rationale for adopting the view that the employer acts as
the agent of the insurer, however, is that the employee has no knowledge of or
control over the employer's actions in handling the policy or its administration. An
agency relationship is based upon consent by one person that another shall act
in his behalf and be subject to his control. It is clear from the evidence regarding
procedural techniques here that the insurer-employer relationship meets this
agency test with regard to the administration of the policy, whereas that between
the employer and its employees fails to reflect true agency. The insurer directs
the performance of the employer's administrative acts, and if these duties are not
undertaken properly the insurer is in a position to exercise more constricted
control over the employer's conduct.

In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that:

[t]he employer owes to the employee the duty of good faith and due care in
attending to the policy, and that the employer should make clear to the employee
anything required of him to keep the policy in effect, and the time that the
obligations are due. In its position as administrator of the policy, we feel also that
the employer should be considered as the agent of the insurer, and any omission
of duty to the employee in its administration should be attributable to the insurer.

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock
Mutual Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of
Equalization.30

In the light of the above disquisitions and after an examination of the facts of this case, we hold
that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of
Insular Life. The latter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners.
Unfortunately, through its official, Mr. Urbano, it acted imprudently and negligently in the
premises by relying without question on the special power of attorney. In Strong
vs. Repide, 31 this Court ruled that it is among the established principles in the civil law of Europe
as well as the common law of American that third persons deal with agents at their peril and are
bound to inquire as to the extent of the power of the agent with whom they contract. And
in Harry E. Keller Electric Co. vs. Rodriguez, 32 this Court, quoting Mechem on Agency, 33 stated
that:

The person dealing with an agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that
the agent is exceeding his authority, he cannot claim protection. So if the
suggestions of probable limitations be of such a clear and reasonable quality, or
if the character assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an unusual or
improbable character, as would suffice to put an ordinarily prudent man upon his
guard, the party dealing with him may not shut his eyes to the real state of the
case, but should either refuse to deal with the agent at all, or should ascertain
from the principal the true condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of attorney were in due form,
Insular Life was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a
party who is not the agent mentioned in the special power of attorney.

Nor can we agree with the opinion of the public respondent that since the shares of the minors
in the insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code
their mothers could receive such shares without need of either court appointments as guardian
or the posting of a bond. It is of the view that said Article had repealed the third paragraph of
Section 180 of the Insurance Code. 34 The pertinent portion of Article 225 of the Family Code
reads as follows:

Art. 225. The father and the mother shall jointly exercise legal guardianship over
the property of their unemancipated common child without the necessity of a
court appointment. In case of disagreement, the father's decision shall prevail,
unless there is judicial order to the contrary.

Where the market value of the property or the annual income of the child
exceeds P50,000, the parent concerned shall be required to furnish a bond in
such amount as the court may determine, but not less than ten per centum (10%)
of the value of the property or annual income, to guarantee the performance of
the obligations prescribed for general guardians.

It is clear from the said Article that regardless of the value of the unemancipated common child's
property, the father and mother ipso jure become the legal guardian of the child's property.
However, if the market value of the property or the annual income of the child exceeds
P50,000.00, a bond has to be posted by the parents concerned to guarantee the performance of
the obligations of a general guardian.

It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks
of the "market value of the property or the annual income of the child," which means, therefore,
the aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is
required. There is no evidence that the share of each of the minors in the proceeds of the group
policy in question is the minor's only property. Without such evidence, it would not be safe to
conclude that, indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of

10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP
No. 22950 are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-
058 is REINSTATED.

Costs against the private respondent.

SO ORDERED.

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 Resolution2 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.