2F INSURANCE DIGESTS|2021

Case No. BPI v. Posadas

7 G. No. 34583. October 22, 1931
Topic: Life Insurance

The Bank of the Philippine Islands, as administrator of the estate of the deceased
Adolphe Oscar Schuetze, has appealed to this court from the judgment of the CFI of
Manila absolving the defendant Juan Posadas, Jr., Collector of Internal Revenue, from
the complaint filed against him by said plaintiff bank, and dismissing the complaint with
costs.

The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector
of Internal Revenue, the amount of P1,209 paid by the plaintiff under protest, in its
capacity of administrator of the estate of the late Adolphe Oscar Schuetze, as inheritance
tax upon the sum of P20,150, which is the amount of an insurance policy on the
deceased's life, wherein his own estate was named the beneficiary.

Rosario Gelano and Adolphe Schuetze were married in January 1914. The wife was
actually residing and living in Germany when Adolphe died in December 1927. The latter
while in Germany, executed a will in March 1926, pursuant with its law wherein plaintiff
Rosario was named his universal heir. The deceased possessed not only real property
situated in the Philippines but also personal property consisting of shares of stocks in 19
domestic corporations. Included in the personal property is a life insurance policy issued
at Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance Company
of Canada, Manila Branch. In the insurance policy, the estate of the deceased was
FACTS: named the beneficiary without any qualification.

The plaintiff-appellant, the Bank of the Philippine Islands, was appointed administrator of
the late Adolphe Oscar Schuetze's testamentary estate by an order, entered by the Court
of First Instance of Manila. The Sun Life Assurance Company of Canada, whose main
office is in Montreal, Canada, paid Rosario Gelano Vda. de Schuetze upon her arrival at
Manila, the sum of P20,150, which was the amount of the insurance policy on the life of
said deceased, payable to the latter's estate. On the same date Rosario Gelano Vda. de
Schuetze delivered the money to said Bank of the Philippine Islands, as administrator of
the deceased's estate, which entered it in the inventory of the testamentary estate, and
then returned the money to said widow. The appellee (Posadas) alleges that it is a
fundamental principle that a life-insurance policy belongs exclusively to the beneficiary
upon the death of the person insured.

BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI

Manila absolving defendant, Collector of Internal Revenue, from the complaint filed
against him in recovering the inheritance tax amounting to P1209 paid by the plaintiff,
Rosario Gelano Vda de Schuetze, under protest, and sum of P20,150 representing the
proceeds of the insurance policy of the deceased. Notwithstanding various demands
made by plaintiff, Posadas refused to refund such amount.

ISSUE/S: Whether or not the wife is entitled to the proceeds of the life insurance.
2F INSURANCE DIGESTS|2021
YES. Life insurance policy for $10,000 was issued on Jan. 14, 1913. During the following
five years the insured paid the premiums at the Manila branch of the company, and in
1918 the policy was transferred to the London branch. The records show that the
marriage of Schuetze and Gelano was on Jan. 16, 1914. With the exception of the
premium for the first year covering the period from January 14, 1913 to January 14, 1914,
all the money used for paying the premiums is conjugal property inasmuch as it
does not appear to have exclusively belonged to him or to his wife. As the sum of
P20,150 here in controversy is a product of such premium it must also be deemed
community property, because it was acquired for a valuable consideration, during said
Adolphe Oscar Schuetze's marriage with Rosario Gelano at the expense of the common
fund, except for the small part corresponding to the first premium paid with the deceased's
own money.

Thus, both according to our Civil Code and to the ruling of those North American States
where the Spanish Civil Code once governed (See Annex), the proceeds of a life-
insurance policy whereon the premiums were paid with conjugal money, belong to
the conjugal partnership.

The estate of a deceased person cannot be placed on the same footing as an individual
heir. The proceeds of a life-insurance policy payable to the estate of the insured
passed to the executor or administrator of such estate, and forms part of its;
whereas the proceeds of a life-insurance policy payable to an heir of the insured as
beneficiary belongs exclusively to said heir and does not form part of the
deceased's estate subject to administration.
HELD:
In a conjugal partnership the husband is the manager, empowered to alienate the
partnership property without the wife's consent (art. 1413, Civil Code), a third person,
therefore, named beneficiary in a life-insurance policy becomes the absolute
owner of its proceeds upon the death of the insured even if the premiums should
have been paid with money belonging to the community property.

As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar
Schuetze, were paid out of the conjugal funds, with the exception of the first, the
proceeds of the policy, excluding the proportional part corresponding to the first
premium, constitute community property, notwithstanding the fact that the policy
was made payable to the deceased's estate, so that one-half of said proceeds
belongs to the estate, and the other half to the deceased's widow, the plaintiff-
appellant Rosario Gelano Vda. de Schuetze.

In sum, (1) the proceeds of a life-insurance policy payable to the insured's estate, on
which the premiums were paid by the conjugal partnership, constitute community
property, and belong one-half to the husband and the other half to the wife, exclusively;
(2) if the premiums were paid partly with paraphernal and partly conjugal funds, the
proceeds are likewise in like proportion paraphernal in part and conjugal in part; and
(3)the proceeds of a life-insurance policy payable to the insured's estate as the
beneficiary, if delivered to the testamentary administrator of the former as part of the
assets of said estate under probate administration, are subject to the inheritance tax
according to the law on the matter, if they belong to the assured exclusively, and it is
immaterial that the insured was domiciled in these Islands or outside.
2F INSURANCE DIGESTS|2021
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected
upon the amount of P20,150, being the proceeds of the insurance policy on the life of the
late Adolphe Oscar Schuetze, after deducting the proportional part corresponding to the
first premium.

Manresa on Life Insurance:

"The amount of the policy represents the premium to be paid, and the right to it arises the
moment the contract is perfected, for at that moment the power of disposing of it may be
exercised, and if death occurs payment may be demanded. It is therefore something
acquired for a valuable consideration during the marriage, though the period of its
fulfillment, depend upon the death of one of the spouses, which terminates the
partnership. So considered, the question may be said to be decided by articles 1396 and
1401: if the premiums are paid with the exclusive property of husband or wife, the policy
belongs to the owner; if with conjugal property, or if the money cannot be proved as
coming from one or the other of the spouses, the policy is community property."

Supreme Court of Texas, United States, in the case of Martin vs. Moran:
"COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A husband took out an
endowment life insurance policy on his life, payable 'as directed by will.' He paid the
premiums thereon out of community funds, and by his will made the proceeds of the
policy payable to his own estate. Held, that the proceeds were community estate, one-
half of which belonged to the wife.

In re Stan's Estate, Myr. Prob (Cal.) 5, the Supreme Court of California laid down the
following doctrine:
ANNEX "A testator, after marriage, took out an insurance policy, on which he paid the premiums
from his salary. Held that the insurance money was community property, to one-half of
which, the wife was entitled as survivor."

In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following
doctrine:
"A decedant paid the first third of the amount of the premiums on his life- insurance policy
out of his earnings before marriage, and the remainder from his earnings received after
marriage. Held, that one- third of the policy belonged to his separate estate, and the
remainder to the community property."

With regard to whether an inheritance tax may be imposed on the ½ payable to the estate
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze
and made payable to his estate, were delivered to the Bank of the Philippine Islands for
administration and distribution, they were not in transit but were more or less permanently
located in the Philippine Islands, according to the foregoing rules. If this be so, half of the
proceeds which is community property, belongs to the estate of the deceased and is
subject to the inheritance tax, in accordance with the legal provision quoted above,
irrespective of whether or not the late Adolphe Oscar Schuetze was domiciled in the
Philippine Islands at the time of his death.