G.R. No.

L-2294             May 25, 1951

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros,
fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building
located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were burned. In due time
the respondent submitted to the petitioner its claim under the policy. The salvage goods were
sold at public auction and, after deducting their value, the total loss suffered by the respondent
was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the United States declared war
against Germany, the respondent Corporation (though organized under and by virtue of the
laws of the Philippines) being controlled by the German subjects and the petitioner being a
company under American jurisdiction when said policy was issued on October 1, 1941. The
petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine
Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April
19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory
of the petitioner is that the insured merchandise were burned up after the policy issued in 1941
in favor of the respondent corporation has ceased to be effective because of the outbreak of
the war between the United States and Germany on December 10, 1941, and that the payment
made by the petitioner to the respondent corporation during the Japanese military occupation
was under pressure. After trial, the Court of First Instance of Manila dismissed the action
without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the
Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal
by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany, relying
on English and American cases which held that a corporation is a citizen of the country or state
by and under the laws of which it was created or organized. It rejected the theory that
nationality of private corporation is determine by the character or citizenship of its controlling
stockholders.
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in view of
the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153,
in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion
in many countries, belligerent and neutral. A corporation was subject to enemy legislation
when it was controlled by enemies, namely managed under the influence of individuals or
corporations, themselves considered as enemies. It was the English courts which first
the Daimler case applied this new concept of "piercing the corporate veil," which was adopted
by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the First World War. Courts
refused to recognized the concept whereby American-registered corporations could be
considered as enemies and thus subject to domestic legislation and administrative measures
regarding enemy property.
World War II revived the problem again. It was known that German and other enemy interests
were cloaked by domestic corporation structure. It was not only by legal ownership of shares
that a material influence could be exercised on the management of the corporation but also by
long term loans and other factual situations. For that reason, legislation on enemy property
enacted in various countries during World War II adopted by statutory provisions to the control
test and determined, to various degrees, the incidents of control. Court decisions were
rendered on the basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the last
war, include as did other legislations the applications of the control test and again, as in World
War I, courts refused to apply this concept whereby the enemy character of an American or
neutral-registered corporation is determined by the enemy nationality of the controlling
stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative
practice in the treatment of foreign-owned property in the United States allowed to large
degree the determination of enemy interest in domestic corporations and thus the application
of the control test. Court decisions sanctioned such administrative practice enacted under the
First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of
the United States definitely approved of the control theory. In Clark vs. Uebersee Finanz
Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest,
the Court: "The property of all foreign interest was placed within the reach of the vesting power
(of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach
enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and
vesting was extended to all property of any foreign country or national so that no innocent
appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the
appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45
Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the
meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries
not only because it was incorporated under the laws of an enemy country but because it was
controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the
enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason
that the subjects of one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do anything
detrimental too their country's interest. The purpose of war is to cripple the power and exhaust
the resources of the enemy, and it is inconsistent that one country should destroy its enemy's
property and repay in insurance the value of what has been so destroyed, or that it should in
such manner increase the resources of the enemy, or render it aid, and the commencement of
war determines, for like reasons, all trading intercourse with the enemy, which prior thereto
may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as
to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is
broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on
Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December 10,
1941, and during the war, the respondent was not entitled to any indemnity under said policy
from the petitioner. However, elementary rules of justice (in the absence of specific provision in
the Insurance Law) require that the premium paid by the respondent for the period covered by
its policy from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of
whether the policy in question became null and void upon the declaration of war between the
United States and Germany on December 10, 1941, and its judgment in favor of the respondent
corporation was predicated on its conclusion that the policy did not cease to be in force. The
Court of Appeals necessarily assumed that, even if the payment by the petitioner to the
respondent was involuntary, its action is not tenable in view of the ruling on the validity of the
policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the
appellee was not unjust but the exercise of its lawful right to claim for and received the
payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect
that "the appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to
pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of
this office contained in its decision on Administrative Case dated February 9, 1943 copy of
which was sent to your office and the concurrence therein of the Financial Department of the
Japanese Military Administration, and following the instruction of said authority, you are hereby
ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim,
however, should be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with
the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of
the premium, in Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11, 1941. Without costs. So
ordered.
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in
CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando
Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which
awarded the claim of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San Francisco,
Agusan del Sur. On 22 December 1989, he obtained from the private respondent fire
insurance policy No. F-146222 for P100,000.00. The period of the policy was from 22 December
1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of
dry goods such as RTW's for men and women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the
petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

—————

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already affected,
or which may subsequently be effected, covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice
be given and the particulars of such insurance or insurances be stated therein or endorsed in
this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before
the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of
San Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely
destroyed prompting him to file with the private respondent a claim under the policy. On 28
December 1990, the private respondent denied the claim because it found that at the time of
the loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies No. GA-
28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines
First Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was
"Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. —
Phils. First CEB/F 24758.4
The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with the Insurance
Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-
14622 and for attorney's fees and costs of litigation. He attached as Annex "AM" 6 thereof his
letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private respondent's fire insurance policy he knew
that the two policies issued by the PFIC were already in existence; however, he had no
knowledge of the provision in the private respondent's policy requiring him to inform it of the
prior policies; this requirement was not mentioned to him by the private respondent's agent;
and had it been mentioned, he would not have withheld such information. He further asserted
that the total of the amounts claimed under the three policies was below the actual value of his
stocks at the time of loss, which was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in the complaint and
set up as its principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not
violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies
obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies
without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor,
had insurable interest on the stocks. These findings were based on the petitioner's testimony
that he came to know of the PFIC policies only when he filed his claim with the private
respondent and that Cebu Tesing Textile obtained them and paid for their premiums without
informing him thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent company to pay
complainant the sum of P100,000.00 with legal interest from the time the complaint was filed
until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10 the private respondent appealed to the Court
of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the
Insurance Commission because it found that the petitioner knew of the existence of the two
other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance
was taken in the name of private respondent [petitioner herein]. The policy states that
"DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and that "TESING
TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not by the
Tesing Textiles which is alleged to have taken out the other insurance without the knowledge of
private respondent. This is shown by Premium Invoices nos. 46632 and 46630. (Annexes M and
N). In both invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured
but the party to which they were issued were the "DISCOUNT MART (MR. ARMANDO
GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took out the policies on
the same property subject of the insurance with petitioner. Hence, in failing to disclose the
existence of these insurances private respondent violated Condition No. 3 of Fire Policy No.
1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions insurances is
belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me to inform your
office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about
said requirement at the time he was convincing me to insure with you. If he only die or even
inquired if I had other existing policies covering my establishment, I would have told him so.
You will note that at the time he talked to me until I decided to insure with your company the
two policies aforementioned were already in effect. Therefore I would have no reason to
withhold such information and I would have desisted to part with my hard earned peso to pay
the insurance premiums [if] I know I could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The actual
value of my stocks damaged by the fire was estimated by the Police Department to be
P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income Statement as of
December 31, 1989 or five months before the fire, shows my merchandise inventory was
already some P595,455.75. . . . These will support my claim that the amount claimed under the
three policies are much below the value of my stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there were
other insurances taken on the stock-in-trade and seriously puts in question his credibility.
His motion to reconsider the adverse decision having been denied, the petitioner filed the
instant petition. He contends therein that the Court of Appeals acted with grave abuse of
discretion amounting to lack or excess of jurisdiction:
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A
QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND
WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS
EVIDENCE DURING THE HEARING OR TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had
prior knowledge of the two insurance policies issued by the PFIC when he obtained the fire
insurance policy from the private respondent, thereby, for not disclosing such fact, violating
Condition 3 of the policy, and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter
was not offered in evidence and thus should not have been considered in deciding the case.
However, as correctly pointed out by the Court of Appeals, a copy of this letter was attached to
the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of
the complaint. 12 It has attained the status of a judicial admission and since its due execution
and authenticity was not denied by the other party, the petitioner is bound by it even if it were
not introduced as an independent evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had no knowledge of
the previous two policies. The Court of Appeals disagreed and found otherwise in view of the
explicit admission by the petitioner in his letter to the private respondent of 18 January 1991,
which was quoted in the challenged decision of the Court of Appeals. These divergent findings
of fact constitute an exception to the general rule that in petitions for review under Rule 45,
only questions of law are involved and findings of fact by the Court of Appeals are conclusive
and binding upon this Court. 14
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the
PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which the
latter relied upon cannot prevail over a written admission made ante litem motam. It was,
indeed, incredible that he did not know about the prior policies since these policies were not
new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-
28146 had been renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance
Code 15 which provides that "[a] policy may declare that a violation of specified provisions
thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the
policy." Such a condition is a provision which invariably appears in fire insurance policies and is
intended to prevent an increase in the moral hazard. It is commonly known as the additional or
"other insurance" clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the
16
policy.   However, in order to constitute a violation, the other insurance must be upon same
subject matter, the same interest therein, and the same risk.17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a
separate policy covering his interest, either at the same or at separate times. 18 The mortgagor's
insurable interest covers the full value of the mortgaged property, even though the mortgage
debt is equivalent to the full value of the property.19 The mortgagee's insurable interest is to the
extent of the debt, since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable interest is prima facie the
value mortgaged and extends only to the amount of the debt, not exceeding the value of the
mortgaged property. 20 Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the
usual practice. The mortgagee may be made the beneficial payee in several ways. He may
become the assignee of the policy with the consent of the insurer; or the mere pledgee without
such consent; or the original policy may contain a mortgage clause; or a rider making the policy
payable to the mortgagee "as his interest may appear" may be attached; or a "standard
mortgage clause," containing a collateral independent contract between the mortgagee and
insurer, may be attached; or the policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the
proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as
his interest may appear, the mortgagee is only a beneficiary under the contract, and recognized
as such by the insurer but not made a party to the contract himself. Hence, any act of the
mortgagor which defeats his right will also defeat the right of the mortgagee. 22 This kind of
policy covers only such interest as the mortgagee has at the issuing of the policy.23
On the other hand, a mortgagee may also procure a policy as a contracting party in accordance
with the terms of an agreement by which the mortgagor is to pay the premiums upon such
insurance. 24 It has been noted, however, that although the mortgagee is himself the insured, as
where he applies for a policy, fully informs the authorized agent of his interest, pays the
premiums, and obtains on the assurance that it insures him, the policy is in fact in the form
used to insure a mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a
mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may
appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety
Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or insurances already effected, or
which may subsequently be effected covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this Policy shall be forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
28
Co.   which provided "that any outstanding insurance upon the whole or a portion of the
objects thereby assured must be declared by the insured in writing and he must cause the
company to add or insert it in the policy, without which such policy shall be null and void, and
the insured will not be entitled to indemnity in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It
expressly provides that the condition "shall not apply when the total insurance or insurances in
force at the time of the loss or damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally
in favor of the insured and strictly against the company, the reason being, undoubtedly, to
afford the greatest protection which the insured was endeavoring to secure when he applied
for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person claiming
thereunder, will be avoided, if it is possible to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated differently,
provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are inserted,
and most favorably toward those against whom they are intended to operate. 30 The reason for
this is that, except for riders which may later be inserted, the insured sees the contract already
in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the interest of the insurers and
the technical language employed therein is rarely understood by ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not
totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us
to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the
policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other insurance
"covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured," and the portion regarding the insured's declaration on
the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum
of P50,000.00. A double insurance exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier stated, the insurable interests
of a mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since
the two policies of the PFIC do not cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The non-disclosure then of the former policies
was not fatal to the petitioner's right to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had
in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-insurance and thus avert the
perpetration of fraud. When a property owner obtains insurance policies from two or more
insurers in a total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the insurance. The public as
well as the insurer is interested in preventing a situation in which a fire would be profitable to
the insured.32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No.
3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
G.R. No. L-43766 February 26, 1988
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HON. COURT OF APPEALS (SPECIAL THIRD DIVISION), IGNACIO DESIDERIO AND VICTORIA
F. DESIDERIO, respondents.

SARMIENTO, J.:
In its resolve to recover the trifling sum of P 3,855.60, petitioner Philippine National Bank (PNB),
a premier banking institution, incredulous of the adverse decisions of three lower courts, to
wit: the City Court of Zamboanga City which rendered a decision the dispositive portion of
which reads:
WHEREFORE, this Court hereby renders judgment in the following tenor:
That the complaint for the unpaid balance of the contractual loan of the Defendant Ignacio
Desiderio and Victoria F. Desiderio filed by the Philippine National Bank, is hereby ordered
dismissed and that the amount of P 1,089.60 which the Defendants paid as partial payment to
the Plaintiff Bank on account of the loss contracted, is hereby declared unrecoverable and the
same shall inure to the benefit of the Philippine National Bank.
That no pronouncement as to damages, costs and attorney's fees is hereby made, as the loss of
the things mortgaged were presumed to be caused by accident, no evidence having been
presented to prove the contrary; 1
the then CFI of Zamboanga City which affirmed the above in a decision the dispositive portion
of which reads: .
IN VIEW OF THE FOREGOING, the appealed judgment of the City Court is affirmed insofar as it
dismisses the complaint as well as the counter-claim filed in the above entitled case; 2
and the Court of Appeals which likewise affirmed the above in a decision the dispositive portion
of which reads:
WHEREFORE, the appealed judgment, being in accordance with law and the evidence, is hereby
affirmed in toto, with costs against the petitioner; 3
has elevated this case to the highest court of the land with the following errors assigned:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER, AS ATTORNEY-IN-FACT OF
PRIVATE RESPONDENTS, IS BOUND TO SUCCESSFULLY COLLECT THE INSURANCE PROCEEDS OF
THE MORTGAGED PROPERTY OF THE LATTER.
II
THE COURT OF APPEALS ERRED IN EXONERATING PRIVATE RESPONDENTS, BY WAY OF IMPLIED
OFF-SETTING FROM ITS LOAN ACCOUNT WITH PETITIONER, THERE BEING NO COUNTERCLAIM
FOR DAMAGES FILED BASED ON BREACH OF DUTY. 4
The facts of the case are as follows:
More than a quarter century ago, on January 10, 1963, the private respondents-spouses
applied for a retailers' loan with the petitioner. The loan which was subsequently approved
was secured by a chattel mortgage consisting of the verified inventory of stocks in the store of
the private respondents, located at Marahui Street, Zamboanga City. In addition to this, the
goods and merchandise, subject matter of the mortgage, were insured with the Cosmopolitan
Insurance Go. in the amount of P 4,000.00 with the petitioner as the beneficiary pursuant to
the requirements of the latter.
On August 1, 1964, while the insurance and the chattel mortgage were still in force, and after
the private respondents had paid the petitioner the amount of P 1,089.60 as partial payment of
the loan in accordance with the loan agreement, the insured building and merchandise of the
private respondents were totally destroyed by fire.
The petitioner sent several letters to the insurance company for the purpose of recovering the
proceeds of the insurance but to no avail. Sometime in 1966, the said insurance company
became the subject of liquidation. Seven years after the insured chattels mortgaged were
burned, the petitioner filed a complaint for collection against the private respondents.
We find no cogent reasons to disturb the ruling of the Court of Appeals.
The petitioner as the attorney-in-fact of the private respondents and as the beneficiary of the
insurance policy had the obligation to collect the proceeds of the policy. The argument of the
petitioner to the effect that there is no express provision in the Chattel Mortgage Contract
which compels the petitioner to collect the proceeds of the insurance in case of loss is a mere
rationalization of one trying hard to put the blame on another for its own fault or negligence.
For "under the chattel mortgage covering the goods offered as security for payment of the loan,
the private respondents as mortgagors constituted and appointed the petitioner as
mortgagee their attorney-in-fact with full power and authority to collect and receive any
interest, income or benefits produced by the mortgaged property and apply such amount
collected and received in payment of the interest accruing and of the principal obligation. The
petitioner was itself the beneficiary of the insurance policy to which it was duly indorsed and
made payable, and was in possession thereof." 5
Indeed, and as found by the lower courts, the petitioner could have collected the insurance
proceeds if only it were not negligent. It had ample time and enough legal remedies, not to
mention resources, to collect the insurance proceeds when the same became due, yet, it
merely sent demand letters to the insurance company. And when the company did not act on
the letters, the petitioner did not pursue other remedies to press its claim. It did not even file a
suit for the recovery of the insurance proceeds against the insurance company before and even
during the liquidation of the company. It allowed seven long years to pass before finally
deciding to file a collection case. Realizing that it could no longer collect from the insurance
company because the same had already folded up, the petitioner directed the collection suit
against the private respondents whose obligation with the petitioner had long been
extinguished.
For, indeed, under the facts obtaining, the private respondents cannot have been expected to
initiate moves for the collection of the insurance proceeds. It was the petitioner which was duty
bound to enforce the claim for the insurance proceeds, being, as earlier mentioned, the
attorney-in-fact of the private respondents and the beneficiary of the insurance policy.
It is sad that the private respondents, small time sari-sari store keepers, had to be dragged into
this suit if only because of the petitioner's resoluteness to recover what, to our minds, is too
measly an amount, not really worth litigating upon, in fact, not even worth wasting the time of
this Court.
WHEREFORE, the petition is hereby DISMISSED and the appealed judgment AFFIRMED, in toto,
with triple costs against the petitioner.
SO ORDERED.

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

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

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

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

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

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a
failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to
pay the coverage in the total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the
unpaid premiums and interest thereon due for January and February, 1969, in the sum of
P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the
designated beneficiary therein, although she admits that she and the insured Buenaventura C.
Ebrado were merely living as husband and wife without the benefit of marriage.

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

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

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

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

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

SO ORDERED.

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

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

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

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

We affirm the judgment of the lower court.

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

The following donations shall be void:

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

the time of donation;

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

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

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

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

3. Policy considerations and dictates of morality rightly justify the institution of a barrier
between common law spouses in record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate family There is every reason to
hold that the bar in donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on similar consideration
As above pointed out, a beneficiary in a fife insurance policy is no different from a donee. Both
are recipients of pure beneficence. So long as manage remains the threshold of family laws,
reason and morality dictate that the impediments imposed upon married couple should
likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed
by these legal disabilities, with more reason should an illicit relationship be restricted by these
disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.
£ªwph!1

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

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

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

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

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

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

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

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

G.R. No. L-21642             July 30, 1966

SOCIAL SECURITY SYSTEM, petitioner-appellee,

vs.
CANDELARIA D. DAVAC, ET AL., respondents;
LOURDES Tuplano, respondent-appellant.

BARRERA, J.:

This is an appeal from the resolution of the Social Security Commission declaring respondent
Candelaria Davac as the person entitled to receive the death benefits payable for the death of
Petronilo Davac.

The facts of the case as found by the Social Security Commission, briefly are: The late Petronilo
Davac, a former employee of Lianga Bay Logging Co., Inc. became a member of the Social
Security System (SSS for short) on September 1, 1957. As such member, he was assigned SS I.D.
No. 08-007137. In SSS form E-1 (Member's Record) which he accomplished and filed with the
SSS on November 21, 1957, he designated respondent Candelaria Davac as his beneficiary and
indicated his relationship to her as that of "wife". He died on April 5, 1959 and, thereupon,
each of the respondents (Candelaria Davac and Lourdes Tuplano) filed their claims for death
benefit with the SSS. It appears from their respective claims and the documents submitted in
support thereof, that the deceased contracted two marriages, the first, with claimant Lourdes
Tuplano on August 29, 1946, who bore him a child, Romeo Davac, and the second, with
Candelaria Davac on January 18, 1949, with whom he had a minor daughter Elizabeth Davac.
Due to their conflicting claims, the processing thereof was held in abeyance, whereupon the
SSS filed this petition praying that respondents be required to interpose and litigate between
themselves their conflicting claims over the death benefits in question.

On February 25, 1963, the Social Security Commission issued the resolution referred to above,
Not satisfied with the said resolution, respondent Lourdes Tuplano brought to us the present
appeal.

The only question to be determined herein is whether or not the Social Security Commission
acted correctly in declaring respondent Candelaria Davac as the person entitled to receive the
death benefits in question.

Section 13, Republic Act No. 1161, as amended by Republic Act No. 1792, in force at the time
Petronilo Davac's death on April 5, 1959, provides:

1. SEC. 13. Upon the covered employee's death or total and permanent disability under such
conditions as the Commission may define, before becoming eligible for retirement and if either
such death or disability is not compensable under the Workmen's Compensation Act, he or, in
case of his death, his beneficiaries, as recorded by his employer shall be entitled to the following
benefit: ... . (emphasis supplied.)

Under this provision, the beneficiary "as recorded" by the employee's employer is the one
entitled to the death benefits. In the case of Tecson vs. Social Security System, (L-15798,
December 28, 1961), this Court, construing said Section 13, said:

It may be true that the purpose of the coverage under the Social Security System is protection
of the employee as well as of his family, but this purpose or intention of the law cannot be
enforced to the extent of contradicting the very provisions of said law as contained in Section
13, thereof, ... . When the provision of a law are clear and explicit, the courts can do nothing
but apply its clear and explicit provisions (Velasco vs. Lopez, 1 Phil, 270; Caminetti vs. U.S., 242
U.S. 470, 61 L. ed. 442).

But appellant contends that the designation herein made in the person of the second and,
therefore, bigamous wife is null and void, because (1) it contravenes the provisions of the Civil
Code, and (2) it deprives the lawful wife of her share in the conjugal property as well as of her
own and her child's legitime in the inheritance.
As to the first point, appellant argues that a beneficiary under the Social Security System
partakes of the nature of a beneficiary in life insurance policy and, therefore, the same
qualifications and disqualifications should be applied.

Article 2012 of the New Civil Code provides:

ART. 2012. 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 any donation to
him according to said article.

And Article 739 of the same Code prescribes:

ART. 739. The following donations shall be void:

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

xxx     xxx     xxx

Without deciding whether the naming of a beneficiary of the benefits accruing from
membership in the Social Security System is a donation, or that it creates a situation analogous
to the relation of an insured and the beneficiary under a life insurance policy, it is enough, for
the purpose of the instant case, to state that the disqualification mentioned in Article 739 is
not applicable to herein appellee Candelaria Davac because she was not guilty of
concubinage, there being no proof that she had knowledge of the previous marriage of her
husband Petronilo.1

Regarding the second point raised by appellant, the benefits accruing from membership in the
Social Security System do not form part of the properties of the conjugal partnership of the
covered member. They are disbursed from a public special fund created by Congress in
pursuance to the declared policy of the Republic "to develop, establish gradually and perfect a
social security system which ... shall provide protection against the hazards of disability,
sickness, old age and death."2

The sources of this special fund are the covered employee's contribution (equal to 2-½ per cent
of the employee's monthly compensation);3 the employer's contribution (equivalent to 3-½ per
cent of the monthly compensation of the covered employee); 4 and the Government
contribution which consists in yearly appropriation of public funds to assure the maintenance of
an adequate working balance of the funds of the System.5 Additionally, Section 21 of the Social
Security Act, as amended by Republic Act 1792, provides:

SEC. 21. Government Guarantee. — The benefits prescribed in this Act shall not be diminished
and to guarantee said benefits the Government of the Republic of the Philippines accepts
general responsibility for the solvency of the System.
From the foregoing provisions, it appears that the benefit receivable under the Act is in the
nature of a special privilege or an arrangement secured by the law, pursuant to the policy of
the State to provide social security to the workingmen. The amounts that may thus be received
cannot be considered as property earned by the member during his lifetime. His contribution to
the fund, it may be noted, constitutes only an insignificant portion thereof. Then, the benefits
are specifically declared not transferable,6 and exempted from tax legal processes, and
lien.7 Furthermore, in the settlement of claims thereunder the procedure to be observed is
governed not by the general provisions of law, but by rules and regulations promulgated by the
Commission. Thus, if the money is payable to the estate of a deceased member, it is the
Commission, not the probate or regular court that determines the person or persons to whom
it is payable.8 that the benefits under the Social Security Act are not intended by the lawmaking
body to form part of the estate of the covered members may be gathered from the subsequent
amendment made to Section 15 thereof, as follows:

SEC. 15. Non-transferability of benefit. — The system shall pay the benefits provided for in this
Act to such persons as may be entitled thereto in accordance with the provisions of this Act.
Such benefits are not transferable, and no power of attorney or other document executed by
those entitled thereto in favor of any agent, attorney, or any other individual for the collection
thereof in their behalf shall be recognized except when they are physically and legally unable to
collect personally such benefits: Provided, however, That in the case of death benefits, if no
beneficiary has been designated or the designation there of is void, said benefits shall be paid
to the legal heirs in accordance with the laws of succession. (Rep. Act 2658, amending Rep. Act
1161.)

In short, if there is a named beneficiary and the designation is not invalid (as it is not so in this
case), it is not the heirs of the employee who are entitled to receive the benefits (unless they
are the designated beneficiaries themselves). It is only when there is no designated
beneficiaries or when the designation is void, that the laws of succession are applicable. And we
have already held that the Social Security Act is not a law of succession.9

Wherefore, in view of the foregoing considerations, the resolution of the Social Security
Commission appealed from is hereby affirmed, with costs against the appellant.