THIRD DIVISION (4) Any malicious damage caused by the Insured, any member of his family or by "A
PERSON IN THE INSURED’S SERVICE."
G.R. No. 198174               September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six
Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up.
However, Lanuza no longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and
demanded payment of the insurance proceeds in the total sum of ₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you. We
would like to invite you on the provision of the Policy under Exceptions to Section-III, which
we quote:
1.) The Company shall not be liable for:
xxxx
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and
argued that the exception refers to damage of the motor vehicle and not to its loss. However,
petitioner’s denial of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner
before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent
in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time
of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s
decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision,
dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil
Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied
in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance
of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF
THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT
EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF
THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH
THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN
FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE
JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is
excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit
by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first
amount of each and every loss for each and every vehicle insured by this Policy, such
amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as
shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns,
failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the
Insured’s service.6
In denying respondent’s claim, petitioner takes exception by arguing that the word "damage,"
under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person,
property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it
asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver
is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since Section III thereof did not qualify as to who would commit the theft.
Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the
insurance policy subject of this case. This is evident from the very provision of Section III –
"Loss or Damage." The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit
the theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by
the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for
which the parties entered into the contract which is to insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that which
is most favorable to the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be held liable, then
this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would
be committed by the insured himself, the same would be an exception to the coverage since
in that case there would be fraud on the part of the insured or breach of material warranty
under Section 69 of the Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning as understood in
common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in
common ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep
possession, while the word "damage" means deterioration or injury to property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance
policy under paragraph 4 of "Exceptions to Section III," since the same refers only to
"malicious damage," or more specifically, "injury" to the motor vehicle caused by a person
under the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as
one of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the insured’s
service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears
to clearly delineate between the terms "loss" and "damage" by using both terms throughout
the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term
"damage" then logic dictates that it should have used the term "damage" alone in the entire
policy or otherwise included a clear definition of the said term as part of the provisions of the
said insurance contract. Which is why the Court finds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one
of the crucial parts in the insurance contract, the insurer, after liberally using the words "loss"
and "damage" in the entire policy, suddenly went specific by using the word "damage" only in
the policy’s exception regarding "malicious damage." Now, the defendant-appellant would like
this Court to believe that it really intended the word "damage" in the term "malicious damage"
to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have
used. In the case of property insurance policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the import of the various terms and
provisions embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, the policy will be construed by the courts liberally in favor of
the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens
Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court ruled
–
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we
reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation. Being
a contract of adhesion, the terms of an insurance contract are to be construed strictly against
the party which prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity
must be strictly interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the
Court of Appeals are hereby AFFIRMED.
 SECOND DIVISION Item - P7,691,000.00 - on the Clubhouse only

G.R. No. 156167             May 16, 2005 @ .392%;

- 1,500,000.00 - on the furniture, etc. contained in the building a
GULF RESORTS, INC., petitioner, mentioned@ .490%;
vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent. - 393,000.00 - on the two swimming pools, only (against the p
earthquake shock only) @ 0.100%
DECISION - 116,600.00 other buildings include as follows:
a) Tilter House - P19,800.00 - 0.551%
PUNO, J.:
b) Power House - P41,000.00 - 0.551%
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by c) House Shed - P55,000.00 - 0.540%
petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE P100,000.00 - for furniture, fixtures, lines air-con and operatin
CORPORATION. Petitioner assails the appellate court decision 1 which dismissed its two equipment
appeals and affirmed the judgment of the trial court.
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU)
For review are the warring interpretations of petitioner and respondent on the scope of the Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in
insurance company’s liability for earthquake damage to petitioner’s properties. Petitioner said policy be copied in the policy to be issued by defendant; that defendant issued
avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991
covers all damages to the properties within its resort caused by earthquake. Respondent for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the
contends that the rider limits its liability for loss to the two swimming pools of petitioner. computation of the premium, defendant’s Policy No. 31944 (Exh. "I"), which is the
policy in question, contained on the right-hand upper portion of page 7 thereof, the
The facts as established by the court a quo, and affirmed by the appellate court are as following:
follows:
Rate-Various
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Premium – P37,420.60 F/L
Company (AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from – 2,061.52 – Typhoon
1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. – 1,030.76 – EC
"1", "2", "3" and "4" respectively), the risk of loss from earthquake shock was
extended only to plaintiff’s two swimming pools, thus, "earthquake shock endt." (Item – 393.00 – ES
5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; ‘D- Doc. Stamps 3,068.10
1", "E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools
only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in F.S.T. 776.89
plaintiff’s favor Policy No. 206-4182383-0 covering the period March 14, 1988 to Prem. Tax 409.05
March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake TOTAL 45,159.92;
endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was
deleted and the entry under Endorsements/Warranties at the time of issue read that
plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March that the above break-down of premiums shows that plaintiff paid only P393.00 as
14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under premium against earthquake shock (ES); that in all the six insurance policies (Exhs.
"Endorsement/Warranties at Time of Issue", which read "Endorsement to Include "C", "D", "E", "F", "G" and "H"), the premium against the peril of earthquake shock is
Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and paid P42,658.14 the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02"
(Exhs. "6-A" and "6-B") as premium thereof, computed as follows: and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G"
 and "H") and in Policy No. 31944 issued by defendant, the shock endorsement
provide(sic):
In consideration of the payment by the insured to the company of the
sum included additional premium the Company agrees, notwithstanding what
is stated in the printed conditions of this policy due to the contrary, that this
insurance covers loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake (Exhs.
"1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");
that in Exhibit "7-C" the word "included" above the underlined portion was deleted;
that on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and
plaintiff’s properties covered by Policy No. 31944 issued by defendant, including the
two swimming pools in its Agoo Playa Resort were damaged. 2
After the earthquake, petitioner advised respondent that it would be making a claim under its
Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner
to file a formal claim, then assigned the investigation of the claim to an independent claims
adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through its
adjuster, requested petitioner to submit various documents in support of its claim. On August
7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de
Leon,4 rendered a preliminary report5 finding extensive damage caused by the earthquake to
the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the
swimming pools, all affected items have no coverage for earthquake shocks." 6 On August 11,
1990, petitioner filed its formal demand7 for settlement of the damage to all its properties in
the Agoo Playa Resort. On August 23, 1990, respondent denied petitioner’s claim on the
ground that its insurance policy only afforded earthquake shock coverage to the two
swimming pools of the resort.8 Petitioner and respondent failed to arrive at a
settlement.9 Thus, on January 24, 1991, petitioner filed a complaint 10 with the regional trial
court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured
properties, with interest thereon, as computed under par. 29 of the policy (Annex "B")
until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by
plaintiff on account of defendant’s refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney’s fees and expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory
Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00
against the peril of earthquake shock, the same premium it paid against earthquake
shock only on the two swimming pools in all the policies issued by AHAC(AIU)
(Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must consequently
agree with the position of defendant that the endorsement rider (Exhibit "7-C") means
that only the two swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence,
where the language used in an insurance contract or application is such as to create
ambiguity the same should be resolved against the party responsible therefor, i.e.,
the insurance company which prepared the contract. To the mind of [the] Court, the
language used in the policy in litigation is clear and unambiguous hence there is no
need for interpretation or construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools
had earthquake shock coverage and were heavily damaged by the earthquake which
struck on July 16, 1990. Defendant having admitted that the damage to the swimming
pools was appraised by defendant’s adjuster at P386,000.00, defendant must, by
virtue of the contract of insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding
paragraph that defendant is liable only for the damage caused to the two (2)
swimming pools and that defendant has made known to plaintiff its willingness and
readiness to settle said liability, there is no basis for the grant of the other damages
prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree
that the action filed by plaintiff is baseless and highly speculative since such action is
a lawful exercise of the plaintiff’s right to come to Court in the honest belief that their
Complaint is meritorious. The prayer, therefore, of defendant for damages is likewise
denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum
of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing
damage to the two (2) swimming pools, with interest at 6% per annum from the date
of the filing of the Complaint until defendant’s obligation to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the
Court of Appeals based on the following assigned errors: 14
 A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN
ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER
ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY
16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S
RIGHT TO RECOVER UNDER DEFENDANT-APPELLEE’S POLICY (NO. 31944;
EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS
ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE
EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT
IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT
24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to
award it attorney’s fees and damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are
not convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the
plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance
contract with Philippine Charter Insurance Corporation is said to have been based
and copied (Exh. "I"), covered an extended earthquake shock insurance on all the
insured properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellant’s
prayer for the imposition of interest – 24% on the insurance claim and 6% on loss of
income allegedly amounting to P4,280,000.00. Since the defendant-appellant has
expressed its willingness to pay the damage caused on the two (2) swimming pools,
as the Court a quo and this Court correctly found it to be liable only, it then cannot be
said that it was in default and therefore liable for interest.
Coming to the defendant-appellant’s prayer for an attorney’s fees, long-standing is
the rule that the award thereof is subject to the sound discretion of the court. Thus, if
such discretion is well-exercised, it will not be disturbed on appeal (Castro et al. v.
CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an
exception rather than a rule, it is necessary for the court to make findings of facts and
law that would bring the case within the exception and justify the grant of such award
(Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose
Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-
appellant’s action is not baseless and highly speculative, We find that the Court a quo
did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and
judgment of the Trial Court hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues: 16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER
RESPONDENT’S INSURANCE POLICY NO. 31944, ONLY THE TWO (2)
SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S
PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED,
ATTORNEY’S FEES AND EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policy’s earthquake shock endorsement clearly covers all of the properties
insured and not only the swimming pools. It used the words "any property insured by this
policy," and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is
confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage
Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies." 17
Third, that the qualification referring to the two swimming pools had already been deleted in
the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission
when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the
wording of the insurance policy, because the rider is the more deliberate expression of the
agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of
petitioner and against respondent. It was respondent which caused the ambiguity when it
made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement
should be interpreted as a caveat on the standard fire insurance policy, such as to remove
the two swimming pools from the coverage for the risk of fire. It should not be used to limit the
respondent’s liability for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not
paid under the extended coverage. The premium for the earthquake shock coverage was
already included in the premium paid for the policy.
Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy
from respondent, petitioner told respondent that it wanted an exact replica of its latest
insurance policy from American Home Assurance Company (AHAC-AIU), which covered all
the resort’s properties for earthquake shock damage and respondent agreed. After the July
16, 1990 earthquake, respondent assured petitioner that it was covered for earthquake
shock. Respondent’s insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise
requested petitioner to submit the necessary documents for its building claims and other
repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance
policy it issued to petitioner covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari  under Rule 45 of
the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence
in order to establish the facts upon which this petition is based.
On the other hand, respondent made the following counter arguments: 18
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly
extended coverage against earthquake shock to petitioner’s insured properties other than on
the two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming
pools were insured against earthquake shock. From 1988 until 1990, the provisions in its
policy were practically identical to its earlier policies, and there was no increase in the
premium paid. AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically
stated that its previous policy, from which respondent’s policy was copied, covered only
earthquake shock for the two swimming pools.
Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the
policy only covered earthquake shock damage on the two swimming pools. The amount was
the same amount paid by petitioner for earthquake shock coverage on the two swimming
pools from 1990-1991. No additional premium was paid to warrant coverage of the other
properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the
earthquake shock coverage to all of petitioner’s properties. As per its agreement with
petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner.
Although the first five policies contained the said qualification in their rider’s title, in the last
two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III,
stated that such deletion was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose descriptive title was
merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the other
provisions, specially the enumeration of the items insured, where only the two swimming
pools were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the
phrase "Item 5 – P393,000.00 – on the two swimming pools only (against the peril of
earthquake shock only)" meant that only the swimming pools were insured for earthquake
damage. The same phrase is used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid
for all the properties covered. In all of its seven insurance policies, petitioner only
paid P393.00 as premium for coverage of the swimming pools against earthquake shock. No
other premium was paid for earthquake shock coverage on the other properties. In addition,
the use of the qualifier "ANY" instead of "ALL" to describe the property covered was done
deliberately to enable the parties to specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
included in the earthquake shock coverage. Petitioner’s own evidence shows that it only
required respondent to follow the exact provisions of its previous policy from AHAC-AIU.
Respondent complied with this requirement. Respondent’s only deviation from the agreement
was when it modified the provisions regarding the replacement cost endorsement. With
regard to the issue under litigation, the riders of the old policy and the policy in issue are
identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it
from maintaining that only the two swimming pools were covered for earthquake shock. The
adjuster’s letter notifying petitioner to present certain documents for its building claims and
repair costs was given to petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only"
after the descriptive name or title of the Earthquake Shock Endorsement. However, the words
of the policy reflect the parties’ clear intention to limit earthquake shock coverage to the two
swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not A DISCOUNT OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY
object to any deficiency nor did it institute any action to reform the policy. The policy binds the UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x
petitioner. x AND TO PAY THE PREMIUM.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation
expenses. Since respondent was willing and able to pay for the damage caused on the two
swimming pools, it cannot be considered to be in default, and therefore, it is not liable for
interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at
bar.
First, in the designation of location of risk, only the two swimming pools were specified as
included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of
earthquake shock only)20
Second, under the breakdown for premium payments,21 it was stated that:
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum
of P. . . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding
what is stated in the printed conditions of this Policy to the contrary, that this
insurance covers loss or damage (including loss or damage by fire) to any of the
property insured by this Policy occasioned by or through or in consequence of
Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as
they may be hereby expressly varied) and that any reference therein to loss or
damage by fire should be deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.24
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of
the earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all
of the insured properties.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
PREMIUM RECAPITULATION consonance with each other.25 All its parts are reflective of the true intent of the parties. The
ITEM NOS. AMOUNT RATES PREMIUM policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then
xxx made to control; neither do particular words or phrases necessarily determine its character.
Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
3 393,000.00 0.100%-E/S 393.0022] provisions. All the provisions and riders, taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two swimming pools only.
Third, Policy Condition No. 6 stated:
A careful examination of the premium recapitulation will show that it is the clear intent of the
6. This insurance does not cover any loss or damage occasioned by or through or in parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of
consequence, directly or indirectly of any of the following occurrences, namely:-- the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. Thus, an insurance contract exists where the following
(a) Earthquake, volcanic eruption or other convulsion of nature. 23
elements concur:
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include
1. The insured has an insurable interest;
the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:

2. The insured is subject to a risk of loss by the happening of the designated peril;
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
3. The insurer assumes the risk;
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE
SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF
 4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a
premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.27 In fire, casualty, and marine insurance, the premium
payable becomes a debt as soon as the risk attaches.28 In the subject policy, no premium
payments were made with regard to earthquake shock coverage, except on the two
swimming pools. There is no mention of any premium payable for the other resort properties
with regard to earthquake shock. This is consistent with the history of petitioner’s previous
insurance policies from AHAC-AIU. As borne out by petitioner’s witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance
policy during the period from March 4, 1984 to March 4, 1985 the coverage on
earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,
there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the
two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of
course subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what
insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14,
1989, did you give written instruction to Forte Insurance Agency advising it that the
earthquake shock coverage must extend to all properties of Agoo Playa Resort in La
Union?
A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other properties of the
company.
Q. And that instruction, according to you, was very important because in April 1987
there was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the
[future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions
with respect to your instructions that all properties must be covered again by
earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
 A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I was
contented already that the previous limitation pertaining to the two swimming pools
was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended
Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term
Policies"29 to the insurance policy as proof of the intent of the parties to extend the coverage
for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles
of the riders, clauses, warranties or endorsements to which the policy is subject, as required
under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand
alone. As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did
you have occasion to review of (sic) these six (6) policies issued by your
company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on
the basis on (sic) the wordings indicated in Exhibits C to H respectively what was the
extent of the coverage [against] the peril of earthquake shock as provided for in each
of the six (6) policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming
pools only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone
basis. For swimming pools we do cover earthquake shock. For building we
covered it for full earthquake coverage which includes earthquake shock…
COURT:
As far as earthquake shock endorsement you do not have a specific
coverage for other things other than swimming pool? You are covering
building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering
building or another we can issue earthquake shock solely but that the
moment I see this, the thing that comes to my mind is either insuring a
swimming pool, foundations, they are normally affected by earthquake but
not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E A. Yes, sir.
and F inclusive [remained] its coverage against earthquake shock to two (2)
swimming pools only but that Exhibits G and H respectively entend the coverage ATTY. ANDRES:
against earthquake shock to all the properties indicated in the respective schedules
attached to said policies, what can you say about that testimony of plaintiff’s witness? Will you not also agree with me that these exhibits, Exhibits G and H which
you have pointed to during your direct-examination, the phrase "Item no. 5
WITNESS: only" meaning to (sic) the two (2) swimming pools was deleted from the
policies issued by AIU, is it not?
As I have mentioned earlier, earthquake shock cannot stand alone without
the other half of it. I assure you that this one covers the two swimming pools xxx
with respect to earthquake shock endorsement. Based on it, if we are going
to look at the premium there has been no change with respect to the rates. ATTY. ANDRES:
Everytime (sic) there is a renewal if the intention of the insurer was to include
the earthquake shock, I think there is a substantial increase in the premium.
We are not only going to consider the two (2) swimming pools of the other as As an insurance executive will you not attach any significance to the deletion
stated in the policy. As I see, there is no increase in the amount of the of the qualifying phrase for the policies?
premium. I must say that the coverage was not broaden (sic) to include the
other items. WITNESS:

COURT: My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
They are the same, the premium rates? inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.
WITNESS:
The Court also rejects petitioner’s contention that respondent’s contemporaneous and
subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance
They are the same in the sence (sic), in the amount of the coverage. If you that the coverage of the earthquake shock endorsement included all its properties in the
are going to do some computation based on the rates you will arrive at the resort. Respondent only insured the properties as intended by the petitioner. Petitioner’s own
same premiums, your Honor. witness testified to this agreement, viz:

CROSS-EXAMINATION OF JUAN BARANDA III CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, September 7, 1992 TSN, January 14, 1992
pp. 4-6 pp. 4-5

ATTY. ANDRES: Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did
you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy
Would you as a matter of practice [insure] swimming pools for fire insurance? from Philippine Charter Insurance Corporation?

WITNESS: A. I told him that the insurance that they will have to get will have the same provisions
as this American Home Insurance Policy No. 206-4568061-9.
No, we don’t, sir.
Q. You are referring to Exhibit "H" of course?
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only"
was placed, is it not? A. Yes, sir, to Exhibit "H".
 Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they
will be charging will be limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits "I" and "H" sometime in the third week
of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy
wordings as well as scope of coverage of Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already
that the policy wordings and rates were copied from the insurance policy I sent them
but it was only when this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit "I" and those indicated in
Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was exactly
the same P393,000.00 on the two (2) swimming pools only against the peril of
earthquake shock which I understood before that this provision will have to be placed
here because this particular provision under the peril of earthquake shock only is
requested because this is an insurance policy and therefore cannot be insured
against fire, so this has to be placed.
The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne
Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the two swimming
pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors,
Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a
photocopy of the insurance coverage policy and it was indicated under Item 3
specifically that the coverage is only for earthquake shock. Then, I remember I had a
talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and
he confirmed to me indeed only Item 3 which were the two swimming pools have
coverage for earthquake shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that
except for the swimming pools all affected items have no coverage for earthquake
shock?
xxx
A. I based my statement on my findings, because upon my examination of the policy I
found out that under Item 3 it was specific on the wordings that on the two swimming
pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock
only), and secondly, when I examined the summary of premium payment only Item 3
which refers to the swimming pools have a computation for premium payment for
earthquake shock and all the other items have no computation for payment of
premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be
liberally construed in favor of the insured and strictly against the insurer company which
usually prepares it.31 A contract of adhesion is one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party merely affixes his signature or
his "adhesion" thereto. Through the years, the courts have held that in these type of
contracts, the parties do not bargain on equal footing, the weaker party's participation being
reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for
the weaker party whom the courts of justice must protect. 32 Consequently, any ambiguity
therein is resolved against the insurer, or construed liberally in favor of the insured. 33
The case law will show that this Court will only rule out blind adherence to terms where facts
and circumstances will show that they are basically one-sided. 34 Thus, we have called on
lower courts to remain careful in scrutinizing the factual circumstances behind each case to
determine the efficacy of the claims of contending parties. In Development Bank of the SO ORDERED.
Philippines v. National Merchandising Corporation, et al.,35 the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents
with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner
cannot claim it did not know the provisions of the policy. From the inception of the policy,
petitioner had required the respondent to copy verbatim the provisions and terms of its latest
insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct
participant in securing the insurance policy of petitioner, is reflective of petitioner’s
knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36

TSN, September 23, 1991
pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact provisions of
the previous insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted
in the American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I

specifically told him that the policy and wordings shall be copied from the AIU Policy
No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No.
206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in
some terms, specifically in the replacement cost endorsement, but the principal provisions of
the policy remained essentially similar to AHAC-AIU’s policy. Consequently, we cannot apply
the "fine print" or "contract of adhesion" rule in this case as the parties’ intent to limit the
coverage of the policy to the two swimming pools only is not ambiguous. 37

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition
for certiorari is dismissed. No costs.
 FIRST DIVISION
G.R. No. 125678      March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever consulted or been treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?
(If Yes, give details).1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as
annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March
1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage
was increased to a maximum sum of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors
at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an
action for damages against petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus
moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the
plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late
Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid
to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to
plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity
of the agreement until its expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,7 petitioner argues that the incontestability clause does
not apply, as the same requires an effectivity period of at least two years. Petitioner further
argues that it is not an insurance company, which is governed by the Insurance Commission,
but a Health Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
 1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past
or future, which may damnify a person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the life and health of himself.
Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or
in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.9 Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondent’s husband
to sign an express authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. 10 Specifically, the Health
Care Agreement signed by respondent’s husband states:
We hereby declare and agree that all statement and answers contained herein and in
any addendum annexed to this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for, that there shall be no
contract of health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed Members; that no
information acquired by any Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application; that any physician is, by these
presents, expressly authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any question affecting
the eligibility for health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be a ratification of any
correction in or addition to this application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare Health
Systems, Inc. any and all information relative to any hospitalization, consultation,
treatment or any other medical advice or examination. This authorization is in
connection with the application for health care coverage only. A photographic copy of
this authorization shall be as valid as the original. 12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in
the application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for. 13
The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a clear
 distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.16 Concealment as a defense for the health care provider or insurer to
avoid liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind
a contract of insurance." The right to rescind should be exercised previous to the
commencement of an action on the contract.17 In this case, no rescission was made. Besides,
the cancellation of health care agreements as in insurance policies require the concurrence of
the following conditions:
Anent the incontestability of the membership of respondent’s husband, we quote with
approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health
Systems Inc. had twelve months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication and the professional fees of the
attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.

1. Prior notice of cancellation to insured; SO ORDERED.

2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based. 18

None of the above pre-conditions was fulfilled in this case. When the terms of insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. 19 Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer.20 By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful FIRST DIVISION
import should be strictly construed against the provider. 22
[G.R. NO. 167330 : June 12, 2008]
 PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and therefore subject to the
documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of
1997)?cralawred
This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its
August 16, 2004 decision1 in CA-G.R. SP No.70479. Petitioner Philippine Health Care
Providers, Inc. believes otherwise and assails the CA decision in this Petition for Review
under Rule 45 of the Rules of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain,
conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization to take care of the sick and disabled persons enrolled in the health
care plan and to provide for the administrative, legal, and financial responsibilities of the
organization."2 Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services provided by
its duly licensed physicians, specialists and other professional technical staff participating in
the group practice health delivery system at a hospital or clinic owned, operated or accredited
by it.3
The pertinent part of petitioner's membership or health care agreement 4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for
reimbursement] of this Agreement, Members shall have the following Benefits under this
Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which
requires confinement in a participating Hospital[,] the services or benefits stated below shall
be provided to the Member free of charge, but in no case shall [petitioner] be liable to pay
more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If
a member has exhausted such maximum benefits with respect to a particular sickness, injury
or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It is[,]
however, understood that the payment by [petitioner] of the said maximum in In-Patient
Benefits to any one member shall preclude a subsequent payment of benefits to such
member in respect of an unrelated sickness, injury or related causes happening during the
remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which are used to dissolve
blood clots in the vascular systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services or benefits mentioned in the
immediately preceding paragraph shall be subject to the following conditions:
(a) The Hospital Confinement must be approved by [petitioner's] Physician, Participating
Physician or [petitioner's] Medical Coordinator in that Hospital prior to confinement.
(b) The confinement shall be in a Participating Hospital and the accommodation shall be in
accordance with the Member[']s benefit classification.
(c) Professional services shall be provided only by the [petitioner's] Physicians or
Participating Physicians.
(d) If discharge from the Hospital has been authorized by [petitioner's] attending Physician or
Participating Physician and the Member shall fail or refuse to do so, [petitioner] shall not be
responsible for any charges incurred after discharge has been authorized.
Out-Patient Services. A Member is entitled free of charge to the following services or
benefits which shall be rendered or administered either in [petitioner's] Clinic or in a
Participating Hospital under the direction or supervision of [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership,
to be done at [petitioner's] designated hospital/clinic, to wit:
(i) Taking a medical history (c) Preventive Health Care, which shall include:

(ii) Physical examination (i) Periodic Monitoring of Health Problems

(iii) Chest x-ray (ii) Family planning counseling

(iv) Stool examination (iii) Consultation and advices on diet, exercise and other healthy habits

(v) Complete Blood Count (iv) Immunization but excluding drugs for vaccines used

(vi) Urinalysis (d) Out-Patient Care, which shall include:

(vii) Fasting Blood Sugar (FBS) (i) Consultation, including specialist evaluation

(viii) SGPT (ii) Treatment of injury or illness

(ix) Creatinine (iii) Necessary x-ray and laboratory examination

(x) Uric Acid (iv) Emergency medicines needed for the immediate

(xi) Resting Electrocardiogram relief of symptoms

(xii) Pap Smear (Optional for women 40 years and above) (v) Minor surgery not requiring confinement

(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination. Emergency Care. Subject to the conditions and limitations in this Agreement and those
specified below, a Member is entitled to receive emergency care [in case of emergency. For
The following tests are to be done as part of the Member[']s Annual check-up program at this purpose, all hospitals and all attending physician(s) in the Emergency Room
[petitioner's] designated clinic, to wit: automatically become accredited. In participating hospitals, the member shall be entitled to
the following services free of charge: (a) doctor's fees, (b) emergency room fees, (c)
medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids and
1) Routine Physical Examination
whole blood and human blood products, (e) dressings, casts and sutures and (f) x-rays,
laboratory and diagnostic examinations and other medical services related to the emergency
2) CBC (Complete Blood Count) treatment of the patient.]5 Provided, however, that in no case shall the total amount payable
by [petitioner] for said Emergency, inclusive of hospital bill and professional fees, exceed
* Hemoglobin * Hematocrit P75,000.00.

* Differential * RBC/WBC If the Member received care in a non-participating hospital, [petitioner] shall reimburse
[him]6 80% of the hospital bill or the amount of P5,000.00[,] whichever is lesser, and 50% of
3) Chest X-ray the professional fees of non-participating physicians based on [petitioner's] schedule of fees
provided that the total amount[,] inclusive of hospital bills and professional fee shall not
4) Urinalysis exceed P5,000.00.

5) Fecalysis
On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in
the total amount of P224,702,641.18. The assessment represented the following:
Value Added Tax (VAT) DST
1996 P     45,767,596.23 P     55,746,352.19
1997 54,738,434.03 68,450,258.73
P     100,506,030.26 P     124,196,610.92
The deficiency DST assessment was imposed on petitioner's health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code which
provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting
the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland,
and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing
any mercantile credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on
each four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis
supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did
not act on the protest, petitioner filed a Petition for Review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT and DST assessments.
7
On April 5, 2002, the CTA rendered a decision,  the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus
20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST
assessment. He claimed that petitioner's health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care
agreement was in the nature of a non-life insurance contract subject to DST:
WHEREFORE, the Petition for Review is GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary
stamp tax assessment and ordered petitioner to desist from collecting the same is
REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for
late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of insurance but
a contract for the provision on a prepaid basis of medical services, including medical check-
up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the
insurance business. It is a health maintenance organization regulated by the Department of
Health, not an insurance company under the jurisdiction of the Insurance Commission. For
these reasons, petitioner asserts that the health care agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments.12 It is an excise upon the privilege, opportunity, or facility offered at
exchanges for the transaction of the business.13 In particular, the DST under Section 185 of
the 1997 Tax Code is imposed on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance), bond or obligation in the
nature of indemnity for loss, damage, or liability.
Under the law, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event.14 The event insured against must be designated in the contract and must
either be unknown or contingent.15
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case from sickness, injury or other stipulated contingency to the extent agreed upon under the
of Blue Cross Healthcare, Inc. v. Olivares,16 this Court ruled that a health care agreement is in contract.
the nature of a non-life insurance policy.
Petitioner's contention that it is a health maintenance organization and not an insurance
Contrary to petitioner's claim, its health care agreement is not a contract for the provision of company is irrelevant. Contracts between companies like petitioner and the beneficiaries
medical services. Petitioner does not actually provide medical or hospital services but merely under their plans are treated as insurance contracts. 20
arranges for the same17 and pays for them up to the stipulated maximum amount of
coverage. It is also incorrect to say that the health care agreement is not based on loss or Moreover, DST is not a tax on the business transacted but an excise on the privilege,
damage because, under the said agreement, petitioner assumes the liability and indemnifies opportunity, or facility offered at exchanges for the transaction of the business. 21 It is an
its member for hospital, medical and related expenses (such as professional fees of excise on the facilities used in the transaction of the business, separate and apart from
physicians). The term "loss or damage" is broad enough to cover the monetary expense or the business itself.22
liability a member will incur in case of illness or injury.
WHEREFORE, the petition is hereby DENIED.The August 16, 2004 decision of the Court of
Under the health care agreement, the rendition of hospital, medical and professional services Appeals in CA-G.R. SP No.70479is AFFIRMED.
to the member in case of sickness, injury or emergency or his availment of so-called "out-
patient services" (including physical examination, x-ray and laboratory tests, medical Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
consultations, vaccine administration and family planning counseling) is the contingent event deficiency documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for
which gives rise to liability on the part of the member. In case of exposure of the member to late payment and 20% interest per annum from January 27, 2000 until full payment thereof.
liability, he would be entitled to indemnification by petitioner.
Costs against petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are
prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if SO ORDERED.
they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services
even if they are significantly and substantially more than what the member has "prepaid."
Petitioner does not bear the costs alone but distributes or spreads them out among a large
group of persons bearing a similar risk, that is, among all the other members of the health
care program. This is insurance.

Petitioner's health care agreement is substantially similar to that involved in Philamcare

Health Systems, Inc.  v. CA.18 The health care agreement in that case entitled the subscriber
to avail of the hospitalization benefits, whether ordinary or emergency, listed therein. It also
provided for "out-patient benefits" such as annual physical examinations, preventive health
care and other out-patient services. This Court ruled in Philamcare Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his
own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency, the health care provider
must pay for the same to the extent agreed upon under the contract. 19 (emphasis supplied) SPECIAL FIRST DIVISION

Similarly, the insurable interest of every member of petitioner's health care program in G.R. No. 167330               September 18, 2009
obtaining the health care agreement is his own health. Under the agreement, petitioner is
bound to indemnify any member who incurs hospital, medical or any other expense arising
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill
health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social services
available to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration
dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care
Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain,
conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization to take care of the sick and disabled persons enrolled in the health
care plan and to provide for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services provided by
its duly licensed physicians, specialists and other professional technical staff participating in
the group practice health delivery system at a hospital or clinic owned, operated or accredited
by it.
x x x           x x x          x x x
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in
the total amount of ₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s
health care agreement with the members of its health care program pursuant to Section 185
of the 1997 Tax Code xxxx
x x x           x x x          x x x
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did
not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to
₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and ₱31,094,163.87 inclusive of 25% surcharge plus
20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled
the DST assessment. He claimed that petitioner’s health care agreement was a contract of
insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care
agreement was in the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary
stamp tax assessment and ordered petitioner to desist from collecting the same is
REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for
late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
x x x           x x x          x x x
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s
decision. We held that petitioner’s health care agreement during the pertinent period was in
the nature of non-life insurance which is a contract of indemnity, citing Blue Cross
Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that
petitioner’s contention that it is a health maintenance organization (HMO) and not an
insurance company is irrelevant because contracts between companies like petitioner and the
beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax
on the business transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed
only on a company engaged in the business of fidelity bonds and other insurance
policies. Petitioner, as an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in
effect the CA’s disposition that health care services are not in the nature of an
insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is
clear, especially in the light of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they
are not those contemplated under Section 185.
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance,
health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance"
mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA 5 9480 for the taxable year
2005 and all prior years. Therefore, the questioned assessments on the DST are now
rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their
memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax
amnesty under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully paying the
amount of ₱5,127,149.08 representing 5% of its net worth as of the year ending December
31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange
Commission on June 30, 1987.9 It is engaged in the dispensation of the following medical
services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and
immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis,
fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled member. 10
Individuals enrolled in its health care program pay an annual membership fee. Membership is
on a year-to-year basis. The medical services are dispensed to enrolled members in a
hospital or clinic owned, operated or accredited by petitioner, through physicians, medical
and dental practitioners under contract with it. It negotiates with such health care practitioners
regarding payment schemes, financing and other procedures for the delivery of health
services. Except in cases of emergency, the professional services are to be provided only by
petitioner's physicians, i.e. those directly employed by it11 or whose services are contracted
by it.12 Petitioner also provides hospital services such as room and board accommodation,
laboratory services, operating rooms, x-ray facilities and general nursing care. 13 If and when a
member avails of the benefits under the agreement, petitioner pays the participating
physicians and other health care providers for the services rendered, at pre-agreed rates. 14
To avail of petitioner’s health care programs, the individual members are required to sign and
execute a standard health care agreement embodying the terms and conditions for the
provision of the health care services. The same agreement contains the various health care
services that can be engaged by the enrolled member, i.e., preventive, diagnostic and
curative medical services. Except for the curative aspect of the medical service offered, the
enrolled member may actually make use of the health care services being offered by
petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as insurance contracts and the DST is not a tax
on the business but an excise on the privilege, opportunity or facility used in the transaction of
the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is
engaged in, that is, to determine whether it is an HMO or an insurance company, as this
distinction is indispensable in turn to the issue of whether or not it is liable for DST on its
health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the
arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting
the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland,
and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing
any mercantile credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty centavos (₱0.50) on
each four pesos (₱4.00), or fractional part thereof, of the premium charged. (Emphasis
supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part
of a statute shall be considered surplusage or superfluous, meaningless, void and
insignificant. To this end, a construction which renders every word operative is preferred over
that which makes some words idle and nugatory.17 This principle is expressed in the
maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect
to the whole of the statute – its every word.18
From the language of Section 185, it is evident that two requisites must concur before the
DST can apply, namely: (1) the document must be a policy of insurance or an obligation
in the nature of indemnity and (2) the maker should be transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of
1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated
health services needed by plan members for a fixed prepaid premium." 19 The payments do
not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what
constitutes "doing an insurance business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of
this Code;
d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test that they
have applied is whether the assumption of risk and indemnification of loss (which are
elements of an insurance business) are the principal object and purpose of the organization
or whether they are merely incidental to its business. If these are the principal objectives, the
business is that of insurance. But if they are merely incidental and service is the principal
purpose, then the business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association23  wherein the Court of
Appeals of the District of Columbia Circuit held that Group Health Association should not be
considered as engaged in insurance activities since it was created primarily for the
distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as creating security
against loss from illness or accident more truly they constitute the quantity purchase of well-
rounded, continuous medical service by its members. xxx The functions of such an
organization are not identical with those of insurance or indemnity companies. The
latter are concerned primarily, if not exclusively, with risk and the consequences of its
descent, not with service, or its extension in kind, quantity or distribution; with the unusual
occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the
cooperative is concerned principally with getting service rendered  to its members and
doing so at lower prices made possible by quantity purchasing and economies in
operation. Its primary purpose is to reduce the cost rather than the risk of medical
care; to broaden the service to the individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an everyday incident of living, like purchasing
food and clothing or oil and gas, rather than merely protecting against the financial
loss caused by extraordinary and unusual occurrences, such as death, disaster at sea,
fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor
ills and all the temporary bodily discomforts as well as the more serious and unusual
illness. To summarize, the distinctive features of the cooperative are the rendering of
service, its extension, the bringing of physician and patient together, the preventive
features, the regularization of service as well as payment, the substantial reduction in
cost by quantity purchasing in short, getting the medical job done and paid for; not,
except incidentally to these features, the indemnification for cost after the services is
rendered. Except the last, these are not distinctive or generally characteristic of the
insurance arrangement. There is, therefore, a substantial difference between contracting in
this way for the rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not
outweigh all other factors. If attention is focused only on that feature, the line between
insurance or indemnity and other types of legal arrangement and economic function becomes
faint, if not extinct. This is especially true when the contract is for the sale of goods or
services on contingency. But obviously it was not the purpose of the insurance statutes to
regulate all arrangements for assumption or distribution of risk. That view would cause them
to engulf practically all contracts, particularly conditional sales and contingent service
agreements. The fallacy is in looking only at the risk element, to the exclusion of all
others present or their subordination to it. The question turns, not on whether risk is
involved or assumed, but on whether that or something else to which it is related in
the particular plan is its principal object purpose. 24  (Emphasis supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing
the plan of operation as a whole of the corporation, it was service rather than indemnity which
stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in
the insurance business. Absence or presence of assumption of risk or peril is not the
sole test to be applied in determining its status. The question, more broadly, is
whether, looking at the plan of operation as a whole, ‘service’ rather than ‘indemnity’ is
its principal object and purpose. Certainly the objects and purposes of the corporation
organized and maintained by the California physicians have a wide scope in the field of social
service. Probably there is no more impelling need than that of adequate medical care
on a voluntary, low-cost basis for persons of small income. The medical profession
unitedly is endeavoring to meet that need. Unquestionably this is ‘service’ of a high
order and not ‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an
insurance company is that HMOs undertake to provide or arrange for the provision of medical
services through participating physicians while insurance companies simply undertake to
indemnify the insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New
Jersey27  is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident
insurers is that the former undertake to provide prepaid medical services through
participating physicians, thus relieving subscribers of any further financial burden, while the
latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the
schedule of rates contained in the policy.
x x x           x x x          x x x
The primary purpose of a medical service corporation, however, is an undertaking to provide
physicians who will render services to subscribers on a prepaid basis. Hence, if there are no
physicians participating in the medical service corporation’s plan, not only will the
subscribers be deprived of the protection which they might reasonably have expected
would be provided, but the corporation will, in effect, be doing business solely as a
health and accident indemnity insurer without having qualified as such and rendering itself
subject to the more stringent financial requirements of the General Insurance Laws….
A participating provider of health care services is one who agrees in writing to render health
care services to or for persons covered by a contract issued by health service corporation in
return for which the health service corporation agrees to make payment directly to the
participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose
of the business to provide medical services as needed, with payment made directly to the
provider of these services.29 In short, even if petitioner assumes the risk of paying the cost of
these services even if significantly more than what the member has prepaid, it nevertheless
cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in
case of emergency by non-participating health providers would still be incidental to
petitioner’s purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases. 30 As an
HMO, it is its obligation to maintain the good health of its members. Accordingly, its health
care programs are designed to prevent or to minimize the possibility of any
assumption of risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical condition but, on
the contrary, to provide the health and medical services needed to prevent such loss or
damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing
them medical care. The "insurance-like" aspect of petitioner’s business is miniscule
compared to its noninsurance activities. Therefore, since it substantially provides health care
services rather than insurance services, it cannot be considered as being in the insurance
business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-
quoted U.S. cases, we are not saying that petitioner’s operations are identical in every
respect to those of the HMOs or health providers which were parties to those cases. What we
are stating is that, for the purpose of determining what "doing an insurance business" means,
we have to scrutinize the operations of the business as a whole and not its mere
components. This is of course only prudent and appropriate, taking into account the
burdensome and strict laws, rules and regulations applicable to insurers and other entities
engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance
activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.33 In fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the insurance business. This
determination of the commissioner must be accorded great weight. It is well-settled that the
interpretation of an administrative agency which is tasked to implement a statute is accorded
great respect and ordinarily controls the interpretation of laws by the courts. The reason
behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies for
addressing and satisfying those needs; it also relates to the accumulation of experience and
growth of specialized capabilities by the administrative agency charged with implementing a
particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court
stressed that executive officials are presumed to have familiarized themselves with all the
considerations pertinent to the meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon. The courts give much
weight to the government agency officials charged with the implementation of the law, their
competence, expertness, experience and informed judgment, and the fact that they frequently
are the drafters of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section
185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the
nature of indemnity for loss, damage, or liability…." In our decision dated June 12, 2008, we
ruled that petitioner’s health care agreements are contracts of indemnity and are therefore
insurance contracts:
It is … incorrect to say that the health care agreement is not based on loss or damage
because, under the said agreement, petitioner assumes the liability and indemnifies its
member for hospital, medical and related expenses (such as professional fees of physicians).
The term "loss or damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services
to the member in case of sickness, injury or emergency or his availment of so-called "out-
patient services" (including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling) is the contingent event
which gives rise to liability on the part of the member. In case of exposure of the member to
liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are
prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if
they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services
even if they are significantly and substantially more than what the member has "prepaid."
Petitioner does not bear the costs alone but distributes or spreads them out among a large
group of persons bearing a similar risk, that is, among all the other members of the health
care program. This is insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation transacting
the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly
construed against the taxing authority.38 This is because taxation is a destructive power which
interferes with the personal and property rights of the people and takes from them a portion of
their property for the support of the government.39 Hence, tax laws may not be extended by
implication beyond the clear import of their language, nor their operation enlarged so as to
embrace matters not specifically provided.40
We are aware that, in Blue Cross  and Philamcare, the Court pronounced that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
However, those cases did not involve the interpretation of a tax provision. Instead, they dealt
with the liability of a health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the
member and strictly against the HMO. For this reason, we reconsider our ruling that Blue
Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium. 41
Do the agreements between petitioner and its members possess all these elements? They do
not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a
contract contains all the elements of an insurance contract, if its primary purpose is the
rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements
mentioned above would be an insurance contract. The primary purpose of the parties in
making the contract may negate the existence of an insurance contract. For example, a
law firm which enters into contracts with clients whereby in consideration of periodical
payments, it promises to represent such clients in all suits for or against them, is not engaged
in the insurance business. Its contracts are simply for the purpose of rendering personal
services. On the other hand, a contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend a physician against all suits for
damages for malpractice is one of insurance, and the corporation will be deemed as engaged
in the business of insurance. Unlike the lawyer’s retainer contract, the essential purpose of
such a contract is not to render personal services, but to indemnify against loss and damage
resulting from the defense of actions for malpractice. 42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s
agreements. To begin with, there is no loss, damage or liability on the part of the member that
should be indemnified by petitioner as an HMO. Under the agreement, the member pays
petitioner a predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioner’s physician or affiliated physician to him. In
case of availment by a member of the benefits under the agreement, petitioner does not
reimburse or indemnify the member as the latter does not pay any third party. Instead, it is
the petitioner who pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary
liability on the part of the member to any third party-provider of medical services which might
in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity"
presuppose that a liability or claim has already been incurred. There is no indemnity precisely
because the member merely avails of medical services to be paid or already paid in advance
at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination and
consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives
care from a non-participating physician or hospital. However, this is only a very minor part of
the list of services available. The assumption of the expense by petitioner is not confined to
the happening of a contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the
health care contracts called for the defendant to partially reimburse a subscriber for treatment
received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the provision of
podiatric services to subscribers in consideration of prepayment for such services." 44 Since
indemnity of the insured was not the focal point of the agreement but the extension of medical
services to the member at an affordable cost, it did not partake of the nature of a contract of
insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true
that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual
obligation always bears a certain degree of financial risk. Consequently, there is a need to
distinguish prepaid service contracts (like those of petitioner) from the usual insurance
contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the risk that it might fail to earn a reasonable return on its investment. But it is not
the risk of the type peculiar only to insurance companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums
paid. The amount of premium is calculated on the basis of assumptions made relative to the
insured.45
However, assuming that petitioner’s commitment to provide medical services to its members
can be construed as an acceptance of the risk that it will shell out more than the prepaid fees,
it still will not qualify as an insurance contract because petitioner’s objective is to provide
medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads us to conclude that
it is not an insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s
health care agreements under Section 185 of the NIRC of 1997 is the provision’s legislative
history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health
care agreements were not even in existence in this jurisdiction. It was imposed under Section
116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of
1904")46 enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate
of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of
Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several
bonds, debentures, or certificates of stock and indebtedness, and other documents,
instruments, matters, and things mentioned and described in this section, or for or in respect
to the vellum, parchment, or paper upon which such instrument, matters, or things or any of
them shall be written or printed by any person or persons who shall make, sign, or issue the
same, on and after January first, nineteen hundred and five, the several taxes following:
x x x           x x x          x x x
Third xxx (c) on all policies of insurance or bond or obligation of the nature of
indemnity for loss, damage, or liability made or renewed by any person, association,
company, or corporation transacting the business of accident, fidelity, employer’s
liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other branch
of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted
revising and consolidating the laws relating to internal revenue. The aforecited pertinent
portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30
(l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to
DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as
Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on
March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision
remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in
PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11,
1978 and October 10, 1984 respectively, the DST rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of
1977 was renumbered as Section 198. And under Section 23 of EO 47 273 dated July 25,
1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with
respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the
NIRC of 1997), the subject legal provision was retained as the present Section 185. In 2004,
amendments to the DST provisions were introduced by RA 9243 48 but Section 185 was
untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the
formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later
reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However,
there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having
set foot in the Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a
total enrollment of more than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the
other) that when the law imposing the DST was first passed, HMOs were yet unknown in the
Philippines. However, when the various amendments to the DST law were enacted, they
were already in existence in the Philippines and the term had in fact already been defined by
RA 7875. If it had been the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It had many opportunities
to do so. But it did not. The fact that the NIRC contained no specific provision on the DST
liability of health care agreements of HMOs at a time they were already known as such,
belies any legislative intent to impose it on them. As a matter of fact, petitioner was
assessed its DST liability only on January 27, 2000, after more than a decade in the
business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would
be safe to say that health care agreements were never, at any time, recognized as insurance
contracts or deemed engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who is
to pay it.51 So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to ₱376 million 53 is way
beyond its net worth of ₱259 million.54 Respondent never disputed these assertions. Given
the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is
not the purpose of the government to throttle private business. On the contrary, the
government ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate business. 56 As
aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing
the business of an entity is another matter and should not be allowed. It is counter-productive
and ultimately subversive of the nation’s thrust towards a better economy which will ultimately
benefit the majority of our people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years
1996 and 1997 became moot and academic60 when it availed of the tax amnesty under RA
9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the
year ended December 31, 2005 and complied with all requirements of the tax amnesty.
Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as
additions thereto, and the appurtenant civil, criminal or administrative penalties under the
1997 NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity
from payment of the tax involved, including the civil, criminal, or administrative penalties
provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the
merits of this case as discussed above, respondent concedes that such tax amnesty
extinguishes the tax liabilities of petitioner. This admission, however, is not meant to
preclude a revocation of the amnesty granted in case it is found to have been granted under
circumstances amounting to tax fraud under Section 10 of said amnesty law. 62 (Emphasis
supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax
amnesty program under RA 9480.63 There is no other conclusion to draw than that petitioner’s
liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment
of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court
is bound by the ruling of the CA64 in CIR v. Philippine National Bank65  that a health care
agreement of Philamcare Health Systems is not an insurance contract for purposes of the
DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National Bank  (G.R. No. 148680).66 Petitioner argues that
the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence,
the Court should apply the CA ruling there that a health care agreement is not an insurance
contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed
the CA ruling being questioned. As a result, our ruling in that case has already become
final.67 When a minute resolution denies or dismisses a petition for failure to comply with
formal and substantive requirements, the challenged decision, together with its findings of
fact and legal conclusions, are deemed sustained. 68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the
same parties and issues) is involved, the minute resolution is not binding precedent. Thus,
in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving
the same parties and the same issues, was previously disposed of by the Court thru a
minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the
Court ruled that the previous case "ha(d) no bearing" on the latter case because the two
cases involved different subject matters as they were concerned with the taxable income of
different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution
and a decision. The constitutional requirement under the first paragraph of Section 14, Article
VIII of the Constitution that the facts and the law on which the judgment is based must be
expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It
does not require the certification of the Chief Justice. Moreover, unlike decisions, minute
resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of
Article VIII speaks of a decision.73 Indeed, as a rule, this Court lays down doctrines or
principles of law which constitute binding precedent in a decision duly signed by the members
of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability
for DST on its health care agreement was not the subject matter of G.R. No. 148680,
petitioner cannot successfully invoke the minute resolution in that case (which is not even
binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this
does not detract in any way from the fact that petitioner’s health care agreements are not
subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section
185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical
services at a cost which the average wage earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance of the goal of providing a more efficient and
inexpensive health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system (wherein
individuals are charged a fee each time they receive medical services), including the ability to
control costs. They protect their members from exposure to the high cost of hospitalization
and other medical expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its constitutional mandate of
providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its
imposition will elevate the cost of health care services. This will in turn necessitate an
increase in the membership fees, resulting in either placing health services beyond the reach
of the ordinary wage earner or driving the industry to the ground. At the end of the day,
neither side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision
of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996
and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.
Philippine Health Care Providers v CIR G.R. No. 167330 June 12, 2008
J. Corona
Facts:
The petitioner, a prepaid health-care organization offering benefits to its members. The CIR
found that the organization had a deficiency in the payment of the DST under Section 185 of
the 1997 Tax Code which stipulated its implementation:
“On all policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer's liability, plate, glass,
steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance)”
The CIR sent a demand for the payment of deficiency taxes, including surcharges and
interest, for 1996-1997 in the total amount of P224,702,641.18.
The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to
go to the CTA. The latter declared judgment against them and reduced the taxes. It ordered
them to pay 22 million pesos for deficiency VAT for 1997 and 31 million deficiency VAT for
1996.
CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.
Issues: WON a health care agreement in the nature of an insurance contract and therefore
subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act
8424 (Tax Code of 1997)
Held: Yes. Petition dismissed.
Ratio:
The DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments.
The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of insurance (except life, marine,
inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
liability.
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case
of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in
the nature of a non-life insurance policy.
Its health care agreement is not a contract for the provision of medical services. Petitioner
does not actually provide medical or hospital services but merely arranges for the same
It is also incorrect to say that the health care agreement is not based on loss or damage
because, under the said agreement, petitioner assumes the liability and indemnifies its
member for hospital, medical and related expenses (such as professional fees of physicians).
The term "loss or damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-
life insurance, which is primarily a contract of indemnity.
Similarly, the insurable interest of every member of petitioner's health care program in
obtaining the health care agreement is his own health. Under the agreement, petitioner is
bound to indemnify any member who incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingency to the extent agreed upon under the
contract.

FIRST DIVISION

G.R. No. 154514. July 28, 2005

WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of
the Insurance Code and the respondents do not need license as insurer and insurance
agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. 3 Pioneer also
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before
the Insurance Commission claiming that Steamship Mutual violated Sections 186 4 and
1875 of the Insurance Code, while Pioneer violated Sections 299, 6 3007 and 3018 in relation to
Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business.
It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).
Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for
Steamship Mutual because Steamship Mutual was not engaged in the insurance business.
Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision,
the appellate court distinguished between P & I Clubs vis-à-vis  conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship
Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS
TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This
relationship is reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime
Co., Ltd. v. Court of Appeals10  as "an association composed of shipowners in general who
band together for the specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties." It stresses
that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide protection
and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as
its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung  is inapplicable in this case because the issue
in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance
business" or "transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business. 12
The test to determine if a contract is an insurance contract or not, depends on the nature of
the promise, the act required to be performed, and the exact nature of the agreement in the
light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code
enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are
both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and
where the profits are divided among themselves, in proportion to their interest. 17 Additionally,
mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members."19 By definition then, Steamship Mutual
as a P & I Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 18720 of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments in its
behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was
cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary.
Thus, no insurer or insurance company is allowed to engage in the insurance business
without a license or a certificate of authority from the Insurance Commission. 21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority23 issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual. 24
Although Pioneer is already licensed as an insurance company, it needs a separate license to
act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly
states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission
is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED.

EN BANC
G.R. No. L-22042             August 17, 1967
DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed
GUINGON, plaintiffs-appellees,
vs.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY
CO., INC., defendants.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.
Generoso Almario and Associates for plaintiffs-appellees.
Achacoso and Associates for defendant-appellant.
BENGZON, J.P., J.:
Julio Aguilar owned and operated several jeepneys in the City of Manila among which was
one with plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital
Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with
third-party liability. As a consequence thereof an insurance policy was executed by the
Capital Insurance & Surety Co., Inc., the pertinent provisions of which in so far as this case is
concerned contains the following:
Section II —LIABILITY TO THE PUBLIC
1. The Company, will, subject to the limits of liability, indemnify the Insured in the
event of accident caused by or arising out of the use of the Motor Vehicle/s or in
connection with the loading or unloading of the Motor Vehicle/s, against all sums
including claimant's costs and expenses which the Insured shall become legally liable
to pay in respect of:
a. death of or bodily injury to any person
b. damage to property
During the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte, one
of the drivers of the jeepneys operated by Aguilar, while driving along the intersection of Juan
Luna and Moro streets, City of Manila, bumped with the jeepney abovementioned one
Gervacio Guingon who had just alighted from another jeepney and as a consequence the
latter died some days thereafter.
A corresponding information for homicide thru reckless imprudence was filed against
Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was
imposed on him.
As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages
praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants,
driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance &
Surety Co., Inc. For failure to answer the complaint, Del Monte and Aguilar were declared in
default. Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause
of action against it. During the trial the following facts were stipulated:
COURT: The Court wants to find if there is a stipulation in the policy whereby the
insured is insured against liability to third persons who are not passengers of jeeps.
ALMARIO: As far as I know, in my honest belief, there is no particularization as to the
passengers, whether the passengers of the jeep insured or a passenger of another
jeep or whether it is a pedestrian. With those, we can submit the stipulation.
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)
On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the
following dispositive portion:
WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio
Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the
death of their father, plus P1,000.00 for attorney's fees plus costs.
The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay the
plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00)
Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged
against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction
of the judgment rendered against Iluminado del Monte and Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court on September 30,
1963 certified the case to Us because the appeal raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company agreed to indemnify the
insured Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first
show himself to be entitled to indemnity before the insurance company may be held liable for
the same? (3) Plaintiffs not being parties to the insurance contract, do they have a cause of
action against the company; and (4) Does the fact that the insured is liable to the plaintiffs
necessarily mean that the insurer is liable to the insured?
In the discussion of the points thus raised, what is paramount is the interpretation of the
insurance contract with the aim in view of attaining the objectives for which the insurance was
taken. The Rules of Court provide that parties may be joined either as plaintiffs or defendants,
as the right to relief in respect to or arising out of the same transactions is alleged to exist
(Sec. 6, Rule 3). The policy, on the other hand, contains a clause stating:
E. Action Against Company
No action shall lie against the Company unless, as a condition precedent thereto, the
Insured shall have fully complied with all of the terms of this Policy, nor until the
amount of the Insured's obligation to pay shall have been finally determined either by
judgment against the Insured after actual trial or by written agreement of the Insured,
the claimant, and the Company.
Any person or organization or the legal representative thereof who has secured such
judgment or written agreement shall thereafter be entitled to recover under this policy
to the extent of the insurance afforded by the Policy. Nothing contained in this policy
shall give any person or organization any right to join the Company as a co-
defendant in any action against the Insured to determine the Insured's liability.
Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the
Company of any of its obligations hereunder.
Appellant contends that the "no action" clause in the policy closes the avenue to any third
party which may be injured in an accident wherein the jeepney of the insured might have
been the cause of the injury of third persons, alleging the freedom of contracts. Will the mere
fact that such clause was agreed upon by the parties in an insurance policy prevail over the
Rules of Court which authorizes the joining of parties plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all?
(2) If so, can plaintiffs sue the insurer jointly with the insured?
The policy in the present case, as aforequoted, is one 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 . . . ." Clearly, therefore, it is one
for indemnity against liability;1 from the fact then that the insured is liable to the third person,
such third person is entitled to sue the insurer.1äwphï1.ñët
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 only 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.2
The next question is on the right of the third person to sue the insurer jointly with the insured.
The policy requires, as afore-stated, that suit and final judgment be first obtained against the
insured; that only "thereafter" can the person injured recover on the policy; it expressly
disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter's
liability. As adverted to before, the query is which procedure to follow — that of the insurance
policy or the Rules of Court.
The "no action" clause in the policy of insurance cannot prevail over the Rules of Court
provision aimed at avoiding multiplicity of suits. In a case squarely on the point, American
Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action"
clause in a policy of insurance cannot override procedural rules aimed at avoidance of
multiplicity of suits. We quote:
Appellants filed a plea in abatement on the grounds that the suit had been
prematurely brought against the insurance company, and that it had been improperly
joined with Zunker, as said insurance company, under the terms of the policy, was
only liable after judgment had been awarded against Zunker. . . .
* * * That plea was properly overruled, because under the laws of Texas a dual suit
will always be avoided whenever all parties can have a fair trial when joined in one
suit. Appellee, had he so desired, could have prosecuted his claim to judgment as
against Zunker and then have sued on that judgment against the insurance company,
but the law does not make it imperative that he should do so, but would permit him to
dispose of the whole matter in one suit.
The rule has often been announced in Texas that when two causes of action are
connected with each other, or grow out of the same transaction, they may be properly
joined, and in such suit all parties against whom the plaintiff asserts a common or an
alternative liability may be joined as defendants. . . . Even if appellants had presented
any plea in abatement as to joinder of damages arising from a tort with those arising
from a contract, it could not, under the facts of this case, be sustained, for the rule is
that a suit may include an action for breach of contract and one for tort, provided they
are connected with each other or grew out of the same transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of
Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third
persons not a party to the contract, as herein, by a "no action" clause in the contract of
insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So
ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.
 EN BANC
G.R. No. L-20853             May 29, 1967
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,
vs.
ENRIQUE MORA, ET AL., defendants-appellees.
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil
case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes,
Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company,
appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73,
issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount
to the H. Reyes, Inc.
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the
same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile
with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with
the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued
to Enrique Mora, the pertinent provisions of which read:
1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to
the Limits of Liability, indemnify the Insured against loss of or damages to the Motor
Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision
or overturning or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear,
xxx     xxx     xxx
2. At its own option the Company may pay in cash the amount of the loss or damage
or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its
accessories or spare parts. The liability of the Company shall not exceed the value of
the parts whichever is the less. The Insured's estimate of value stated in the
schedule will be the maximum amount payable by the Company in respect of any
claim for loss or damage.1äwphï1.ñët
xxx     xxx     xxx
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage
for which the Company may be liable under this Policy provided that: — (a) The
estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A
detailed estimate of the cost is forwarded to the Company without delay, subject to
the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the fact
that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and
that under a clause in said insurance policy, any loss was made payable to the H.S.
Reyes, Inc. as Mortgagee;
xxx     xxx     xxx
During the effectivity of the insurance contract, the car met with an accident. The insurance
company then assigned the accident to the Bayne Adjustment Co. for investigation and
appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S.
Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of
which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique
Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance
company after claiming a franchise in the amount of P100, drew a check in the amount of
P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S.
Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and
delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without
the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. of the cost of repairs and materials.
Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio
Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal
Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the
collection of the sum of P2,002.73 The insurance company filed its answer with a
counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to
interplead in order to determine who has better right to the insurance proceeds in question.
Enrique Mora was declared in default for failure to appear at the hearing, and evidence
against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala
Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the
basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as
having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc.
to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants
elevated the case to the Court of First Instance of Manila which the stipulation of facts was
reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision
of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for
reconsideration of the decision, but the trial court denied the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc.
and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. The
appellants argue that the insurance company and Enrique Mora are parties to the repair of
the car as well as the towage thereof performed. The authority for this assertion is to be
found, it is alleged, in paragraph 4 of the insurance contract which provides that "the insured
may authorize the repair of the Motor Vehicle necessitated by damage for which the company
may be liable under the policy provided that (a) the estimated cost of such repair does not
exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the
company without delay." It is stressed that the H.H. Bayne Adjustment Company's
recommendation of payment of the appellants' bill for materials and repairs for which the
latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co.
acted for and in representation of the insurance company.
This argument is, in our view, beside the point, because from the undisputed facts and from
the pleadings it will be seen that the appellants' alleged cause of action rests exclusively
upon the terms of the insurance contract. The appellants seek to recover the insurance
proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract
document executed by and between the State Bonding & Insurance Company, Inc. and
Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is there
any clause or provision thereof from which we can infer that there is an obligation on the part
of the insurance company to pay the cost of repairs directly to them. It is fundamental that
contracts take effect only between the parties thereto, except in some specific instances
provided by law where the contract contains some stipulation in favor of a third person. 1 Such
stipulation is known as stipulation pour autrui  or a provision in favor of a third person not a
pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties have clearly
and deliberately conferred a favor upon such person. 2 Consequently, a third person not a
party to the contract has no action against the parties thereto, and cannot generally demand
the enforcement of the same.3 The question of whether a third person has an enforcible
interest in a contract, must be settled by determining whether the contracting parties intended
to tender him such an interest by deliberately inserting terms in their agreement with the
avowed purpose of conferring a favor upon such third person. In this connection, this Court
has laid down the rule that the fairest test to determine whether the interest of a third person
in a contract is a stipulation pour autrui  or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract. 4 In the instant case the insurance
contract does not contain any words or clauses to disclose an intent to give any benefit to any
repairmen or materialmen in case of repair of the car in question. The parties to the insurance
contract omitted such stipulation, which is a circumstance that supports the said conclusion.
On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if
any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they
intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance Company that it has
vehemently opposed the assertion or pretension of the appellants that they are privy to the
contract. If it were the intention of the insurance company to make itself liable to the repair
shop or materialmen, it could have easily inserted in the contract a stipulation to that effect.
To hold now that the original parties to the insurance contract intended to confer upon the
appellants the benefit claimed by them would require us to ignore the indespensable requisite
that a stipulation pour autrui  must be clearly expressed by the parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead
of establishing privity between  the appellants and the insurance company, such stipulation
merely establishes the procedure that the insured has to follow in order to be entitled to
indemnity for repair. This paragraph therefore should not be construed as bringing into
existence in favor of the appellants a right of action against the insurance company as such
intention can never be inferred therefrom.
Another cogent reason for not recognizing a right of action by the appellants against the
insurance company is that "a policy of insurance is a distinct and independent contract
between the insured and insurer, and third persons have no right either in a court of equity, or
in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or
implied between the insured and third person." 5 In this case, no contract of trust, expressed
or implied exists. We, therefore, agree with the trial court that no cause of action exists in
favor of the appellants in so far as the proceeds of insurance are concerned. The appellants'
claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora
who entered into a contract with the Bonifacio Bros. Inc. This conclusion is deducible not only
from the principle governing the operation and effect of insurance contracts in general, but is
clearly covered by the express provisions of section 50 of the Insurance Act which read:
The insurance shall be applied exclusively to the proper interests of the person in
whose name it is made unless otherwise specified in the policy.
The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.,"
which unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance
proceeds arises only if there was loss and not where there is mere damage as in the instant
case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is
uncalled for, because the word "loss" in insurance law embraces injury or damage.
Loss in insurance, defined. — The injury or damage sustained by the insured in
consequence of the happening of one or more of the accidents or misfortune against
which the insurer, in consideration of the premium, has undertaken to indemnify the
insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary,
cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar,
Sanchez and Castro, JJ., concur.
 EN BANC
G.R. No. L-23248             February 28, 1969
MANUEL UY, plaintiff-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, defendant-appellant.
ZALDIVAR, J.:
Manuel Uy filed a complaint with the Court of First Instance of Manila (Civil Case No. 55678)
against the Postmaster General, praying for an injunction to restrain said Postmaster General
and his subordinates, agents or representatives from enforcing Fraud Order No. 3, dated
November 22, 1963, declaring Manuel Uy Sweepstakes Agency as conducting a lottery or gift
enterprise and directing all postmasters and other employees of the Bureau of Posts
concerned to return to the sender any mail matter addressed to Manuel Uy Sweepstakes
Agency or to any of its agents or representatives with the notation "Fraudulent" stamped upon
the cover of such mail matter, and prohibiting the issuance or payment of any money order or
telegraphic transfer to the said agency or to any of its agents and representatives.
As prayed for in the complaint, a writ of preliminary injunction was issued ex parte by the
lower court. The Postmaster General moved for the dissolution of the writ of preliminary
injunction, but the motion was denied.
The Postmaster General filed an answer to the complaint, setting up the defense that Manuel
Uy was conducting a lottery or gift enterprise that is prohibited by law; that as Postmaster
General he has the authority to issue the fraud order in question and he did not abuse his
discretion in doing so; and that Manuel Uy had not exhausted all the administrative remedies
before invoking judicial intervention.
The lower court, on the basis of the stipulation of facts submitted by the parties declared
Fraud Order No. 3 contrary to law and violative of the rights of the plaintiff and made
permanent the preliminary injunction previously issued.
The Postmaster General appealed to this Court.
The salient facts gathered from the stipulation of facts and culled from the briefs of the parties
are as follows:
Manuel Uy (appellee, for short) is a duly authorized agent of the Philippine Charity
Sweepstakes Office (PCSO for short), a government entity created and empowered by law to
hold sweepstakes draws and lotteries for charitable and public purposes. As such agent of
the PCSO appellee is engaged in the sale and distribution of sweepstakes and lottery tickets
which the PCSO prints and issues for each and every one of the not less than twenty draws
that said office annually holds. To carry out its business of selling sweepstakes and lottery
tickets issued by the PCSO appellee, upon authority of the said office, employs sub-agents
throughout the Philippines, through which sub-agents not less than 70% of appellee's total
sales for each draw are made; and, with the consent of the PCSO appellee agrees to give
50% of the agent's prize to the sub-agent selling the prize-winning ticket. The agent's prize is
10% of the prize won by the ticket sold.
For the Grand Christmas Sweepstakes Draw which would be held on December 15, 1963,
the PCSO fixed the first, second and third prizes at P700,000.00, P350,000.00, and
P175,000.00, respectively, and set a sale goal, of P6,000,000.00 worth of tickets. The PCSO
directed its duly authorized agents to undertake every means possible to help achieve the
six-million-peso sales goal. In compliance with said directive, appellee devised and, through
his representatives, offered to the public, the "Grand Christmas Bonus Award" plan. The plan
was designed to boost the sales of tickets for the PCSO Grand Christmas Sweepstakes
Draw. According to said plan, the appellee's sub-agents and purchasers
of whole  sweepstakes tickets sold by appellee and his sub-agents may, in addition to the
regular prize money of the December 15, 1963 draw, win bonuses and awards as follows: for
the sub-agent and buyer of the ticket winning the first prize, one 1963 Volkswagen sedan
each; for the sub-agent and buyer of the ticket winning the second prize, one Radiowealth 23-
inch television set each; for the sub-agent and buyer of the ticket winning the third prize, one
Radiowealth refrigerator each; for the sub-agents and buyers of the tickets winning any of the
six fourth prizes, one Radiowealth sewing machine each; and for the sub-agent and buyer of
the ticket winning the charity prize, one Radiowealth Fiesta "hi-fi" radio set each. Except for
the amount paid for the authorized prize of the sweepstakes tickets, those entitled to benefit
from the plan did not have to pay any other amount in consideration of the right to benefit
from the plan. The awards may be claimed by presenting to the appellee the sales invoice of
the winning tickets, in the case of the sellers, and the eight shares of the winning tickets, in
the case of the buyers.
The aforementioned plan is a modification (or alternative plan, as the appellee calls it) of the
original scheme presented by the appellee, thru counsel, to the Assistant Postmaster General
in a letter dated October 15, 1963, and which the latter, in his answer dated October 18,
1963, considered as violative of the Postal Law.
The appellee advertised his "Grand Christmas Bonus Award" plan, as described above, in the
metropolitan newspapers of nationwide circulation, the first of such advertisements appearing
in seven such newspapers in their issues of November 18, 1963. The newspaper
advertisements were repeated almost every week after November 18, 1963, with the last of
them published in the issue of the "Daily Mirror" of December 7, 1963.
As already stated, the fraud order in question was issued by the Postmaster-General
(appellant, for short) under date of November 22, 1963. However, it was only on December
10, 1963 that the appellee came to know of the issuance and context thereof when he sought
clarification from the Manila Post Office why his parcels containing sweepstakes tickets for
his sub-agents, as well as his other mail matters of purely personal nature, were refused
acceptance for mailing the day previous.
In the afternoon of December 10, 1963, appellee filed the complaint, mentioned at the
beginning of this opinion, alleging among others, that in issuing Fraud Order No. 3 the
appellant "has acted arbitrarily or gravely exceeded his authority, and/or committed an error
of law". 1
Disclaiming that in issuing the fraud order he acted arbitrarily, or gravely exceeded his
authority and/or committed an error of law, appellant, in his answer to the complaint, cites as
basis of his action, the provisions of Sections 1954(a), 1982, and 1983 of the Postal Law
(Chapter 52 of the Revised Administrative Code), pertinent portions of which read:
SEC. 1954. Absolutely nonmailable matter. — No matter belonging to any of the
following classes, whether sealed as first class matter or not, shall be imported into
the Philippines through the mails, or be deposited in or carried by the mails of the
Philippines, or be delivered to its addressee by any officer or employee of the Bureau
of Posts:
(a) Written or printed matter in any form, advertising, describing, or in any manner
pertaining to, or conveying or purporting to convey any information concerning any
lottery, gift enterprise, or similar scheme depending in whole or in part upon lot or
chance, or any scheme, device, or enterprise for obtaining money or property of any
kind by means of false or fraudulent pretenses, representations, or promises.
xxx     xxx     xxx
SEC. 1982. Fraud orders. — Upon satisfactory evidence that any person or company
is engaged in conducting any lottery, gift enterprise, or scheme or the distribution of
money, or of any real or personal property by lot, chance, or drawing of any kind, or
that any person or company is conducting any scheme, device, or enterprise for
obtaining money or property of any kind through the mails by means of false or
fraudulent pretenses, representations, or promises, the Director of Posts may instruct
any postmaster or other officer or employee of the Bureau of Posts to return to the
person depositing same in the mails, with the word "fraudulent" plainly written or
stamped upon the outside cover thereof, any mail matter of whatever class mailed by
or addressed to such person or company or the representative or agent of such
person or company....
SEC. 1983. Deprivation of use of money order system and telegraphic transfer
service. — Director of Posts may, upon evidence satisfactory to him that any person
or company is engaged in conducting any lottery, gift enterprise, or scheme for the
distribution of money or of any real or personal property by lot, chance, or drawing of
any kind, or that any person or company is conducting any scheme, device, or
enterprise for obtaining money or property of any kind through the mails by means of
false or fraudulent pretenses, representations, or promise, forbid the issue or
payment by any postmaster of any postal money order or telegraphic transfer to said
person or company, or to the agent of any such person or company, whether such
agent is acting as an individual or as a firm, bank, corporation, or association of any
kind, and may provide by regulation for the return to the remitters of the sums named
in money orders or telegraphic transfers drawn in favor of such person or company or
its agent.... (Emphasis supplied).
Invoking the phrase "upon evidence satisfactory to him the appellant contends that the fraud
order in question was legally issued because he had been satisfied with the evidence
presented to him that appellee was conducting a lottery or gift enterprise.  2 We note that the
appellee does not question the authority of the appellant, under Sections 1954(a), 1982 and
1983 aforequoted, to prohibit the use of the mails, the money order system and the
telegraphic transfer service for the promotion of lotteries, gift enterprises or fraudulent
schemes. 3 Indeed, appellant would be remiss in the performance of his duties should he fail
to exercise his authority under the Postal Law if and when the mails, the money order system,
and the telegraphic transfer service are utilized for the promotion of lotteries, gift enterprises
and similar schemes prohibited by law. Appellant's authority, however, is not absolute.
Neither does the law give him unlimited discretion. The appellant may only exercise his
authority if there is a clear showing that the mails, the money order system and the
telegraphic transfer service are used to promote a scheme or enterprise prohibited by law.
In the present case, therefore, the question that must be resolved is whether appellee's
"Grand Christmas Bonus Award" plan constitutes a lottery, gift enterprise, or similar scheme
proscribed by the Postal Law, aforequoted, as would authorize the appellant to issue the
fraud order in question.
Before we resolve the question, however, we wish to advert to the claim of the appellant that
he had made his decision based upon satisfactory evidence that the "Grand Christmas Bonus
Award" plan of appellee is a lottery or gift enterprise for the distribution of gifts by chance, and
his decision in this regard cannot be reviewed by the court.  4 Thus, the appellant, in his
brief, 5 says:
It is respectfully submitted that corollary to the rule that courts cannot interfere in the
performance of ordinary duties of the executive department is the equally compelling
rule that decisions of the defendant on questions of fact are final and conclusive and
generally cannot be reviewed by the courts. For it cannot be denied that the
Postmaster General is charged with quasi-judicial functions and vested with
discretion in determining what is mailable matter and in withholding from the plaintiff
the privilege of using the mail, the money order system and the telegraphic transfer
service... As the disputed, Fraud Order No. 3 was issued pursuant to the powers
vested in the defendant by the Postal Law and in accordance with satisfactory
evidence presented to him, it cannot be said that the defendant was palpably wrong
or that his decision had no reasonable basis whatever. Neither can it be said that he
exceeded his authority nor that he abused his discretion.
In this connection it may be stated that the Postal Law contains no provision for judicial
review of the decision of the Postmaster General. This Court, however, in Reyes vs.
Topacio 6 had stated that the action of the Director of Posts (now Postmaster General) is
subject to revision by the courts in case he exceeded his authority or his act is palpably
wrong. And in "El Debate" Inc. vs. Topacio 7 this Court said that the courts will not interfere
with the decision of the Director of Post (Postmaster General) as to what is, and what is not,
mailable matter unless clearly of opinion that it was wrong. In other words, the courts will
interfere with the decision of the Postmaster General if it clearly appears that the decision is
wrong. This Court, by said rulings, recognizes the availability of judicial review over the action
of the Postmaster General, notwithstanding the absence of statutory provision for judicial
review of his action. It may not be amiss to state that said rulings are in consonance with
American jurisprudence to the effect that the absence of statutory provisions for judicial
review does not necessarily mean that access to the courts is barred. The silence of the
Congress is not to be construed as indicating a legislative intent to preclude judicial
review. 8 In American School of Magnetic Healing vs. McAnnulty, 9 the U.S. Supreme Court,
speaking on the power of the courts to review the action of the Postmaster General under a
statute similar to our Postal Law, 10 said:
That the conduct of the post office is a part of the administrative department of the
government is entirely true, but that does not necessarily and always oust the courts
of jurisdiction to grant relief to a party aggrieved by any action by the head, or one of
the subordinate officials, of that Department, which is unauthorized by the statute
under which he assumes to act. The acts of all its officers must be justified by some
law, and in case an official violates the law to the injury of an individual the courts
generally have jurisdiction to grant relief.
Appellant also invokes the doctrine of exhaustion of administrative remedies, and asserts that
the action of the appellee in the present case was premature because he had not first
appealed the fraud order to higher administrative authorities. This assertion of appellant has
no merit. The rule on exhaustion of administrative remedies is not a hard and fast one. It
admits of exceptions, amongst which are: (1) where the question involved is purely a legal
one, 11 and (2) where there are circumstances indicating the urgency of judicial
intervention. 12 The question involved in the present case is legal — whether or not the "Grand
Christmas Bonus Award" plan of appellee, based upon the facts as stipulated, is a lottery or
gift enterprise. We take note that the Grand Christmas Sweepstakes draw in conjunction with
which appellee's plan was offered, was scheduled for December 15, 1963, or barely five days
from December 10, 1963, the date when appellee learned of the issuance of the fraud order.
Time was of the essence to the appellee.
We now resolve the main question in this case, namely, whether or not appellee's "Grand
Christmas Bonus Award" plan constitutes a lottery or a gift enterprise. There is no statutory
definition of the terms "lottery" and "gift enterprise". This Court, in the case of "El Debate" Inc.
vs. Topacio, supra, referring to lottery, said:
... while countless definitions of lottery have been attempted, the authoritative one for
this jurisdiction is that of the United States Supreme Court, in analogous cases
having to do with the power of the United States Postmaster General, viz: The term
"lottery" extends to all schemes for the distribution of prizes by chance, such as
policy playing, gift exhibitions, prize concerts, raffles at fairs, etc., and various forms
of gambling. The three essential elements of a lottery are: First, consideration;
second, prize; and third. chance (Horner vs. United States [1902] 147 U.S. 449;
Public Clearing House vs. Coyne [1903] 194 U.S., 497; U.S. vs. Filart and Singson
[1915] 30 Phil. 80; U.S. vs. Olsen and Marker [1917] 36 Phil. 395; U.S. Vs. Baguio
[1919] 39 Phil. 962: Valhalla Hotel Construction Company vs. Carmona, p.
233, ante.)
Thus, for lottery to exist, three elements must concur, namely: consideration, prize, and
chance.
Appellant maintains that all the elements are present in the "Grand Christmas Bonus Award"
plan of the appellee, to wit: "(1) consideration, because to participate and win in the contest
one must buy and resell (in case of sub-agents) or buy (in case of ticket buyers) only 'Manuel
Uy' tickets; (2)  prize, because of the goods to be awarded to the winners; and (3) chance,
because the determination of the winners depends upon the results of the sweepstakes draw
which is decidedly a game of chance." 13 With particular emphasis on the element of
consideration, appellant likens this case to the "El Debate" case, supra, and paraphrasing the
ruling therein says that "By analogy there is consideration with respect to persons who will
buy 'Manuel Uy' tickets (in preference to tickets sold by other authorized agents, like
Tagumpay, Pelagia Viray, Marcela Meer Millar, etc.) merely to win prizes in addition to the
regular sweepstakes prizes (and it is to such persons that the scheme is directed); moreover,
the persons patronizing the Manuel Uy Sweepstakes Agency do not all receive same amount
and some may receive more than the value paid for their tickets through chance and the
prizes awarded by the Philippine Charity Sweepstakes Office." 14
As against this contention, appellee maintains that there is absence of the element of
consideration because except for paying the authorized purchase price of the corresponding
sweepstakes tickets, those entitled to participate in and to benefit from appellee's "Grand
Christmas Bonus Award" plan do not part with any other consideration for the right to take
part and benefit therefrom, which fact is admitted by the appellant. 15 Further, appellee
contends that even under the test laid down in the "El Debate" case, the element of
consideration is lacking because appellee's sub-agents would have continued to sell and the
general public would have continued to buy 'Manuel Uy' tickets regardless of appellee's
"Grand Christmas Bonus Award" plan. 16 Moreover, appellee advances the view that under
another test adopted by American courts as shown by a review of comparative case law in
the United States, there can be no consideration under the plan in question because the
participants pay no money or its equivalent into a fund which pays for the prize. 17
Speaking of the element of consideration, this Court in the aforementioned "El Debate" case,
and quoted in Caltex (Phil.) Inc. vs. Postmaster General, 18 said:
In respect to the last element of consideration, the law does not condemn the
gratuitous distribution of property by chance, if no consideration is derived directly or
indirectly from the party receiving the chance, but does condemn as criminal,
 schemes in which a valuable consideration of some kind is paid directly or indirectly
for the chance to draw a prize.
In the "Grand Christmas Bonus Award" plan of the appellee We do not see the presence of
the element of consideration, that is, payment of something of value, or agreement to pay, for
the chance to win the bonus or award offered. True, that to be a participant in said plan, one
must have to buy a whole sweepstakes ticket (8 shares) sold by the Manuel Uy Sweepstakes
Agency or by its sub-agents. But the payment for the price of the sweepstakes ticket is the
consideration for the chance to win any of the prizes offered by the PCSO in the sweepstakes
draw of December 15, 1963. Wholly or partly, said payment cannot be deemed as a
consideration also for the chance to win the prizes offered by the appellee. For nothing is
asked of, or received from, the buyer of the ticket more than the authorized price thereof, and
which price appears on the face of the ticket. In fact, appellant admits that except for the price
of the ticket, those entitled to participate and benefit from the plan do not part with any other
consideration for the right to take part and benefit therefrom. 19 Indeed, as correctly observed
by the lower court, "there is absolutely no separate consideration for the right to win any of
the offered bonuses or awards."
The analogy drawn by the appellant from the "El Debate" case is not persuasive. On the
contrary, the "reason" or "inducement" test laid down in said case in determining the
presence of the element of consideration seems to favor the appellee. Paraphrased, the test
as expressed in the "El Debate" case is: if the reason for the subscription of the "El Debate"
was the desire to subscribe regardless of any prize offered, then there was no consideration
insofar as the prize plan is concerned; upon the other hand, if the reason for the subscription
was to win the prize offered, then the payment of the subscription fee constituted a
consideration for the chance to win the prize. In the instant case, there are two groups of
participants, in appellee's plan, namely: the sub-agents and the ticket buyers. It cannot be
denied that the sub-agents who, as stated in the stipulation of facts, are responsible for not
less than 70% of appellee's total sales for every draw, would have continued to be appellee's
sub-agents and would have sold "Manuel Uy" tickets regardless of the plan in question.
Anyway, they stood to receive 50% of the agent's prize for any of the prize-winning ticket they
could sell. Upon the other hand, the probability is that the general public would have
purchased "Manuel Uy" tickets in their desire to win any of the prizes offered by the PCSO
regardless of the inducement offered by the appellee to win additional prizes. This conclusion
finds support from the admitted fact that the appellee has consistently sold the greatest
number of tickets among the PCSO'S authorized agents. 20 And undoubtedly, every person
who purchased sweepstakes tickets from the Manuel Uy Sweepstakes Agency for the
December 15, 1963 draw must have been induced, not by the prizes offered by the appellee
but by the substantial prizes offered by the PCSO to wit: First prize, P700,000.00; Second
prize P350,000.00; and Third prize, P175,000.00.
It may not be amiss to state at this juncture that the comparative case law in the United
States indicates that there is another test for determining whether or not the element of
consideration exists in a given scheme or plan so as to constitute the same a lottery under
parallel antilottery legislation. In Post Publishing Co. vs. Murray, 21 it was held:
The advertisement or scheme in question does not seem to be like any of the kinds
or types of wrong against which the Act of Congress was directed. It did not
present a lottery scheme because a lottery involves a scheme for raising money by
selling chances to share in the distribution of prizes — a scheme for the distribution
of prizes by chance among persons purchasing tickets. It was not a gift enterprise
because a gift enterprise contemplates a scheme in which publishers or sellers give
presents as inducements to members of the public to part with their money.
(Emphasis supplied.)
The more recent case of Garden City Chamber of Commerce vs. Wagnet  22 laid down the test
in more definitive terms, as follows:
The examination of authorities made in the present case induces the belief that
the consideration requisite to a lottery is a contribution in kind to the fund or property
to be distributed. (Emphasis supplied)
The test indicated in the foregoing rulings simply means that unless the participants pay
money or its equivalent into a fund which pays for the prizes, there is no lottery. Stated
differently, there is consideration or price paid if it appears that the prizes offered, by
whatever name they may be called, came out of the fund raised by the sale of chances
among the participants in order to win the prizes. Conversely, if the prizes do not come out of
the fund or contributions by the participants, no consideration has been paid, and
consequently there is no lottery.
In the instant case, as stated by the lower court, the prizes offered by the appellee were to be
taken from his share in the agent's prize 23 , which was 10% of the amount of the prize won by
each ticket sold. 24 Therefore, since none of the prizes (awards and bonuses) offered in
appellee's plan were to come directly from the aggregate price of the sweepstakes tickets
sold by appellee, as a part thereof, no consideration exists for the chance to win said prizes,
there being no "contribution in kind to the fund or property to be distributed."
Appellant, however, urges that the patronage of "Manuel Uy" tickets constitutes a
consideration because from the increased sales, appellee would derive benefits in the form of
"returns on his quite substantial investment." This suggestion is without merit. The question of
consideration is not to be determined from the standpoint of the appellee, or the proponent of
the scheme, but rather from that of the sub-agents and the ticket buyers. Said this Court in
Caltex (Phil.) case, supra, on this point:
Off-tangent, too, is the suggestion that the scheme, being admittedly for sales
promotion, would naturally benefit the sponsor in the way of increased patronage by
those who will be encouraged to prefer Caltex products "if only to get the chance to
draw a prize by securing entry blanks". The required element of consideration does
not consist of the benefit derived by the proponent of the contest. The true test, as
laid down in People vs. Cardas 28 P. 2d. 99, 137 Cal. App. (Supp.) 788, is whether
the participant pays a valuable consideration  for the chance, and not whether those
 conducting the enterprise received something of value in return for the distribution of
the prize. Perspective properly oriented, the standpoint of the contestant is all that
matters, not that of the sponsor. The following, culled from Corpus Juris Secundum,
should set the matter at rest:
The fact that the holder of the drawing expects thereby to receive, some
benefit in the way of patronage or otherwise, as a result of the drawing, does
not supply the element of consideration. — Griffith Amusement Co. v.
Morgan, Tex. Civ App., 98 S.W. 2d., 844. (54 C.J.S., p. 849).
Equally enlightening in this connection is the following dissertation of the court in the case of
State vs. Hundling: 25
The question is not whether the donor of the prize makes a profit in some remote and
indirect way, but, rather, whether those who have a chance at the prize pay anything
of value for that chance. Every scheme of advertising, including the giving away of
premiums and prizes, naturally has for its objects, not purely a philanthropic purpose,
but increased business. Even the corner grocer who gives candy to the children of
the neighborhood may be prompted by that motive, but that does not make the gift
unlawful. And if the grocery instead of giving candy to all the children, gives it only to
some as determined by lot, that circumstance does not make the gift made unlawful
by the further circumstance that the business of the grocer in the neighborhood may
be thereby increased. Profit accruing remotely and indirectly to the person who gives
the prize is not a substitute for the requirement that he who has the chance to win the
prize must pay a valuable consideration therefor, in order to make the scheme a
lottery. (Emphasis supplied.)
Based on the foregoing rulings, therefore, it is clear that there is no consideration or price for
the chance to win any of the prizes offered by the appellee in his "Grand Christmas Bonus
Award" plan. There being no consideration, there is no lottery. 26
Even in the light of the mischief or evil sought to be redressed by the Postal Law, or the ratio
legis, the appellee's scheme cannot be condemned as a lottery. It is merely a scheme set up
to promote the sale of tickets for the Grand Christmas Sweepstakes Draw held on December
15, 1963. Should any question be raised it would be: whether or not sweepstakes draws
cultivate or stimulate the gambling spirit among the people. It should be so, because it cannot
be doubted that sweepstakes tickets purchasers are induced to buy said tickets because of
the desire to win any of the substantial prizes offered by the PCSO. This question, however,
is at once rendered moot and academic because sweepstakes draws are authorized by law.
But appellant presents as an alternative argument the contention that even if assuming that
"the element of consideration is lacking the scheme is still a gift enterprise which is also
prohibited by the Postal Law." And in support of this contention or proposition, appellant relies
solely on Opinion No. 217, series of 1953 of the Secretary of Justice, which, according to the
appellant, "ruled that the elements of gift enterprise, as distinguished from the lottery, are only
chance and prize."
In the Caltex (Phil.) case, supra, this Court, rejecting a similar contention of the appellant,
emphatically held:
[W]e note that in the Postal Law the term in question (gift enterprise) is used in
association with the word "lottery". With the meaning of lottery settled, and consonant
to the well-known principle of legal hermeneutics noscitu a sociis — which Opinion
217 aforesaid also relied upon although only in so far as the clement of chance is
concerned — it is only logical that the term under construction should be accorded no
other meaning than that which is consistent with the nature of the word associated
therewith. Hence, if lottery is prohibited only if it involves a consideration, so also
must the term "gift enterprise" be so construed. Significantly, there is not in the law
the slightest indicium of any intent to eliminate that element of consideration from the
"gift enterprise" therein included.
This conclusion firms up in the light of the mischief sought to be remedied by the law,
resort to the determination thereof being an accepted extrinsic aid in statutory
construction. Mail fraud orders, it is axiomatic, are designed to prevent the use of the
mails as a medium for disseminating printed matters which on grounds of public
policy are declared non-mailable. As applied to lotteries, gift enterprises and similar
schemes, justification lies in the recognized necessity to suppress their tendency to
inflame the gambling spirit and to corrupt public morals (Com. vs. Lund 15 A. 2d.,
839, 143 Pa. Super. 208). Since in gambling it is inherent that something of value be
hazarded for a chance to gain a larger amount, it follows ineluctably that where no
consideration is paid by the contestant to participate, the reason behind the law can
hardly be said to obtain. If, as it has been held —
Gratuitous distribution of property by lot or chance does not constitute "lottery", if it is
not resorted to as a device to evade the law and no consideration is derived, directly
or indirectly, from the party receiving the chance, gambling spirit not being cultivated
or stimulated thereby. (City of Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258.') (25
Words and Phrases, perm. ed., p. 695, emphasis)
We find no obstacle in saying the same respecting a gift enterprise. In the end, we
are persuaded to hold that, under the prohibitive provisions of the Postal Law which
we have heretofore examined, gift enterprise and similar schemps therein
contemplated are condemnable only if, like lotteries, they involve the element of
consideration....
Considered in the light of the foregoing elucidations the conclusion is irresistible that since in
the instant case the element of consideration is lacking, the plan or scheme in question is
also not a "gift enterprise" or a "similar scheme" proscribed by the Postal Law.
Not being a lottery, gift enterprise or similar scheme, appellee's "Grand Christmas Bonus
Award" plan can be considered a scheme for the gratuitous distribution of personal property
by chance which the Postal Law does not condemn. Thus, in labelling said scheme as a
lottery or gift enterprise when it is not, appellant not only committed a palpable error of law
but also exceeded his statutory authority in issuing the fraud order in question. The power of
the appellant to issue a fraud order under the Postal Law is dependent upon the existence of
a lottery, gift enterprise or similar scheme.

Accordingly, the lower court did not err in declaring the fraud order in question contrary to law
and in substituting its judgement for that of the appellant. The lower court did not also err in
issuing the writ of injunction, the remedy adequate, speedy and appropriate under the
circumstances.lawphi1.nêt

... The Postmaster General's order being the result of a mistaken view of the law,
could not operate as a defense to his action on the part of the defendant, though it
might justify his obedience thereto until some action of the court. In such a case as
the one before us there is no adequate remedy at law, the injunction to prohibit the
further withholding of the mail from complaint being the only remedy at all adequate
to the full relief to which the complainants are entitled.... 27

WHEREFORE, the decision appealed from should be, as it is hereby, affirmed. No

pronouncement as to costs. It is so ordered.