2.

Contract of Adhesion
Rizal Surety & Insurance Company v. Court of Appeals,
G.R. No. 112360, July 18, 2000
[C]onsidering that the two-storey building aforementioned was already existing when subject fire
insurance policy contract was entered into on January 12, 1981, having been constructed sometime in
1978, petitioner should have specifically excluded the said two-storey building from the coverage of the
fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such
fire insurance policy covers the products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and intercommunicating with the right
section of the four-span building.
After a careful study, the Court does not find any basis for disturbing what the lower courts found and
arrived at. Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has
created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil
Code provides: "The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity"

Facts:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No.
45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for One Million (₱1,000,000.00)
Pesos and eventually increased to One Million Five Hundred Thousand (₱1,500,000.00) Pesos, covering
the period from August 14, 1980 to March 13, 1981.
The same pieces of property insured with the petitioner were also insured with New India Assurance
Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its
four-span building and partly gutting the left and right sections thereof. A two-storey building (behind
said four-span building) where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance
Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance companies an action for
collection of sum of money and damages. Petitioner Rizal Insurance countered that its fire insurance
policy sued upon covered only the contents of the four-span building, which was partly burned, and not
the damage caused by the fire on the two-storey annex building.
The trial court rendered its decision dismissing the case as against The New India Assurance Co., Ltd. and
Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc. the
amount of P826, 500.00 representing the actual value of the losses suffered by it.
Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting Mills, Inc.,
went to the Court of Appeals. CA held that defendant New India Assurance Company has to pay plaintiff-
appellant the amount of P1,818,604.19 while the Rizal Surety has to pay the plaintiff-appellant
P470,328.67, based on the actual losses sustained by plaintiff Transworld in the fire, totalling
P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in
the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00.
New India appealed to the Supreme Court but it denied the appeal with finality.
Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for Reconsideration
before the Court of Appeals. The Court of Appeals reconsidered its decision and amended but only the
imposition of legal interest. The rest of the said decision is retained in all other respects.

Issue: Whether the annex building where the bulk of the burned properties were stored, was included in
the coverage of the insurance policy issued by rizal surety to transworld.

Held:
Yes, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt
regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides that
The interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity. The doubt should be resolved against the petitioner, Rizal Surety Insurance Company,
whose lawyer or managers drafted the fire insurance policy contract under scrutiny.
The issue of whether or not Transworld has an insurable interest in the fun and amusement machines
and spare parts, which entitles it to be indemnified for the loss thereof, had been settled in G.R. No. L-
111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals. In which it was held that
indeed Transworld has an insurable interest in the fun and amusement machines and spare parts.
The fire insurance policy regarding its coverage states the phrase “xxx contained and/or stored during
the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx”.
Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its
coverage to what were stored in the four-span building. As opined by the trial court of origin, two
requirements must concur in order that the said fun and amusement machines and spare parts would
be deemed protected by the fire insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas occupied by Transworld and second,
said areas must form part of the building described in the policy xxx"14
'Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as
hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and
caretaker's quarter.'
So also, considering that the two-storey building aforementioned was already existing when subject fire
insurance policy contract was entered into on January 12, 1981, having been constructed sometime in
1978,18 petitioner should have specifically excluded the said two-storey building from the coverage of
the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that
such fire insurance policy covers the products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and intercommunicating with the right
section of the four-span building.
The Court of Appeals is affirmed, Rizal Surety Insurance Company is liable for the destruction and loss of
the insured buildings and articles of the private respondent.
A. Beneficiary of one who insures his own life
As a general rule, the insured who insures his own life may designate any person, including his estate as
his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured

The Insured has the right to change the designation of the beneficiary, unless he has expressly
designated an irrevocable beneficiary in his policy

• What are the effects if the designation of beneficiary is irrevocable

The insured cannot
1.Assign the policy
2.Take the cash surrender value
3.Allow his creditors to attach execute on the policy
4.Add a new beneficiary or
5.Change the irrevocable designation to revocable, even though the change is just andreasonable

Ratio: The irrevocability of the designated beneficiary and his heirs have acquired from the date of the
policy vested rights over the policy (Philam vs. Pineda 175 SCRA 201)

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First Instance of Rizal, and
RODOLFO C. DIMAYUGA, respondents.

Facts:
Pineda procured an ordinary life insurance policy from the petitioner company and designated his wife
and children as irrevocable beneficiaries.
He then filed a petition to amend the designation of the beneficiaries in his life policy from irrevocable
to revocable.
The judge granted the request.
Petitioner promptly filed a motion but was denied. Hence, this petition.

Issues:
1. WON the designation of the irrevocable beneficiaries could be changed or amended without the
consent of all the irrevocable beneficiaries.
2. WON the irrevocable minor beneficiaries could give consent to the change in designation

Held
We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned
Orders.
Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No.
2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary
designated in a life insurance contract cannot be changed without the consent of the beneficiary
because he has a vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v.
Redfern and the International Assurance Co., Ltd., 72 Phil. 71).

In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms
part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of
the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for
Review on Certiorari), to wit:

It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been
made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no right or privilege under the Policy may be
exercised, or agreement made with the Company to any change in or amendment to the Policy, without
the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then
applicable, it is only with the consent of all the beneficiaries that any change or amendment in the policy
concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy
do not provide for any other exception, thus, abrogating the contention of the private respondent that
said designation can be amended if the Court finds a just, reasonable ground to do so.
Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does
not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction
thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change in the
designation of beneficiaries could be validly effected means that it was never within the contemplation
of the parties. The lower court, in gratuitously providing for such contingency, made a new contract for
them, a proceeding which we cannot tolerate. Ergo, We cannot help but conclude that the lower court
acted in excess of its authority when it issued the Order dated March 19, 1980 amending the
designation of the beneficiaries from "irrevocable" to "revocable" over the disapprobation of the
petitioner insurance company.
G.R. No. 146494 July 14, 2004
GOVERNMENT SERVICE INSURANCE SYSTEM, Cebu City Branch, petitioner,
vs.
MILAGROS O. MONTESCLAROS, respondent.

Facts:
Sangguniang Bayan member Nicolas Montesclaros ("Nicolas") married Milagros Orbiso ("Milagros") on
10 July 1983.3 Nicolas was a 72- year old widower when he married Milagros who was then 43 years old.
On 4 January 1985, Nicolas filed with the Government Service Insurance System ("GSIS") an application
for retirement benefits effective 18 February 1985
In his retirement application, Nicolas designated his wife Milagros as his sole beneficiary.4 Nicolas' last
day of actual service was on 17 February 1985.5 On 31 January 1986, GSIS approved Nicolas' application
for retirement "effective 17 February 1984," granting a lump sum payment of annuity for the first five
years and a monthly annuity thereafter.6 Nicolas died on 22 April 1992. Milagros filed with GSIS a claim
for survivorship pension under PD 1146. On 8 June 1992, GSIS denied the claim because under Section
18 of PD 1146, the surviving spouse has no right to survivorship pension if the surviving spouse
contracted the marriage with the pensioner within three years before the pensioner qualified for the
pension.7 According to GSIS, Nicolas wed Milagros on 10 July 1983, less than one year from his date of
retirement on "17 February 1984."
the trial court rendered judgment declaring Milagros eligible for survivorship pension. The trial court
ordered GSIS to pay Milagros the benefits due including interest.
GSIS appealed to the Court of Appeals, which affirmed the decision of the trial court.
The Court of Appeals agreed with the trial court that the retirement benefits are onerous and conjugal
because the pension came from the deceased pensioner's salary deductions. The Court of Appeals held
that the pension is not gratuitous since it is a deferred compensation for services rendered.

Issue: Whether retirement benefits form part of conjugal property; Whether spouse married the
pensioner within three years before the pensioner qualified for the pension;

Held:
Section 18 of PD 1146 is unconstitutional because it violates the due process clause. The proviso is also
discriminatory and denies equal protection of the law.
In a pension plan where employee participation is mandatory, the prevailing view is that employees
have contractual or vested rights in the pension where the pension is part of the terms of employment.
Thus, where the employee retires and meets the eligibility requirements, he acquires a vested right to
benefits that is protected by the due process clause.20 Retirees enjoy a protected property interest
whenever they acquire a right to immediate payment under pre-existing law.21 Thus, a pensioner
acquires a vested right to benefits that have become due as provided under the terms of the public
employees' pension statute.22 No law can deprive such person of his pension rights without due process
of law, that is, without notice and opportunity to be heard.
Under PD 1146, the dependent spouse is one of the beneficiaries of survivorship benefits. A widow's
right to receive pension following the demise of her husband is also part of the husband's contractual
compensation.
The proviso discriminates against the dependent spouse who contracts marriage to the pensioner within
three years before the pensioner qualified for the pension.31 Under the proviso, even if the dependent
spouse married the pensioner more than three years before the pensioner's death, the dependent
spouse would still not receive survivorship pension if the marriage took place within three years before
the pensioner qualified for pension.
the classification is discriminatory and arbitrary. This is probably the reason Congress deleted the
proviso in Republic Act No. 8291 ("RA 8291"),32 otherwise known as the "Government Service Insurance
Act of 1997," the law revising the old charter of GSIS (PD 1146). Under the implementing rules of RA
8291, the surviving spouse who married the member immediately before the member's death is still
qualified to receive survivorship pension unless the GSIS proves that the surviving spouse contracted the
marriage solely to receive the benefit.
the petition is DENIED for want of merit. We declare VOID for being violative of the constitutional
guarantees of due process and equal protection of the law the proviso in Section 18 of Presidential
Decree No. 1146. The Government Service Insurance System cannot deny the claim of Milagros O.
Montesclaros for survivorship benefits based on this invalid proviso.
G.R. No. 173582 January 28, 2008
YOLANDA SIGNEY, petitioner,
vs.
SOCIAL SECURITY SYSTEM, EDITHA ESPINOSA-CASTILLO, and GINA SERVANO, representative of GINALYN
and RODELYN SIGNEY, respondents.

Facts:
Rodolfo Signey, Sr., a member of the SSS, died on 21 May 2001. In his member’s records, he had
designated Yolanda Signey (petitioner) as primary beneficiary and his four children with her as
secondary beneficiaries. On 6 July 2001, petitioner filed a claim for death benefits with the public
respondent SSS.5 She revealed in her SSS claim that the deceased had a common-law wife, Gina Servano
(Gina), with whom he had two minor children
Petitioner’s declaration was confirmed when Gina herself filed a claim for the same death benefits on 13
July 2001 in which she also declared that both she and petitioner were common-law wives of the
deceased and that Editha Espinosa (Editha) was the legal wife. Editha also filed an application for death
benefits with the SSS stating that she was the legal wife of the deceased.
The SSS, through a letter dated 4 December 2001,8 denied the death benefit claim of petitioner.
However, it recognized Ginalyn and Rodelyn, the minor children of the deceased with Gina, as the
primary beneficiaries under the SSS Law. The SSS also found that the 20 March 1992 marriage between
petitioner and the deceased was null and void because of a prior subsisting marriage contracted on 29
October 1967 between the deceased and Editha
Petitioner filed a petition9 with the SSC in which she attached a waiver of rights10 executed by Editha
whereby the latter waived "any/all claims from National Trucking Forwarding Corporation (NTFC) under
the supervision of National Development Corporation (NDC), Social Security System (SSS) and other
(i)nsurance (b)enefits due to the deceased Rodolfo Signey Sr.
The SSC affirmed the decision of the SSS. The SSC gave more weight to the SSS field investigation and the
confirmed certification of marriage showing that the deceased was married to Editha.
The SSC also found, based on the SSS field investigation report dated 6 November 2001 that even if
Editha was the legal wife, she was not qualified to the death benefits since she herself admitted that she
was not dependent on her deceased husband for support inasmuch as she was cohabiting with a certain
Aquilino Castillo.
The SSC applied Section 8(e) and (k) of Republic Act (RA) No. 8282, the SSS Law which was in force at the
time of the member’s death on 21 May 2001, and held that the dependent legitimate and illegitimate
minor children of the deceased member were also considered primary beneficiaries.
The deceased SSS member’s four illegitimate children with petitioner could no longer be considered
dependents at the time of his death because all of them were over 21 years old when he died on 21 May
2001, the youngest having been born on 31 March 1978. On the other hand, the deceased SSS
member’s illegitimate children with Gina were qualified to be his primary beneficiaries for they were still
minors at the time of his death.
The SSC denied the motion for reconsideration filed by petitioner. It held that the mere designation of
petitioner and her children as beneficiaries by the deceased member was not the controlling factor in
the determination of beneficiaries. Sections 13, 8(e) and 8(k) of the SSS Law, as amended, provide that
dependent legal spouse entitled by law to receive support from the member and dependent legitimate,
legitimated or legally adopted, and illegitimate children of the member shall be the primary
beneficiaries of the latter.
Petitioner appealed the judgment of the SSC to the Court of Appeals. The appellate court affirmed the
decision of the SSC. It held that based on Section 8(e) of R. A. No. 8282, a surviving spouse claiming
death benefits as a dependent must be the legal spouse. Petitioner’s presentation of a marriage
certificate attesting to her marriage to the deceased was futile, according to the appellate court, as said
marriage is null and void in view of the previous marriage of the deceased to Editha as certified by the
Local Civil Registrar of Cebu City. The Court of Appeals denied the motion for reconsideration of
petitioner.

Issue: whether petitioner has a superior legal right over the SSS benefits as against the illegitimate minor
children of the deceased.

Held:
There is no merit in the petition. Section 8(e) and (k) of R. A. No. 828227 is very clear. Section 8(e)
provides that, The dependent shall be the following, The legal spouse entitled by law to receive support
from the member; The legitimate, legitimated, or legally adopted, and illegitimate child who is
unmarried, not gainfully employed and has not reached twenty-one years (21) of age, or if over twenty-
one (21) years of age, he is congenitally or while still a minor has been permanently incapacitated and
incapable of self-support, physically or mentally; and The parent who is receiving regular support from
the member. Section 8(k) provides that, the beneficiaries are the dependent spouse until he or she
remarries, the dependent legitimate, legitimated or legally adopted, and illegitimate children, who shall
be the primary beneficiaries of the member; the dependent parents who shall be the secondary
beneficiaries of the member; In the absence of all of the foregoing, any other person designated by the
member as his/her secondary beneficiary.
Hence, we need only apply the law. Under the principles of statutory construction, if a statute is clear,
plain and free from ambiguity, it must be given its literal meaning and applied without attempted
interpretation.
Whoever claims entitlement to the benefits provided by law should establish his or her right thereto by
substantial evidence. Since petitioner is disqualified to be a beneficiary and because the deceased has
no legitimate child, it follows that the dependent illegitimate minor children of the deceased shall be
entitled to the death benefits as primary beneficiaries. The SSS Law is clear that for a minor child to
qualify as a "dependent,29" the only requirements are that he/she must be below 21 years of age, not
married nor gainfully employed.
The Decision of the Court of Appeals is AFFIRMED.