Applicability of Civil Code Art.

2011, 2012, 739, Civil Code

FIRST DIVISION

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

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Plaintiff-Appellee, v.

CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, Defendants-
Appellants.

DECISION

MARTIN, J.:

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

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

On October 21, 1969, Buenventura C. Ebrado died as a result of an accident when he

was hit by a falling branch of a tree. As the insurance policy was in force, The Insular
Life Assurance Co., Ltd. stands liable to pay the coverage of the policy in an amount of
P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus
the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February, 1969, in the sum of
P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the
designated beneficiary therein, although she admits that she and the insured
Buenaventura C. Ebrado were merely living as husband and wife without the benefit of
marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds, not the
common-law wife, Carponia T. Ebrado. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

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

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after
which, a pre-trial order was entered reading as follows: jgc:chanrobles.com.ph
"During the pre-trial conference, the parties manifested to the court that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purposes of the pre-trial and make admissions for the
purpose of pre-trial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy
No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with
the rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and
Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during
the lifetime of Buenaventura Ebrado, he was living with his common-law wife, Carponia
Ebrado, with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura Ebrado died by accident on October 21, 1969 as
evidenced by the death certificate Exhibit 3 and affidavit of the police report of his
death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life
Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the
proceeds of said policy; 6) that in view of the adverse claims the insurance company
filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that
there is now due from the Insular Life Assurance Co. as proceeds of the policy
P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia
Ebrado and the insured made reservation to change the beneficiary but although the
insured made the option to change the beneficiary, same was never changed up to the
time of his death and the legal wife did not have any opportunity to write the company
that there was reservation to change the designation of the beneficiary; 9) the parties
agreed that a decision be rendered based on this agreement and stipulation of facts as
to who among the two claimants is entitled to the policy.

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

SO ORDERED." cralaw virtua1aw library

On September 25, 1972, the trial court rendered judgment declaring, among others,
Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura
Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the
deceased insured. The trial court held: jgc:chanrobles.com.ph

"It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of such
guilt or commission of those acts be made in a separate independent action brought for
the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the nullity of the
donation).

It is, however, essential that such adultery or concubinage exists at the time defendant
Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured."  chanrobles virtual lawlibrary

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

We affirm the judgment of the lower court.

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

"The following donations shall be void: jgc:chanrobles.com.ph

"1. Those made between persons who were guilty of adultery or concubinage at the
time of donation;

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

"3. Those made to a public officer or his wife, descendants or ascendants by reason of
his office.

"In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action." cralaw virtua1aw library

2. In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or profits of said
insurance. As a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article 2012 cannot
be laid aside: any person who cannot receive a donation cannot be named as
beneficiary in the life insurance policy of the person who cannot make the donation. 5
Under American law, a policy of life insurance is considered as a testament and in
construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wills are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier
between common-law spouses in regard to property relations since such relationship
ultimately encroaches upon the nuptial and filial rights of the legitimate family. There is
every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same
are based on similar consideration. As above pointed out, a beneficiary in a life
insurance policy is no different from a donee. Both the recipients of pure beneficence.
So long as marriage remains the threshold of family laws, reason and morality dictate
that the impediments imposed upon married couple should likewise be imposed upon
extra-marital relationship. If legitimate relationship is circumscribed by these legal
disabilities, with more reason should an illicit relationship be restricted by these
disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said:jgc:chanrobles.com.ph

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

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

4. We do not think that a conviction for adultery or concubinage is exacted before the
disabilities mentioned in Article 739 may effectuate. More specifically, with regard to
the disability on "persons who were guilty of adultery or concubinage at the time of the
donation," Article 739 itself provides: jgc:chanrobles.com.ph

"In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action." cralaw virtua1aw library

The underscored clause neatly conveys that no criminal conviction for the disqualifying
offense is a condition precedent. In fact, it cannot even be gleaned from the
aforequoted provision that a criminal prosecution is needed. On the contrary, the law
plainly states that the guilt of the party may be proved "in the same action" for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates
upon the guilt of the consort for the offense indicated. The quantum of proof in criminal
cases is not demanded.

In the case before Us, the requisite proof of common-law relationship between the
insured and the beneficiary has been conveniently supplied by the stipulations between
the parties in the pre-trial conference of the case. It case agreed upon and stipulated
therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that during his lifetime, the
deceased insured was living with his common-law wife, Carponia Ebrado, with whom he
has two children. These stipulations are nothing less than judicial admissions which, as
a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the
basis of these admissions, a judgment may be validly rendered without going through
the rigors of a trial for the sole purpose of proving the illicit liaison between the insured
and the beneficiary. In fact, in that pre-trial, the parties even agreed "that a decision be
rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy." 
chanrobles virtual lawlibrary

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

SO ORDERED.

Teehankee (Chairman), Makasiar, Muñoz Palma, Fernandez and Guerrero, JJ., concur.

Endnotes:
G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee
v. Zenith Insurance Corp., defendant-appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil
Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the
car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly
being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses
of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved
to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although
at an amount lower than private respondent's claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,
however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a
petition for certiorari with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.
However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

 3. The amount of P20,000.00 by way of exemplary damages;

4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending appeal. The order was assailed by
petitioner in a petition for certiorari with the Court of Appeals on October 23, 1986 in C.A. G.R. No.
10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without Zenith's evidence, was
dismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages,

exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary damages, the trial court awarded
P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial court
awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a
defendant, they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised
Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left to the discretion of the court according
to the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding
moral damages in case of breach of contract, there must be a showing that the breach was wanton
and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was
no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent
within the two-month period was that the parties could not come to an agreement as regards the
amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction
for the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-
Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as
the insurance company had not acted in wanton, oppressive or malevolent manner. The same is
true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this
case considering that there were other petitions filed and defended by private respondent in
connection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no
basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary
damages is hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.

Narvasa, Cruz and Griño-Aquino, JJ., concur.

Gancayco, J., is on leave