Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2227             August 31, 1948

Intestate estate of the late Esperanza J. Villanueva. MARIANO J. VILLANUEVA, claimant-

appellant,
vs.
PABLO ORO, administrator.

Nicolas P. Nonato for claimant and appellant.

Rodrigo J. Harder for administrator and appellee.

PARAS, J.:

The West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza J.
Villanueva, one for two thousand pesos and maturing on April 1, 1943, and the other for three
thousand pesos and maturing on March 31, 1943. In both policies (with corresponding variation in
amount and date of maturity) the insurer agreed "to pay two thousand pesos, at the home office of
the Company, in San Francisco, California, to the insured hereunder, if living, on the 1st day of April
1943, or to the beneficiary Bartolome Villanueva, father of the insured, immediately upon receipt of
due proof of the prior death of the insured, Esperanza J. Villanueva, of La Paz, Philippine Islands,
during the continuance of this policy, with right on the part of the insured to change the beneficiary.

After the death of Bartolome Villanueva in 1940, the latter was duly substituted as beneficiary under
the policies by Mariano J. Villanueva, a brother of the insured. Esperanza J. Villanueva survived the
insurance period, for she died only on October 15, 1944, without, however, collecting the insurance
proceeds. Adverse claims for said proceeds were presented by the estate of Esperanza J.
Villanueva on the one hand and by Mariano J. Villanueva on the other, which conflict was squarely
submitted in the intestate proceedings of Esperanza J. Villanueva pending in the Court of First
Instance of Iloilo. From an order, dated February 26, 1947, holding the estate of the insured is
entitled to the insurance proceeds, to the exclusion of the beneficiary, Mariano J. Villanueva, the
latter has interposed the present appeal.

The lower court committed no error. Under the policies, the insurer obligated itself to pay the
insurance proceeds (1) to the insured if the latter lived on the dates of maturity or (2) to the
beneficiary if the insured died during the continuance of the policies. The first contingency of course
excludes the second, and vice versa. In other words, as the insured Esperanza J. Villanueva was
living on April 1, and March 31, 1943, the proceeds are payable exclusively to her estate unless she
had before her death otherwise assigned the matured policies. (It is not here pretended and much
less proven, that there was such assignment.) The beneficiary, Mariano J. Villanueva, could be
entitled to said proceeds only in default of the first contingency. To sustain the beneficiary's claim
would be altogether eliminate from the policies the condition that the insurer "agrees to pay . . . to
the insured hereunder, if living".

There is nothing there in the Insurance Law (Act No. 2427) that militates against the construction
placed by the lower court on the disputed condition appearing in the two policies now under
advisement. On the contrary, said law provides that "an insurance upon life may be made payable
on the death of the death of the person, or on his surviving a specified period, or otherwise,
contingently on the continuance or cessation of life" (section 165), and that "a policy of insurance
upon life or health may pass by transfer, will, or succession, to any person, whether he has an
insurable interest or not, and such person may recover upon it whatever the insured might have
recovered" (section 166).

Counsel for the beneficiary invokes the decision in Del Val vs. Del Val, 29 Phil., 534, 540, in which it
was held that "the proceeds of an insurance policy belong exclusively to the beneficiary and not to
the estate of the person whose life was insured, and that such proceeds are the separate and
individual property of the beneficiary, and not of the heirs of the person whose life was insured." This
citation is clearly not controlling, first, because it does not appear therein that the insurance contract
contained the stipulation appearing in the policies issued on the life of Esperanza J. Villanueva and
on which the appealed order in the case at bar is based; and, secondly, because the Del Val
doctrine was made upon the authority of the provisions of the Code of Commerce relating to
insurance (particularly section 428) which had been expressly repealed by the present Insurance Act
No. 2427.

Our pronouncement is not novel, since it tallies with the following typical American authorities: "If a
policy of insurance provides that the proceeds shall be payable to the assured, if he lives to a certain
date, and, in case of his death before that date, then they shall be payable to the beneficiary
designated, the interest of the beneficiary is a contingent one, and the benefit of the policy will only
inure to such beneficiary in case the assured dies before the end of the period designated in the
policy." (Couch, Cyclopedia of Insurance Law, Vol. 2, sec. 343. p. 1023.) "Under endowment of
tontine policies payable to the insured at the expiration of a certain period, if alive, but providing for
the payment of a stated sum to a designated beneficiary in case of the insured death during the
period mentioned, the insured and the beneficiary take contingent interests. The interest of the
insured in the proceeds of the insurance depends upon his survival of the expiration of endowment
period. Upon the insured's death, within the period, the beneficiary will take, as against the personal
representative or the assignee of the insured. Upon the other hand, if the insured survives the
endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary
is designated in the policy." (29 Am. Jur., section 1277, pp. 952, 953.).

The appealed order is, therefore, hereby affirmed, and it is so ordered with costs against the
appellant.

Feria, Pablo, Perfecto, Bengzon, Briones, Padilla, and Tuason, JJ., concur.

G.R. No. L-20552             May 20, 1966

FILIPINAS LIFE ASSURANCE CO., ET AL., petitioners,

vs.
GONZALO P. NAVA, respondent.

Araneta, Mendoza and Papa for petitioners.

Bengzon, Villegas and Zarraga and G. Advincula for respondent.

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of Appeals which affirms that of the court a
quo (1) rescinding the insurance contracts entered into between plaintiff and defendants; (2)
ordering defendant Filipinas Life Assurance Co. to pay plaintiff the amount of P32,072.60 as the total
amount paid by said plaintiff on his insurance policies; and (3) ordering defendant Insular Life
Assurance Co., Ltd. to pay plaintiff the amount of P2,574.00 as the total amount paid by plaintiff on
account of his insurance policy.

On January 1, 1936, plaintiff and defendant Insular Life Assurance Co., Ltd. entered into a contract
of life insurance with a face value of P5,000.00 for which the insurer issued Policy No. 58999.

On February 28, 1939, plaintiff and defendant Filipinas Life Assurance Co. entered into 17 separate
contracts of life insurance for which the insurer issued 17 life insurance policies, one of said policies
having a face value of P10,000.00 while the rest a face value of P5,000.00 each, or a total of
P90,000.00. Each and everyone of the 18 policies issued by defendants to plaintiff contains a loan
clause of the following tenor:

Policy loans. After three full years' premiums have been paid upon this Policy, if no premium
payment is in default, the Company, subject to its then existing rules, will advance on proper
assignment and delivery of this Policy and on the sole security thereof a sum equal to, or at
the option of the owner less than, the cash value specified in the Schedule of Policy Values,
less any existing indebtedness on or secured by this Policy and any unpaid balance of the
premium for the current policy-year; provided interest at six per centum per annum on the
whole amount of the loan is paid in advance to the end of the current policy-year. At the end
of the current policy-year interest at the same rate for one year in advance will be due and
payable, and annually thereafter, and if not so paid will be added to the principal and bear
the same rate of interest. Failure to repay any such loan or interest shall not avoid this Policy
unless the total indebtedness shall equal or exceed the full amount of the loan value
available hereunder.

Any indebtedness on this Policy shall first be deducted from any money payable or in any
settlement under this Policy.

On account of the policies abovementioned, plaintiff had so far paid to defendant Insular Life
Assurance Co., Ltd. the following amounts: from 1936 to December, 1941, P1,544.40, and from
January, 1942 to January, 1945, P1,029.60, or a total of P2,574.00; and to defendant Filipinas Life
Assurance Co. plaintiff had paid the following amounts: from February, 1939 to December, 1941,
P13,976.40, and from January, 1942 to January, 1945, P18,096.20, or a total of P32,072.60. In other
words, the total amount paid by plaintiff to defendants on the 18 policies before the war and during
the Japanese occupation is P34,646.60.
On April 28, 1948, plaintiff applied to defendants for a loan in the sum of P5,000.00 in line with the
loan clause contained in said policies, but defendants refused to grant the loan on the excuse that
certain regulations issued by the Insurance Commissioner on May 20, 1946 required the insurance
companies to withhold the payments on premiums made during the Japanese occupation because
the same shall be subject to future adjustments " as soon as debtor-creditor relationship is
established" and because of such process of "withholding" plaintiff was not entitled to borrow any
amount until such adjustment has been made.

On September 30, 1948, plaintiff called the attention of the insurance companies to the decision of
our Supreme Court in the case of Haw Pia v. China Banking Corporation1 establishing and
recognizing the relationship of debtor and creditor with respect to payments in fiat currency made
during the Japanese occupation on pre-war obligations, but in spite of that fact the insurance
companies refused to give to plaintiff the loan he solicited giving as reason the excuse that said
decision of our Supreme Court was not applicable to transactions undertaken during Japanese
occupation when they relate to life insurance policies. On February 4, 1949, plaintiff reiterated his
request for his much-needed loan of P5,000.00, and as said request was again refused by the
insurance companies notwithstanding the fact that the total amount of the cash surrender values of
the 18 policies issued in his favor reached the sum of P9,468.29, plaintiff commenced the present
action on February 10, 1949 before the Court of First Instance of Manila praying for the rescission of
the abovementioned 18 policies and for the refund to him of all the premiums so far paid by him to
defendants in the amount of P31,633.80, plus 6% interest thereon as damages, and the costs of
action.

On November 28, 1951, defendants passed a resolution which was approved by the Insurance
Commissioner, giving full credit to all premium payments made by their policyholders in fiat currency
during the Japanese occupation on account of pre-war policies for which reason they filed an
amended answer offering to pay plaintiff the amount of P9,468.29 which represents the aggregate
cash surrender values of all the policies in question as of February 10, 1949, but apparently this offer
was refused.

After trial, the court a quo rendered judgment the dispositive part of which already appears recited in
the early part of this decision. This is the decision that was later affirmed by the Court of Appeals in
its decision of November 14, 1962, from which defendants interposed the present petition for review.

In the present petition for review, petitioners now contend that the Court of Appeals erred (1) in
ruling that as a consequence of the decision in the Haw Pia case petitioners violated the loan clause
contained in the insurance policies thereby entitling respondent to their rescission; (2) in ruling that
by virtue of Article 1295 of the old Civil Code petitioners should refund to defendant all the premiums
paid on his insurance policies as a consequence of their rescission; and (3) in not ruling that, even if
respondent is entitled to the rescission of said insurance policies, he can only recover their cash
surrender value at the time the complaint was filed on February 10, 1949.

The issues raised will be the subject of separate consideration.

1. It is contended that the failure of petitioners to give to respondent the loan of P5,000.00 applied
for by him on April 28, 1948 was justified in view of certain regulations issued by the Insurance
Commissioner on May 20, 1946 which, among other things, provide that the amount corresponding
to occupation premiums paid on pre-war policies as well as those paid on pre-war loans should be
withheld subject to adjustment "as soon as debtor-creditor relationship is established", for which
reason petitioners were not in a position to grant the loan considering the amount of the fiat currency
employed by respondent to pay the premiums during the Japanese occupation, and since this
eventuality has not yet occurred it stands to reason that petitioners cannot be made responsible to
respondent for their alleged non-compliance with the loan clause contained in the insurance policies
issued to respondent.

But, as correctly stated by the Court of Appeals, even assuming the validity of the regulations issued
by the Insurance Commissioner which required the withholding of the payments made in fiat
currency of the premiums on insurance policies issued before the war subject to whatever
adjustment that may be made after the relationship between debtor and creditor shall have been
established, the fact however is that such requirement has already lost its legal effect and value
when on April 9, 1948 our Supreme Court rendered its decision in the Haw Pia case wherein it was
declared, among others, that all payments made in fiat currency during the Japanese occupation in
relation with any contractual obligation executed before the war were valid to all intents and
purposes, and yet petitioners apparently did not give any importance to such decision for in their
opinion it does not have any application to transactions which have any relation to payment of
premiums on life insurance policies. In other words, petitioners maintain that the Haw Pia case did
not settle the question of valuation or premium payments in Japanese military notes during the war
on life insurance policies because what said case merely settled was the validity of payments in fiat
currency by a debtor to a creditor. Stated in another way, petitioners are of the opinion that the Haw
Pia case did not settle the question of the valuation or premium payments in Japanese military notes
during the war on life insurance policies because the insured is by no means a debtor of the insurer,
nor is the insurer his creditor, considering that there is absolutely no obligation on his part to pay the
premiums.

There is no merit in this contention. In the Haw Pia case it was ruled in a clear manner that
payments made in Japanese military notes on account of contractual obligations entered into before
the war are valid payments for all legal intents and purposes, and this ruling was reiterated in other
similar cases.2 And it cannot be denied that a life insurance policy involves a contractual obligation
wherein the insured becomes duty bound to pay the premiums agreed upon, lest he runs the risk of
having his insurance policy lapse if he fails to pay such premiums. The fact that if the insured had
paid in full the premiums corresponding to the first three years of the life of his policy he cannot be
considered delinquent that would cause the lapse of his policy if the same contains an automatic
premium payment clause cannot divest such policy of its contractual nature, for the result of such
failure would only be for him to pay later the premium plus the corresponding interest depending
upon the condition of the policy. But certainly it does not cease to be a contractual liability insofar as
the payment of that premium is concerned for whether he likes it or not that premium has to be paid
lest he allows the lapse of his policy. Consequently, the payment of premiums on the life insurance
policies made by herein respondent before and during the war up to the time he applied for the loan
in question with petitioners should be considered likewise as valid payments upon the theory that
such insurance policies are in the nature of a contractual obligation within the meaning of the civil
law. In effect, therefore, those payments were made by a debtor to a creditor within the meaning of
the requirement of the regulations of the Insurance Commissioner and as such they can offer no
excuse to petitioners for refusing to grant the loan as contemplated in the loan clause embodied in
the policies in question. 
1äwphï1.ñët

The fact, however, is that the oft-repeated regulations of the Insurance Commissioner are of doubtful
validity if their effect is to suspend the effectivity of a provision or clause embodied in a valid
insurance policy for that would partake of the nature of a regulation the effect of which would be to
infringe or impair a contractual obligation in violation of Section 1(10), Article III, of our Constitution.
In the case of Lim, et al. vs. Register of Deeds of Rizal, 3 this Court has held that an administrative
official has no power to issue a circular or a regulation the effect for that would be violative of our
Constitution.
It is, therefore, clear from the foregoing that the petitioners violated the loan clause embodied in
each of the 18 life insurance policies issued to respondent to rescind all said policies under Section
69 of the Insurance Act, which provides: "The violation of a material warranty, or other material
provision of a policy, on the part of either party thereto, entitles the other to rescind."

The citation that petitioners make from Vance on Insurance to the effect that "The general rule is that
a breach of the agreement to make the loan does not entitle the insured to rescind the contract," is
not controlling in this jurisdiction. Firstly, it was not shown that the insurance laws in the states where
said ruling prevails contain a provision identical to Section 69 of our Insurance Law we quoted
above, and secondly, the rule cited by Vance is not a rule uniformly followed by all states in the
United States, for on this matter there is a marked divergence of opinion. In fact, in a case that
occured in the State of Texas, held that the insured had the right to ask for the rescission of said
contract and ordered the insurer to refund all premiums paid by him. 4

2. Petitioners likewise contend that even if respondent is entitled to rescind the policies in question
he is not entitled to recover all premiums paid by him to petitioners on account of the 18 life
insurance policies question but merely to their cash surrender value upon the theory that the
respondent had fully enjoyed the protection of the insurance on his life during the period of the
policies to the extent that during that time petitioners had assumed the risk of the death of said
respondent. Petitioners in effect lay stress on the fact that had respondent died in the meantime they
would have paid total sum of P95,000.00 on account of his policies.

This contention has no basis. Considering that our Insurance Law does not contain an express
provision as to what the court should do in cases of rescission of an insurance policy under Section
69, the provision that should apply is that embodied in Article 1225 of the old Civil Code, as
postulated in Article 16 of the same Code, which provides that on matters which are not governed by
special laws the provisions of said Code shall supplement its deficiency. And said Article 1295
provides:

ART. 1295. Rescission makes necessary the return of the things which were the subject-
matter of the contract, with their fruits, and of the price paid, with interest thereon. ...xxx

We find, therefore, correct the ruling of the Court of Appeals which orders petitioners to refund to
respondent all premiums paid by him up to the filing of the action amounting to P34,644.60.

Petitioners, however, insist that the correct ruling is not what the Court of Appeals has stated but
what is hereinafter quoted because such is the weight of authority on that matter. Said the
petitioners: "Recovery of the full amount of the premium after the insurer has sustained for sometime
the risk of the insurance and the insured has enjoyed the benefit of protection is obviously unjust and
is so recognized by the better authorities."

Again we find this statement incorrect, for according to American Law Reports Annotated, the ruling
above quoted merely represents the minority rule in the United States, the majority rule being that
the insured can recover all premiums paid, in some cases with interest in case of wrongful
cancellation, repudiation, termination or rescission of the contract of life insurance. 5

Nor do we find tenable the contention that because respondent cannot restore to petitioners the
"value of the benefit of protection" which he might have received under the 18 life insurance policies
in question he is not entitled to rescind them under the provision of Article 1295 of the old Civil Code,
because it should be here stated that said article only contemplates a transaction whether material
things are involved, and do not refer to intangible ones which cannot be the subject of restoration, for
to interpret it otherwise would be to defeat the law itself with the result that rescission can never be
had under Section 69 of our Insurance Law. And it cannot be denied that petitioners had in turn
already derived material benefits from the use of premiums paid to them by respondent before,
during and after the last war from which they must have realized huge profits, and in this light alone
petitioners cannot claim prejudice or unfairness if they are ordered to refund the premiums paid by
respondents.

3. Anent this issue, petitioners point out that the Court of Appeals erred in not ruling that even if
respondent is entitled to the rescission of his 18 life insurance policies he can only recover legally
and equitably their cash surrender value at the time the complaint was filed on February 10, 1949.

Inasmuch as this contention is but a corollary to the conclusion we have reached in the discussion of
the preceding assignment of error, we believe that further refutation thereof is unnecessary.

Wherefore, the decision appealed from is affirmed. Cost against petitioners.

Bengzon, C.J., Conception, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal and Sanchez, JJ.,
concur.
Bengzon, J.P. and Zaldivar, JJ., took no part.
G.R. No. L-22796             June 26, 1967

DELFIN NARIO, and ALEJANDRA SANTOS-NARIO, plaintiffs-appellants,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

Ricardo T. Bancod and Severino C. Zarasate for plaintiffs-appellants.

M. Lim, M. Y. Macias and Associates for defendant-appellee.

REYES, J.B.L., J.:

Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila, in its
Civil Case No. 54942, dismissing plaintiffs' complaint as well as from a later order of the same court,
denying a motion to set aside and/or reconsider said decision of dismissal.

The facts of this case may be stated briefly as follows:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine
American Life Insurance Co., a life insurance policy (No. 503617) under a 20-year endowment plan,
with a face value of P5,000.00. She designated thereon her husband, Delfin Nario, and their
unemancipated minor son, Ernesto Nario, as her irrevocable beneficiaries.

About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with the
Insurance Company, which loan she, as policy-holder, has been entitled to avail of under one of the
provisions of said policy after the same has been in force for three (3) years, for the purpose of using
the proceeds thereof for the school expenses of her minor son, Ernesto Nario. Said application bore
the written signature and consent of Delfin Nario in two capacities: first, as one of the irrevocable
beneficiaries of the policy; and the other, as the father-guardian of said minor son and irrevocable
beneficiary, Ernesto Nario, and as the legal administrator of the minor's properties, pursuant to
Article 320 of the Civil Code of the Philippines.

The Insurance Company denied said application, manifesting to the policy holder that the written
consent for the minor son must not only be given by his father as legal guardian but it must also be
authorized by the court in a competent guardianship proceeding.

After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her
policy to the Insurance Company, which she was also entitled to avail of under one of the provisions
of the same policy, and demanded its cash value which then amounted to P520.00.

The Insurance Company also denied the surrender of the policy, on the same ground as that given
in disapproving the policy loan application; hence, on September 10, 1963, Mrs. Alejandra Santos-
Nario and her husband, Delfin Nario, brought suit against the Philippine American Life Insurance Co.
in the above mentioned court of first instance, seeking to compel the latter (defendant) to grant their
policy loan application and/or to accept the surrender of said policy in exchange for its cash value. 1äwphï1.ñët

Defendant Insurance Company answered the complaint, virtually admitting its material allegations,
but it set up the affirmative defense that inasmuch as the policy loan application and the surrender of
the policy involved acts of disposition and alienation of the property rights of the minor, said acts are
not within the powers of the legal administrator, under article 320 in relation to article 326 of the Civil
Code; hence, mere written consent given by the father-guardian, for and in behalf of the minor son,
without any court authority therefor, was not a sufficient compliance of the law, and it (defendant
Insurance Company) was, therefore, justified in refusing to grant and in disapproving the proposed
transactions in question.

There having been no substantial disagreement or dispute as to any material fact, the parties, upon
joint motion which the lower court granted, dispensed with the presentation of evidence and
submitted their respective memoranda, after which the case was considered submitted for decision.

The lower court found and opined that since the parties expressly stipulated in the endorsement
attached to the policy and which formed part thereof that —

It is hereby understood and agreed that, notwithstanding the provisions of this Policy to the
contrary, inasmuch as the designation of the beneficiaries have been made by the Insured
without reserving the right to change said beneficiaries, the Insured may not designate a new
beneficiary or assign, release or surrender this Policy to the Company and exercise any and
all other rights and privileges hereunder or agree with the Company to any change in or
amendment to this Policy, without the consent of the beneficiaries originally designated;

that under the above quoted provision, the minor son, as one of the designated irrevocable
beneficiaries, "acquired a vested right to all benefits accruing to the policy, including that of obtaining
a policy loan to the extent stated in the schedule of values attached to the policy (Gercio vs. Sun Life
Assurance of Canada, 48 Phil. 53, 58)"; that the proposed transactions in question (policy loan and
surrender of policy) involved acts of disposition or alienation of the minor's properties for which the
consent given by the father-guardian for and in behalf of the minor son, must be with the requisite
court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs. Suguitan, G.R. No. L-8300, November
18, 1955; 99 Phil. 1004 [unrep] and in the case at bar, such consent was given by the father-
guardian without any judicial authority; said court, agreeing with defendant's contention, sustained
defendant's affirmative defense, and rendered, on January 28, 1964, its decision dismissing
plaintiffs' complaint.

Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court,
contending that the minor's interest amounted to only one-half of the policy's cash surrender value of
P520.00; that under Rule 96, Section 2 of the Revised Rules of Court, payment of the ward's debts
is within the powers of the guardian, where no realty is involved; hence, there is no reason why the
father may not validly agree to the proposed transaction on behalf of the minor without need of court
authority.

The appeal is unmeritorious. We agree with the lower court that the vested interest or right of the
beneficiaries in the policy should be measured on its full face value and not on its cash surrender
value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value
and in case the insured should discontinue paying premiums, the beneficiaries may continue paying
it and are entitled to automatic extended term or paid-up insurance options, etc. and that said vested
right under the policy cannot be divisible at any given time. We likewise agree with the conclusion of
the lower court that the proposed transactions in question (policy loan and surrender of policy)
constitute acts of disposition or alienation of property rights and not merely of management or
administration because they involve the incurring or termination of contractual obligations.

As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest therein,
as one of the two (2) irrevocable beneficiaries, consists of one-half (½) of said amount or P2,500.00.

Article 320 of the Civil Code of the Philippines provides —

 The father, or in his absence the mother, is the legal administrator of the property pertaining
to the child under parental authority. If the property is worth more than two thousand pesos,
the father or mother shall give a bond subject to the approval of the Court of First Instance.

and article 326 of the same Code reads —

When the property of the child is worth more than two thousand pesos, the father or mother
shall be considered a guardian of the child's property, subject to the duties and obligations of
guardians under the Rules of Court.

The above quoted provisions of the Civil Code have already been implemented and clarified in our
Revised Rules of Court which provides —

SEC. 7. Parents as guardians. — When the property of the child under parental authority is
worth two thousand pesos or less, the father or the mother, without the necessity of court
appointment, shall be his legal guardian. When the property of the child is worth more than
two thousand pesos, the father or the mother shall be considered guardian of the child's
property, with the duties and obligations of guardians under these rules, and shall file the
petition required by Section 2 hereof. For good reasons the court may, however, appoint
another suitable person. (Rule 93).

It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand
pesos (P2,000.00); that plaintiffs did not file any guardianship bond to be approved by the court; and
as later implemented in the abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs
should have, but, had not, filed a formal application or petition for guardianship, plaintiffs-parents
cannot possibly exercise the powers vested on them, as legal administrators of their child's property,
under articles 320 and 326 of the Civil Code. As there was no such petition and bond, the consent
given by the father-guardian, for and in behalf of the minor son, without prior court authorization, to
the policy loan application and the surrender of said policy, was insufficient and ineffective, and
defendant-appellee was justified in disapproving the proposed transactions in question.

The American cases cited by appellants are not applicable to the case at bar for lack of analogy. In
those cases, there were pending guardianship proceedings and the guardians therein were covered
by bonds to protect the wards' interests, which circumstances are wanting in this case.

The result would be the same even if we regarded the interest of the ward to be worth less than
P2,000.00. While the father or mother would in such event be exempt from the duty of filing a bond,
and securing judicial appointment, still the parent's authority over the estate of the ward as a legal-
guardian would not extend to acts of encumbrance or disposition, as distinguished from acts of
management or administration. The distinction between one and the other kind of power is too basic
in our law to be ignored. Thus, under Article 1877 of the Civil Code of the Philippines, an agency in
general terms does not include power to encumber or dispose of the property of the principal; and
the Code explicitly requires a special power or authority for the agent "to loan or borrow money,
unless the latter act be urgent or indispensable for the preservation of the thing under administration"
(Art. 1878 no. 7). Similarly, special powers are required to required to effect novations, to waive any
obligation gratuitously or obligate the principal as a guarantor or surety (Do., nos. 2, 4 and 11). By
analogy, since the law merely constitutes the parent as legal administrator of the child's property
(which is a general power), the parent requires special authority for the acts above specified, and
this authority can be given only by a court. This restricted interpretation of the parent's authority
becomes all the more necessary where as in the case before us, there is no bond to guarantee the
ward against eventual losses.
Appellants seek to bolster their petition by invoking the parental power (patria potestas) under the
Civil Code of 1889, which they claim to have been revived by the Civil Code of the Philippines (Rep.
Act 386). The appeal profits them nothing. For the new Civil Code has not effected a restitutio in
integrum of the Spanish patria potestas; the revival has been only in part. And, significantly, the Civil
Code now in force did not reenact Article 164 of the Civil Code of 1889, that prohibited the alienation
by the parents of the real property owned by the child without court authority and led the
commentators and interpreters of said Code to infer that the parents could by themselves alienate
the child's movable property. The omission of any equivalent precept in the Civil Code now in force
proves the absence of any authority in the parents to carry out now acts of disposition or alienation
of the child's goods without court approval, as contended by the appellee and the court below.

Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered.

Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Regala, J., took no part.
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 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 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 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:  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
life 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.

SO ORDERED.

Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and Guerrero, JJ., concur. 1äwphï1.ñët
G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA
CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of
Appeals in CA-G.R. SP No. 22950  and its Resolution denying the petitioners' motion for
1

reconsideration.  The challenged decision modified the decision of the Insurance Commission in IC
2

Case
No. RD-058.  3

The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against
private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed
with the Insurance Commission on 20 September 1989.   They prayed therein that after due
4

proceedings, Insular Life "be ordered to pay the claimants their insurance claims" and that "proper
sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its contractual
obligations to the complainants, and of the Insurance Code."   Insular Life's motion to dismiss the
5

complaint on the ground that "the claims of complainants are all respectively beyond the jurisdiction
of the Insurance Commission as provided in Section 416 of the Insurance Code,"  having been
6

denied in the Order of 14 November 1989,   it filed its answer on 5 December 1989.   Thereafter,
7 8

hearings were conducted on various dates.

On 20 June 1990, the Commission rendered its decision  in favor of the complainants, the dispositive
9

portion of which reads as follows:

WHEREFORE, this Commission merely orders the respondent company to:

a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy
of this Decision until actual payment thereof;

b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and
P40,000.00, respectively;

c) Notify henceforth it should notify individual beneficiaries designated under any

Group Policy, in the event of the death of insured(s), where the corresponding claims
are filed by the Policyholder;

d) Show cause within ten days why its other responsible officers who have handled
this case should not be subjected to disciplinary and other administrative sanctions
for deliberately releasing to Capt. Nuval the check intended for spouses ALARCON,
 in the absence of any Special Power of Attorney for that matter, and for negligence
with respect to the release of the other five checks.

SO ORDERED.  10

In holding for the petitioners, the Insurance Commission made the following findings and
conclusions:

After taking into consideration the evidences [sic], testimonial and documentary for
the complainants and the respondent, the Commission finds that; First: The
respondent erred in appreciating that the powers of attorney executed by five (5) of
the several beneficiaries convey absolute authority to Capt. Nuval, to demand,
receive, receipt and take delivery of insurance proceeds from respondent Insular
Life. A cursory reading of the questioned powers of authority would disclosed [sic]
that they do not contain in unequivocal and clear terms authority to Capt. Nuval to
obtain, receive, receipt from respondent company insurance proceeds arising from
the death of the seaman-insured. On the contrary, the said powers of attorney are
couched in terms which could easily arouse suspicion of an ordinary
man. . . .

Second: The testimony of the complainants' rebuttal witness,

Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her
husband, executed a special power of attorney in favor of Captain Rosendo Nuval,
authorizing him to claim, receive, receipt and take delivery of any insurance proceeds
from Insular Life arising out of the death of their insured/seaman son, is not
convincingly refuted.

Third: Respondent Insular Life did not observe Section 180 of the Insurance Code,
when it issued or released two checks in the amount of P150,000.00 for the three
minor children (P50,000.00 each) of complainant, Dina Ayo and another check of
P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant
Lucia Lontok, there being no showing of any court authorization presented or the
requisite bond posted.

Section 180 is quotes [sic] partly as follows:

. . . In the absence of a judicial guardian, the father, or in the latter's

absence or incapacity, the mother of any minor, who is an insured or
a beneficiary under a contract of life, health or accident insurance,
may exercise, in behalf of said minor, any right, under the policy,
without necessity of court authority or the giving of a bond where the
interest of the minor in the particular act involved does not exceed
twenty thousand pesos . . . .  11

Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP
No. 22950. The appeal urged the appellate court to reverse the decision because the Insurance
Commission (a) had no jurisdiction over the case considering that the claims exceeded
P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey
absolute authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds
pertaining to the petitioners, (c) erred in not giving credit to the version of Insular Life that the power
of attorney supposed to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for
having released to the surviving mothers the insurance proceeds pertaining to the beneficiaries who
were still minors despite the failure of the former to obtain a court authorization or to post a bond.

On 10 October 1991, the public respondent rendered a decision,   the decretal portion of which
12

reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom the

award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00,
respectively. 13

It found the following facts to have been duly established:

It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide
life insurance coverage to its sea-based employees enrolled under the plan. On 17
February 1986, during the effectivity of the policy, six covered employees of the
PMSI perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk
somewhere in El Jadida, Morocco. They were survived by complainants-appellees,
the beneficiaries under the policy.

Following the tragic demise of their loved ones, complainants-appellees sought to

claim death benefits due them and, for this purpose, they approached the President
and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness
to assist complainants-appellees to recover Overseas Workers Welfare
Administration (OWWA) benefits from the POEA and to work for the increase of their
PANDIMAN and other benefits arising from the deaths of their husbands/sons. They
were thus made to execute, with the exception of the spouses Alarcon, special
powers of attorney authorizing Capt. Nuval to, among others, "follow up, ask,
demand, collect and receive" for their benefit indemnities of sums of money due
them relative to the sinking of M/V Nemos. By virtue of these written powers of
attorney, complainants-appellees were able to receive their respective death
benefits. Unknown to them, however, the PMSI, in its capacity as employer and
policyholder of the life insurance of its deceased workers, filed with respondent-
appellant formal claims for and in behalf of the beneficiaries, through its President,
Capt. Nuval. Among the documents submitted by the latter for the processing of the
claims were five special powers of attorney executed by complainants-appellees. On
the basis of these and other documents duly submitted, respondent-appellant drew
against its account with the Bank of the Philippine Islands on 27 May 1986 six (6)
checks, four for P200,00.00 each, one for P50,000.00 and another for P40,00.00,
payable to the order of complainants-appellees. These checks were released to the
treasurer of PMSI upon instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager
for Group Administration Department of respondent-appellant. Capt. Nuval, upon
receipt of these checks from the treasurer, who happened to be his son-in-law,
endorsed and deposited them in his account with the Commercial Bank of Manila,
now Boston Bank.

On 3 July 1989, after complainants-appellees learned that they were entitled, as

beneficiaries, to life insurance benefits under a group policy with respondent-
appellant, they sought to recover these benefits from Insular Life but the latter denied
 their claim on the ground that the liability to complainants-appellees was already
extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in
their names. 14

On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over
the case on the ground that although some of the claims exceed P100,000.00, the petitioners had
asked for administrative sanctions against Insular Life which are within the Commission's jurisdiction
to grant; hence, "there was merely a misjoinder of causes of action . . . and, like misjoinder of
parties, it is not a ground for the dismissal of the action as it does not affect the other reliefs prayed
for."   It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney
15

which they (Insular Life) later misplaced.

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied
upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance
pertaining to the beneficiaries. It stated:

When the officers of respondent-appellant read these written powers, they must have
assumed Capt. Nuval indeed had authority to collect the insurance proceeds in
behalf of the beneficiaries who duly affixed their signatures therein. The written
power is specific enough to define the authority of the agent to collect any sum of
money pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted
this power to include the collection of insurance proceeds in behalf of the
beneficiaries concerned. We believe this is a reasonable interpretation even by an
officer of respondent-appellant unschooled in the law. Had respondent appellant,
consulted its legal department it would not have received a contrary view. There is
nothing in the law which mandates a specific or special power of attorney to be
executed to collect insurance proceeds. Such authority is not included in the
enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of
attorney. Moreover, respondent-appellant had no reason to doubt Capt. Nuval. Not
only was he armed with a seemingly genuine authorization, he also appeared to be
the proper person to deal with respondent-appellant being the President and General
Manager of the PMSI, the policyholder with whom respondent-appellant always
dealt. The fact that there was a verbal agreement between complainants-appellees
and Capt. Nuval limiting the authority of the latter to claiming specified death benefits
cannot prejudice the insurance company which relied on the terms of the powers of
attorney which on their face do not disclose such limitation. Under the circumstances,
it appearing that complainants-appellees have failed to point to a positive provision of
law or stipulation in the policy requiring a specific power of attorney to be presented,
respondents-appellant's reliance on the written powers was in order and it cannot be
penalized for such an act.  16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the
requirement in Section 180 of the Insurance Code which provides in part that:

In the absence of a judicial guardian, the father, or in the latter's absence or

incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not exceed twenty
thousand pesos. Such a right, may include, but shall not be limited to, obtaining a
 policy loan, surrendering the policy, receiving the proceeds of the policy, and giving
the minor's consent to any transaction on the policy.

has been amended by the Family Code   which grants the father and mother joint legal
17

guardianship over the property of their unemancipated common child without the necessity
of a court appointment; however, when the market value of the property or the annual
income of the child exceeds P50,000.00, the parent concerned shall be required to put up a
bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due course after the private respondent
had filed the required comment thereon and the petitioners their reply to the comment.

We rule for the petitioners.

We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed
by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro,
respectively, on 14 May 1986  and uniformly granted to Capt. Rosendo Nuval the following powers:
18

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of
money due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida,
Casablanca, Morocco on the evening of February 17, 1986; and

To sign receipts, documents, pertinent waivers of indemnities or other writings of

whatsoever nature with any and all third persons, concerns and entities, upon terms
and conditions acceptable to my said attorney.

We agree with the Insurance Commission that the special powers of attorney "do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent
company insurance proceeds arising from the death of the seaman-insured. On the contrary, the
said powers of attorney are couched in terms which could easily arouse suspicion of an ordinary
man."   The holding of the public respondent to the contrary is principally premised on its opinion
19

that:

[t]here is nothing in the law which mandates a specific or special power of attorney to
be executed to collect insurance proceeds. Such authority is not included in the
enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of
attorney.

If this be so, then they could not have been meant to be a general power of attorney since
Exhibits "1" to "5" are special powers of attorney. The execution by the principals of special
powers of attorney, which clearly appeared to be in prepared forms and only had to be filled
up with their names, residences, dates of execution, dates of acknowledgment and others,
excludes any intent to grant a general power of attorney or to constitute a universal agency.
Being special powers of attorney, they must be strictly construed.

Certainly, it would be highly imprudent to read into the special powers of attorney in question the
power to collect and receive the insurance proceeds due the petitioners from Group Policy No. G-
004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and
receipt of such proceeds was a deviation from its practice with respect to group policies. Such
practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group
Administrative Department, thus:

ATTY. CAGUIOA:

Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?

WITNESS:

a The practice of our company in claim pertaining to group insurance,

the policyholder is the one who files the claim for the beneficiaries of
the deceased. At that time, Capt. Noval [sic] is the President and
General Manager of Prime Marine.

q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of the
policyholders?

a Yes because group insurance is normally taken by the employer as

an employee-benefit program and as such, the benefit should be
awarded by the policyholder to make it appear that the benefit really
is given by the employer.  20

On cross-examination, Urbano further elaborated that even payments, among other things, are
coursed through the policyholder:

q What is the corporate concept of group insurance insofar as Insular

Life is concerned?

WITNESS:

a Group insurance is a contract where a group of individuals are

covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company. In
our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between
Prime Marine and Insular Life.

q And so it is part of that concept that all inquiries, follow-up, payment

of claims, premium billings, etc. should always be coursed thru the
policyholder?

a Yes that is our practice.

q And when you say claim payments should always be coursed thru
the policyholder, do you require a power of attorney to be presented
by the policyholder or not?
a Not necessarily.

q In other words, under a group insurance policy like the one in this
case, Insular Life could pay the claims to the policyholder himself
even without the presentation of any power of attorney from the
designated beneficiaries?

x x x           x x x          x x x

WITNESS:

a No. Sir.

ATTY. AMPIL:

q Why? Is this case, the present case different from the cases which
you answered that no power of attorney is necessary in claims
payments?

WITNESS:

a We did not pay Prime Marine; we paid the beneficiaries.

q Will you now tell the Honorable Commission why you did not pay
Prime Marine and instead paid the beneficiaries, the designated
beneficiaries?

x x x           x x x          x x x

ATTY. AMPIL:

I will rephrase the question.

q Will you tell the Commission what circumstances led you to pay the
designated beneficiaries, the complainants in this case, instead of the
policyholder when as you answered a while ago, it is your practice in
group insurance that claims payments, etc., are coursed thru the
policyholder?

WITNESS:

a It is coursed but, it is not paid to the policyholder.

q And so in this case, you gave the checks to the policyholder only
coursing them thru said policyholder?

a That is right, Sir.

q Not directly to the designated beneficiaries?

 a Yes, Sir. 21

This practice is usual in the group insurance business and is consistent with the jurisprudence
thereon in the State of California — from whose laws our Insurance Code has been mainly patterned
— which holds that the employer-policyholder is the agent of the insurer.

Group insurance is a comparatively new form of insurance. In the United States, the first modern
group insurance policies appear to have been issued in 1911 by the Equitable Life Assurance
Society.   Group insurance is essentially a single insurance contract that provides coverage for
22

many individuals. In its original and most common form, group insurance provides life or health
insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that is
issued by the insurer to a representative of the group or to an administrator of the insurance
program, such as an employer.   The employer acts as a functionary in the collection and payment
23

of premiums and in performing related duties. Likewise falling within the ambit of administration of a
group policy is the disbursement of insurance payments by the employer to the employees.   Most24

policies, such as the one in this case, require an employee to pay a portion of the premium, which
the employer deducts from wages while the remainder is paid by the employer. This is known as a
contributory plan as compared to a non-contributory plan where the premiums are solely paid by the
employer.

Although the employer may be the titular or named insured, the insurance is actually related to the
life and health of the employee. Indeed, the employee is in the position of a real party to the master
policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a
part of the total compensation paid for the services of the employee.   Put differently, the labor of the
25

employees is the true source of the benefits, which are a form of additional compensation to them.

It has been stated that every problem concerning group insurance presented to a court should be
approached with the purpose of giving to it every legitimate opportunity of becoming a social agency
of real consequence considering that the primary aim is to provide the employer with a means of
procuring insurance protection for his employees and their families at the lowest possible cost, and
in so doing, the employer creates goodwill with his employees, enables the employees to carry a
larger amount of insurance than they could otherwise, and helps to attract and hold a permanent
class of employees.  26

In Elfstrom vs. New York Life Insurance Company,   the California Supreme Court explicitly ruled
27

that in group insurance policies, the employer is the agent of the insurer. Thus:

We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the employer
acts entirely for its own benefit or for the benefit of its employees in undertaking
administrative functions. While a reduced premium may result if the employer
relieves the insurer of these tasks, and this, of course, is advantageous to both the
employer and the employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of sales, and at the
same time the insurer's own administrative costs are markedly reduced.

xxx xxx xxx

 The most persuasive rationale for adopting the view that the employer acts as the
agent of the insurer, however, is that the employee has no knowledge of or control
over the employer's actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall act in his behalf
and be subject to his control. It is clear from the evidence regarding procedural
techniques here that the insurer-employer relationship meets this agency test with
regard to the administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance of the
employer's administrative acts, and if these duties are not undertaken properly the
insurer is in a position to exercise more constricted control over the employer's
conduct.

In Neider vs. Continental Assurance Company,   which was cited in Elfstrom, it was held that:
28

[t]he employer owes to the employee the duty of good faith and due care in attending
to the policy, and that the employer should make clear to the employee anything
required of him to keep the policy in effect, and the time that the obligations are due.
In its position as administrator of the policy, we feel also that the employer should be
considered as the agent of the insurer, and any omission of duty to the employee in
its administration should be attributable to the insurer.

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual
Life Insurance Co.   and Metropolitan Life Insurance Co. vs. State Board of Equalization.
29 30

In the light of the above disquisitions and after an examination of the facts of this case, we hold that
PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life.
The latter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners.
Unfortunately, through its official, Mr. Urbano, it acted imprudently and negligently in the premises by
relying without question on the special power of attorney. In Strong vs. Repide,   this Court ruled
31

that it is among the established principles in the civil law of Europe as well as the common law of
American that third persons deal with agents at their peril and are bound to inquire as to the extent
of the power of the agent with whom they contract. And in Harry E. Keller Electric
Co. vs. Rodriguez,   this Court, quoting Mechem on Agency,   stated that:
32 33

The person dealing with an agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true condition
of affairs. (emphasis supplied)

Even granting for the sake of argument that the special powers of attorney were in due form, Insular
Life was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a party who is
not the agent mentioned in the special power of attorney.
Nor can we agree with the opinion of the public respondent that since the shares of the minors in the
insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code their
mothers could receive such shares without need of either court appointments as guardian or the
posting of a bond. It is of the view that said Article had repealed the third paragraph of Section 180
of the Insurance Code.   The pertinent portion of Article 225 of the Family Code reads as follows:
34

Art. 225. The father and the mother shall jointly exercise legal guardianship over the
property of their unemancipated common child without the necessity of a court
appointment. In case of disagreement, the father's decision shall prevail, unless
there is judicial order to the contrary.

Where the market value of the property or the annual income of the child exceeds
P50,000, the parent concerned shall be required to furnish a bond in such amount as
the court may determine, but not less than ten per centum (10%) of the value of the
property or annual income, to guarantee the performance of the obligations
prescribed for general guardians.

It is clear from the said Article that regardless of the value of the unemancipated common child's
property, the father and mother ipso jure become the legal guardian of the child's property. However,
if the market value of the property or the annual income of the child exceeds P50,000.00, a bond has
to be posted by the parents concerned to guarantee the performance of the obligations of a general
guardian.

It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of
the "market value of the property or the annual income of the child," which means, therefore, the
aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required.
There is no evidence that the share of each of the minors in the proceeds of the group policy in
question is the minor's only property. Without such evidence, it would not be safe to conclude that,
indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of

10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No.
22950 are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is
REINSTATED.

Costs against the private respondent.

SO ORDERED.
G.R. No. 181132               June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN

MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE
GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

DECISION

NACHURA, J.:

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set
aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No.
85948, dismissing petitioners’ appeal for lack of jurisdiction.

The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29,
for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer
for a temporary restraining order (TRO) and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag
(Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva)
was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive
any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and
Great Pacific Life Assurance Corporation (Grepalife); 5 (3) the illegitimate children of Loreto—
Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the
legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian
and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived
of their legitimes, which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others,
that part of the insurance proceeds had already been released in favor of Odessa, while the rest of
the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the
appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as
actual litigation expenses and attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl
Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto,
it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and that it released Odessa’s share as she was
of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending
submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a
cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because
Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy
No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian,
and Trisha Angelie, considering that no settlement of Loreto’s estate had been filed nor had the
respective shares of the heirs been determined. Insular further claimed that it was bound to honor
the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to
Section 53 of the Insurance Code.

In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as
an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were
denied because Loreto was ineligible for insurance due to a misrepresentation in his application form
that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in
September 2001; that the case was premature, there being no claim filed by the legitimate family of
Loreto; and that the law on succession does not apply where the designation of insurance
beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners,
summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their
answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated
May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their
respective answers be resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal –
whether the complaint itself was proper or not – and that the designation of a beneficiary is an act of
liberality or a donation and, therefore, subject to the provisions of Articles 752 8 and 7729 of the Civil
Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the
designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife also
reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally
married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and
Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action
shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife.

SO ORDERED.10

In so ruling, the trial court ratiocinated thus –

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special
laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The
principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the
Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41
Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds
shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless
otherwise specified in the policy. Since the defendants are the ones named as the primary
beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no
showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds
shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity,
unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of
Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary
succession in order to defeat the right of herein defendants to collect the insurance indemnity. The
beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on
testamentary succession cannot apply here, for the insurance indemnity does not partake of a
donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance
which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon
Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following
pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively
to the defendant as his individual and separate property, we agree that the proceeds of an insurance
policy belong exclusively to the beneficiary and not to the estate of the person whose life was
insured, and that such proceeds are the separate and individual property of the beneficiary and not
of the heirs of the person whose life was insured, is the doctrine in America. We believe that the
same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x."

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient
cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the
reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the
insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary
(sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De
Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy of the person who cannot make any donation to him,
according to said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed
that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not
to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper
beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of
the donor or donee, and the guilt of the donor and donee may be proved by preponderance of
evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page
897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary
(sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil
Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased
which this court may properly take cognizance as the action for the declaration for the nullity of a
void donation falls within the general jurisdiction of this Court. 11

Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that
the petition failed to state a cause of action. Insular further averred that the proceeds were divided
among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged
that the premiums paid had already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the
complaint may be dismissed for failure to state a cause of action must be determined solely on the
basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be
better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case
against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the
case against them is hereby ordered DISMISSED.

SO ORDERED.14

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the
allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular
disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the
illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is
only in cases where there are no beneficiaries designated, or when the only designated beneficiary
is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the
proceeds to be paid to Loreto’s illegitimate children should be reduced based on the rules on
legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by
the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With
respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary,
but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the
illegitimate children. It further held that the matter of Loreto’s misrepresentation was premature; the
appropriate action may be filed only upon denial of the claim of the named beneficiaries for the
insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of
jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a
cause of action involved a pure question of law. The appellate court also noted that petitioners did
not file within the reglementary period a motion for reconsideration of the trial court’s Resolution,
dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may
the Court consider matters which were not alleged in the Complaint, particularly the defenses
put up by the defendants in their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause
of action, did not the Regional Trial Court engage in the examination and determination of
what were the facts and their probative value, or the truth thereof, when it premised the
dismissal on allegations of the defendants in their answer – which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance
for the concubine?15

In essence, petitioners posit that their petition before the trial court should not have been dismissed
for failure to state a cause of action because the finding that Eva was either disqualified as a
beneficiary by the insurance companies or that her designation was revoked by Loreto,
hypothetically admitted as true, was raised only in the answers and motions for reconsideration of
both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only
the allegations in the complaint should be considered. They further contend that, even assuming
Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children
with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in
accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to
state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads –

SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:

xxxx

(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another. 16 A complaint
states a cause of action when it contains the three (3) elements of a cause of action—(1) the legal
right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the
defendant in violation of the legal right. If any of these elements is absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure to state a cause of action. 17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on
the facts alleged in the complaint. The court must resolve the issue on the strength of such
allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid
judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical
admission of the veracity of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in
the course of the hearings related to the case.18

In this case, it is clear from the petition filed before the trial court that, although petitioners are the
legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by
Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a
suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies,
and that Eva’s children with Loreto, being illegitimate children, are entitled to a lesser share of the
proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance
Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought
about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of
Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled
to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in
light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be
governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the
maturation of the policy.20 The exception to this rule is a situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the form of favorable stipulations
or indemnity. In such a case, third parties may directly sue and claim from the insurer. 21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal
obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary
in one policy and her disqualification as such in another are of no moment considering that the
designation of the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by
the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of
the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary,23 or when the designated beneficiary is disqualified by law to receive the
proceeds,24 that the insurance policy proceeds shall redound to the benefit of the estate of the
insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same
light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court
had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is
a question of law and not of fact, there being no findings of fact in the first place. 25

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.
G.R. No. 119176      March 19, 2002

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMA LIFE
INSURANCE COMPANY, INC.) and THE COURT OF APPEALS, respondents.

KAPUNAN, J.:

This is a petition for review on certiorari filed by the Commission on Internal Revenue of the decision
of the Court of Appeals dated November 18, 1994 in C.A. G.R. SP No. 31224 which reversed in part
the decision of the Court of Tax Appeals in C.T.A. Case No. 4583.

The facts of the case are undisputed.

Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance
Company, Inc.) is a domestic corporation registered with the Securities and Exchange Commission
and engaged in life insurance business. In the years prior to 1984, private respondent issued a
special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing
feature of which is a clause providing for an automatic increase in the amount of life insurance
coverage upon attainment of a certain age by the insured without the need of issuing a new policy.
The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were
paid by petitioner only on the initial sum assured.

In 1984, private respondent also issued 50,000 shares of stock dividends with a par value
of P100.00 per share or a total par value of P5,000,000.00. The actual value of said shares,
represented by its book value, was P19,307,500.00. Documentary stamp taxes were paid based
only on the par value of P5,000,000.00 and not on the book value. 1âwphi1.nêt

Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984 in
the amounts of (a) P464,898.75, corresponding to the amount of automatic increase of the sum
assured on the policy issued by respondent, and (b) P78,991.25 corresponding to the book value in
excess of the par value of the stock dividends. The computation of the deficiency documentary
stamp taxes is as follows:

On Policies Issued:

Total policy issued during the year P1,360,054,000.00

Documentary stamp tax due thereon  

(P1,360,054,000.00 divided by P200.00
multiplied by P0.35) P 2,380,094.50
 Less: Payment P 1,915,495.75

Deficiency P 464,598.75

Add: Compromise Penalty 300.00

-----------------------

TOTAL AMOUNT DUE & P 464,898.75

COLLECTIBLE

Private respondent questioned the deficiency assessments and sought their cancellation in a petition
filed in the Court of Tax Appeals, docketed as CTA Case No. 4583.

On March 30, 1993, the Court of Tax Appeals found no valid basis for the deficiency tax assessment
on the stock dividends, as well as on the insurance policy. The dispositive portion of the CTA’s
decision reads:

WHEREFORE, the deficiency documentary stamp tax assessments in the amount

of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack of
merit. Respondent Commissioner of Internal Revenue is ordered to desist from collecting
said deficiency documentary stamp taxes for the same are considered withdrawn.

SO ORDERED.1

Petitioner appealed the CTA’s decision to the Court of Appeals. On November 18, 1994, the Court of
Appeals promulgated a decision affirming the CTA’s decision insofar as it nullified the deficiency
assessment on the insurance policy, but reversing the same with regard to the deficiency
assessment on the stock dividends. The CTA ruled that the correct basis of the documentary stamp
tax due on the stock dividends is the actual value or book value represented by the shares. The
dispositive portion of the Court of Appeals’ decision states:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby REVERSED with

respect to the deficiency tax assessment on the stock dividends, but AFFIRMED with
regards to the assessment on the Insurance Policies. Consequently, private respondent is
ordered to pay the petitioner herein the sum of P78,991.25, representing documentary stamp
tax on the stock dividends it issued. No costs pronouncement.

SO ORDERED.2

A motion for reconsideration of the decision having been denied, 3 both the Commissioner of Internal
Revenue and private respondent appealed to this Court, docketed as G.R. No. 118043 and G.R. No.
119176, respectively. In G.R. No. 118043, private respondent appealed the decision of the Court of
Appeals insofar as it upheld the validity of the deficiency tax assessment on the stock dividends. The
Commissioner of Internal Revenue, on his part, filed the present petition questioning that portion of
the Court of Appeals’ decision which invalidated the deficiency assessment on the insurance policy,
attributing the following errors:

THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS A

SINGLE AGREEMENT EMBODIED IN THE POLICY AND THAT THE AUTOMATIC
INCREASE CLAUSE IS NOT A SEPARATE AGREEMENT, CONTRARY TO SECTION 49
 OF THE INSURANCE CODE AND SECTION 183 OF THE REVENUE CODE THAT A
RIDER, A CLAUSE IS PART OF THE POLICY.

THE HONORABLE COURT OF APPEALS ERRED IN NOT COMPUTING THE AMOUNT

OF TAX ON THE TOTAL VALUE OF THE INSURANCE ASSURED IN THE POLICY
INCLUDING THE ADDITIONAL INCREASE ASSURED BY THE AUTOMATIC INCREASE
CLAUSE DESPITE ITS RULING THAT THE ORIGINAL POLICY AND THE AUTOMATIC
CLAUSE CONSTITUTED ONLY A SINGULAR TRANSACTION.4

Section 173 of the National Internal Revenue Code on documentary stamp taxes provides:

Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon documents,
instruments, loan agreements, and papers, and upon acceptances, assignments, sales, and
transfers of the obligation, right or property incident thereto, there shall be levied, collected
and paid for, and in respect of the transaction so had or accomplished, the corresponding
documentary stamp taxes prescribed in the following section of this Title, by the person
making, signing, issuing, accepting, or transferring the same wherever the document is
made, signed, issued, accepted, or transferred when the obligation or right arises from
Philippine sources or the property is situated in the Philippines, and at the same time such
act is done or transaction had: Provided, That whenever one party to the taxable document
enjoys exemption from the tax herein imposed, the other party thereto who is not exempt
shall be the one directly liable for the tax. (As amended by PD No. 1994) The basis for the
value of documentary stamp taxes to be paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:

The basis for the value of documentary stamp taxes to be paid on the insurance policy is Section
183 of the National Internal Revenue Code which states in part:

Sec. 183. Stamp tax on life insurance policies. - On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be
made or renewed upon any life or lives, there shall be collected a documentary stamp tax of
thirty (now 50c) centavos on each Two hundred pesos per fractional part thereof, of the
amount insured by any such policy.

Petitioner claims that the "automatic increase clause" in the subject insurance policy is separate and
distinct from the main agreement and involves another transaction; and that, while no new policy
was issued, the original policy was essentially re-issued when the additional obligation was assumed
upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment
based on the additional insurance not covered in the main policy is in order.

The Court of Appeals sustained the CTA’s ruling that there was only one transaction involved in the
issuance of the insurance policy and that the "automatic increase clause" is an integral part of that
policy.

The petition is impressed with merit.

Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in
which a contract of insurance is set forth.5 Section 50 of the same Code provides that the policy,
which is required to be in printed form, may contain any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract of insurance.6 It is thus clear that any
rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such
policy or contract of insurance.
The subject insurance policy at the time it was issued contained an "automatic increase clause."
Although the clause was to take effect only in 1984, it was written into the policy at the time of its
issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase
clause" already formed part and parcel of the insurance contract, hence, there was no need for an
execution of a separate agreement for the increase in the coverage that took effect in 1984 when the
assured reached a certain age.

It is clear from Section 173 that the payment of documentary stamp taxes is done at the time the act
is done or transaction had and the tax base for the computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount fixed in policy, unless the interest of a person
insured is susceptible of exact pecuniary measurement. 7 What then is the amount fixed in the policy?
Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever
increases will take effect in the future by reason of the "automatic increase clause" embodied in the
policy without the need of another contract.

Here, although the automatic increase in the amount of life insurance coverage was to take effect
later on, the date of its effectivity, as well as the amount of the increase, was already definite at the
time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance
necessarily included the additional sum covered by the automatic increase clause because it was
already determinable at the time the transaction was entered into and formed part of the policy.

The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article
1181,8 by which the increase of the insurance coverage shall depend upon the happening of the
event which constitutes the obligation. In the instant case, the additional insurance that took effect in
1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to
which private respondent was liable for the payment of the documentary stamp tax.

The deficiency of documentary stamp tax imposed on private respondent is definitely not on the
amount of the original insurance coverage, but on the increase of the amount insured upon the
effectivity of the "Junior Estate Builder Policy."

Finally, it should be emphasized that while tax avoidance schemes and arrangements are not
prohibited,10 tax laws cannot be circumvented in order to evade the payment of just taxes. In the
case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase
clause incorporated into the policy at the time of issuance) should not be included in the computation
of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that
the tax be computed on the basis of the amount insured by the policy.

WHEREFORE, the petition is hereby given DUE COURSE. The decision of the Court of Appeals
is SET ASIDE insofar as it affirmed the decision of the Court of Tax Appeals nullifying the deficiency
stamp tax assessment petitioner imposed on private respondent in the amount of P464,898.75
corresponding to the increase in 1984 of the sum under the policy issued by respondent. 1âwphi1.nêt

SO ORDERED.