insurance batch 2.1

8/10/2019 Insurance Batch 2.1

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,

vs.

COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision1

of the Court of Appeals

in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando

Geagonia," reversing the decision of the Insurance Commission in I .C. Case No. 3340 which

awarded the claim of petitioner Armando Geagonia against private respondent Country

Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco,

Agusan del Sur. On 22 December 1989, he obtained from the private respondent fire

insurance policy No. F-146222

for P100,000.00. The period of the policy was from 22

December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting

principally of dry goods such as R TW's for men and women wear a nd other usual to assured's

business."

The petitioner declared in the policy under the subheading entitled CO -INSURANCE that

Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the

petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or

insurances already affected, or which may subsequently be effected,

covering any of the property or properties consisting of stocks in trade,

goods in process and/or inventories only hereby insured, and unless such

notice be given and the particulars of such insurance or insurances be

stated therein or endorsed in this policy pursuant to Section 50 of the

Insurance Code, by or on behalf of the Company before the occurrence of

any loss or damage, all benefits under this policy shall be deemed

forfeited,provided however, that this condition shall not apply when the

total insurance or insurances in force at t he time of the loss or damage is

not more than P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market

of San Francisco, Agusan del Sur. The petitioner's insured sto ck-in-trade were completely

destroyed prompting him to file with the private respondent a claim under the policy. On 28

December 1990, the private respondent denied the claim because it found that at the time of

the loss the petitioner's stocks-in-trade were likewise covered by f ire insurance policies No.

GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch o f the

Philippines First Insurance Co., Inc. (hereinafter PFIC).3These policies indicate that the

insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause

reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles,

Cebu City as their interest may appear subject to the terms of this policy.

CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F 24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of

Condition 3 of the policy.

The petitioner then filed a complaint5against the private respondent with t he Insurance

Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No.

F-14622 and for attorney's fees and co sts of litigation. He attached as Annex "AM"6

thereof

his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted

in the said letter that at the time he obtained the private respondent's fire insurance policy

he knew that the two policies issued by the PFIC were already in existence; however, he had

no knowledge of the provision in the private respondent's policy requiring him to inform it of

the prior policies; this requirement was not mentioned to him by the private respo ndent's

agent; and had it been mentioned, he would not have withheld such information. He further

asserted that the total of the amounts claimed under the three policies was below the actual

value of his stocks at the time of loss, which was P1,000,000.00.

In its answer,7

the private respondent specifically denied the allegations in the complaint and

set up as its principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993,8

the Insurance Commission found that the petitioner did not

violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies

obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies

without informing him or securing his consent; and that Cebu Tesing T extile, as his creditor,

had insurable interest on the stocks. These findings were based on the petitioner's testimony

that he came to know of the PFIC policies only when he filed his claim with the private

respondent and that Cebu Tesing Textile obtained them and paid for their premiums without

informing him thereof. The Insurance Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent

company to pay complainant the sum of P100,000.00 with legal interest

from the time the complaint was filed until fully satisfied plus the amount

of P10,000.00 as attorney's fees. With costs. The compulsory

counterclaim of respondent is hereby dismissed.


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Its motion for the reconsideration of the decision9having been denied by the Insurance

Commission in its resolution of 20 August 1993,10

the private respondent appealed to the

Court of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No.

31916.

In its decision of 29 December 1993,11

the Court of Appeals reversed th e decision of the

Insurance Commission because it found that the petitioner knew of the existence of the two

other policies issued by the PFIC. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144

that the insurance was taken in the name of private respondent

[petitioner herein]. The policy states that "DISCOUNT MART (MR.

ARMANDO GEAGONIA, PROP)" was the assured and that "TESING

TEXTILES" [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private

respondent, not by the Tesing Textiles which is alleged to have taken out

the other insurance without the knowledge of private respondent. T his is

shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N).

In both invoices, Tesing Textiles is indicated to be only the mortgagee of

the goods insured but the party to which they were issued were the

"DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was t he private respondent [petitioner herein] who took

out the policies on the same property subject of the insurance with

petitioner. Hence, in failing to disclose the existence of these insurances

private respondent violated Condition No. 3 of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the

provisions insurances is belied by his letter to petitioner [of 18 January

1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the

provision requiring me to inform your office about my

prior insurance under FGA-28146 and F-CEB-24758.

Your representative did not mention about said

requirement at the time he was convincing me to

insure with you. If he only die or even inquired if I had

other existing policies covering my establishment, I

would have told him so. You will note that at the time

he talked to me until I decided to insure with your

company the two policies aforementioned were

already in effect. Therefore I would have no reason to

withhold such information and I would have desisted

to part with my hard earned peso to pay the

insurance premiums [if] I know I could not recover

anything.

Sir, I am only an ordinary businessman interested in

protecting my investments. The actual value of my

stocks damaged by the fire was estimated by the

Police Department to be P1,000,000.00 (Please see

xerox copy of Police Report Annex "A"). My Income

Statement as of December 31, 1989 or five months

before the fire, shows my merchandise inventory was

already some P595,455.75. . . . These will support my

claim that the amount claimed under the t hree

policies are much below the value of my stocks lost.

xxx xxx xxx

The letter contradicts private respondent's pretension that he did not

know that there were other insurances taken on the stock-in-trade and

seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the

instant petition. He contends therein that the Court of Appeals acted with grave abuse o f

discretion amounting to lack or excess of jurisdiction:

A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE

COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF

DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED

RESPECT AND EVEN FINALITY BY THE COURTS;

B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT

PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN

AGAINST THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner

had prior knowledge of the two insurance policies issued by the PFIC when he obtained the

fire insurance policy from the private respondent, thereby, for not disclosing such fact,

violating Condition 3 of t he policy, and (b) if he had, whether he is precluded from recovering

therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter

of reconsideration of 18 January 1991, is without merit. The petitioner claims that t he said

letter was not offered in evidence and thus should not have been considered in deciding the

case. However, as correctly pointed out by t he Court of Appeals, a copy of this letter was

attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made

integral partof the complaint.12

It has attained the status of a judicial admission and since its

due execution and authenticity was not denied by the other party, the petitioner is bound by

it even if it were not introduced as an independent evidence.13

As to the first issue, t he Insurance Commission found that the petitioner had no knowledge

of the previous two policies. The Court of Appeals disagreed and found otherwise in view o f

the explicit admission by the petitioner in his letter to the private respondent of 18 January

1991, which was quoted in the c hallenged decision of the Court of Appeals. These divergent


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findings of fact constitute an exception to the general rule that in petitions for review under

Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are

conclusive and binding upon this Court.14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by

the PFIC. His letter of 18 January 1991 to the private respondent c onclusively proves this

knowledge. His testimony to the contrary before the Insurance Commissioner and which the

latter relied upon cannot prevail over a written admission made ante litem motam. It was,

indeed, incredible that he did not know about the prior policies since these policies were not

new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No.

GA-28146 had been renewed twice, the previous policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not

proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance

Code15

which provides that "[a] policy may declare that a violation of specified provisions

thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the

policy." Such a condition is a provision which invariably appears in fire insurance policies and

is intended to prevent an increase in the moral hazard. It is commonly known as the

additional or "other insurance" clause and has been upheld as valid and as a warranty that no

other insurance exists. Its violation would thus avo id the

policy.16

However, in order to constitute a violation, the other insurance must be upon sam e

subject matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent

insurable interest therein and both interests may be one policy, or each may take out a

separate policy covering his interest, either at the same or at separate times.18

The

mortgagor's insurable interest covers the full value of the mortgaged property, even though

the mortgage debt is equivalent to the full value of the property.19

The mortgagee's

insurable interest is to the extent of the debt, since the property is relied upon as security

thereof, and in insuring he is not insuring the property but his i nterest or lien thereon. His

insurable interest isprima faciethe value mortgaged and extends only to the amount of the

debt, not exceeding the value of the mortgaged property.20

Thus, separate insurances

covering different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the

usual practice. The mortgagee may be made the beneficial payee in several ways. He may

become the assignee of the policy with the consent of the insurer; or the mere pledgee

without such consent; or the original policy may contain a mortgage clause; or a rider mak ing

the policy payable to the mortgagee "as his interest may appear" may be attached; or a

"standard mortgage clause," containing a collateral independent contract between the

mortgagee and insurer, may be attached; or the policy, though by its terms payable

absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty

to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien

upon the proceeds.21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as

his interest may appear, the mortgagee is only a beneficiary under the contract, and

recognized as such by the insurer but not made a party to the contract himself. Hence, any

act of the mortgagor which defeats his right will also defeat the right of the mortgagee.22

This kind of policy covers only such interest as the mortgagee has at the issuing of the policy.

23

On the other hand, a mortgagee may also procure a policy as a contracting party in

accordance with the terms of an agreement by which the mortgagor is to pay the premiums

upon such insurance.24

It has been noted, however, that although the mortgagee is himself

the insured, as where he applies for a policy, fully informs the authorized agent of his

interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in

fact in the form used to insure a mortgagor with loss payable clause.25

The fire insurance policies issued by the PFIC name the petitioner as the assured and con tain

a mortgage clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as

their interest may appear subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses involved in

General Insurance and Surety Corp.vs.Ng Hua26

or in Pioneer Insurance & Surety Corp.vs.

Yap,27

which read:

The insured shall give notice to the company of any insurance or

insurances already effected, or which may subsequently be effected

covering any of the property hereby insured, and unless such notice be

given and the particulars of such insurance or insurances be stated in or

endorsed on this Policy by or on behalf of the Company before the

occurrence of any loss or damage, all benefits under this Policy shall be

forfeited.

or in the 1930 case of Santa Ana vs.Commercial Union Assurance

Co.28

which provided "that any outstanding insurance upon the whole or a portion

of the objects thereby assured must be declared by the insured in writing and he

must cause the company to add or insert it in the policy, without which such policy

shall be null and void, and t he insured will not be entitled to indemnity in case of

loss," Condition 3in the private respondent's policy No. F-14622 does not

absolutely declare void any violation thereof. It expressly provides that the

condition "shall not apply when the total insurance or insurances in force at the

time of the loss or damage is not more than P200,000.00."

It is a cardinal rule on i nsurance that a policy or insurance contract is to be interpreted

liberally in favor of the insured and str ictly against the company, the reason being,

undoubtedly, to afford the greatest protection which the insured was endeavoring to secure

when he applied for insurance. It is also a cardinal principle of law that forfeitures are not

favored and that any construction which would result in the forfeiture of the policy benefits

for the person claiming thereunder, will be avoided, if it is possible to construe the policy in a

manner which would permit recovery, as, for example, by finding a waiver for such

forfeiture. 29Stated differently, provisions, conditions or exceptions in policies which tend to


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work a forfeiture of insurance policies should be construed most strictly against those for

whose benefits they are inserted, and most favorably toward thos e against whom they are

intended to operate.30

The reason for this is that, except for riders which may later be

inserted, the insured sees the contract already in its final form and has had no voice in the

selection or arrangement of the words employed therein. On the other hand, the language of

the contract was carefully chosen and deliberated upon by experts and legal advisers who

had acted exclusively in the interest of the i nsurers and the technical language employed

therein is rarely understood by ordinary laymen.31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is

not totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis

leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the

nullity of the policy shall only b e to the extent exceeding P200,000.00 of the total policies

obtained.

The first conclusion is supported by the portion of the condition referring to o ther insurance

"covering any of the property or properties consisting of stocks in trade, goo ds in process

and/or inventories only hereby insured," and the portion regarding the insured's declaration

on the subheading CO-INSURANCE that the co -insurer is Mercantile Insurance Co., Inc. in the

sum of P50,000.00. A double insurance exists where the same person is insured by several

insurers separately in respect of the same subject and interest. As earlier stated, the

insurable interests of a mortgagor and a mortgagee o n the mortgaged property are distinct

and separate. Since the two policies of the PFIC do not cover the same interest as t hat

covered by the policy of the private respondent, no double insurance exists. The non-

disclosure then of the former policies was not fatal to the petitioner's right to recover on the

private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the

total insurance in force at the time of loss does not exceed P200,000.00, the private

respondent was amenable to assume a co-insurer's liability up to a loss not exceeding

P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale

behind the incorporation of "other insurance" clause in fire policies is to prevent over-

insurance and thus avert the perpetration of fraud. When a property owner obtains

insurance policies from two or more insurers in a total amount that exceeds the property's

value, the insured may have an inducement to destroy the property for the purpose of

collecting the insurance. The public as well as the insurer is interested in preventing a

situation in which a fire would be profitable to the insured.32

WHEREFORE, the instant petition is hereby GRANTED. The decision o f the Court of Appeals in

CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Co mmission in Case No.

3340 is REINSTATED.

Costs against private respondent Country Bankers Insurance Corpo ration.

SO ORDERED.

G.R. No. L-7667 November 28, 1955

CHERIE PALILEO,plaintiff-appellee,

vs.

BEATRIZ COSIO,defendant-appellant.

Claro M. Recto for appellant.

Bengson, Villegas, Jr. and Villar for appellee.

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying

that (1) the transaction entered into between them on December 18, 1951 be declared as

one of loan, and the document executed covering t he transaction as one of equitable

mortgage to secure the payment of said loan; (2) the defendant be ordered to credit t o the

plaintiff with the necessary amount from the sum received by the defendant from the

Associated Insurance & Surety Co., Inc. and to apply the same to the payment of plaintiff's

obligation thus considering it as fully paid; and (3) the defendant be ordered to pay to

plaintiff the difference between the alleged indebtedness of plaintiff and the sum received

by defendant from the aforementioned insurance company, plus the sum allegedly paid to

defendant as interest on the alleged indebtedness.

On December 19, 1952, defendant filed her answer setting up as special defense that the

transaction entered into between the plaintiff and defendant is one of sale with option to

repurchase but that the period for repurchase had expired without plaintiff having returned

the price agreed upon as a result of which the ownership of the property had become

consolidated in the defendant. Defendant also set up certain counterclaims which involve a

total amount of P4,900.

On April 7, 1953, the case was set for trial on the merits, but because of several

postponements asked by the parties, the same has to be set anew for trial on January 12,

1954. On this date, neither the defendant nor her counsel appeared, even if the latter had

been notified of the postponement almost a month earlier, and so the court received the

evidence of the plaintiff. On January 18, 1954, the court, having in v iew the evidence

presented, rendered judgment granting the relief prayed for in the complaint.

On February 2, 1954, the original counsel for the defendant was substituted and the new

counsel immediately moved that the judgment be set aside on the ground that, due to

mistake or excusable negligence, defendant was unable to present her evidence and the

decision was contrary to law, and this motion having been denied, defendant took the

present appeal.

The important issue to be determined in this appeal is whether the lower court commi tted a

grave abuse of discretion in not reopening the case to give defendant an opportunity to

present her evidence considering that the failure of her original counsel to appear was due to

mistake or execusable negligence which ordinary prudence could not have guarded against.

The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11,

1953, said counsel showed interest in the early disposal of this case by moving the court to

have it set for trial. The first date set was April 7, 1953, but no hearing was had on that date

because plaintiff had moved to postpone it. The case was next set for hearing on April 28,


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1953, but on motion again of plaintiff, the hearing was transferred to November 6, 1953.

Then, upon petition of defendant, the trial had t o be moved to December 15, 1953, and

because Atty. Guerrero could not appear on said date because of a case he had in Cebu City,

the hearing was postponed to January 18, 1954.

And on January 4, 1954, o r nineteen days after receiving the notice of hearing, Atty. Guerrero

was appointed Undersecretary of Foreign Affairs. It is now contended that t he appointment

was so sudden and unexpected that Atty. Guerrero, after taking his oath, was unable to wind

up his private cases or make any preparation at all. It is averred that "The days that followed

his appointment were very busy days for defendant's former counsel. There was an

immediate need for clearing the backlog of official business, including the reorganization of

the Department of Foreign Affairs and our Foreign Service, and more importantly, he had to

assist the Secretary of Foreign Affairs in negotiations of national importance like t he

Japanese reparations, and the revision of the trade agreement with the U nited States, that,

Atty. Guerrero had to work as much as fourteen hours daily . . . Because of all these

unavoidable confusion that followed in the wake of Atty. Guerrero's sudden and unexpected

appointment, the trial of this case scheduled for January 18, 1954 escaped his memory, and

consequently, Atty. Guerrero and the defendant were unable to appear when the case was

called for trial." These reasons, it is intimated, constitute excusable negligence which

ordinary prudence could not have guarded against and should have been considered by the

trial court as sufficient justification to grant the petition of defendant for a rehearing.

It is a well-settled rule that the granting of a motion to set aside a judgment or order on the

ground of mistake or excusable negligence is addressed to the sound discretion of the court

(see Coombs vs.Santos, 24 Phil., 446; Daipan vs.Sigabu, 25, Phil., 184). And an order issued

in the exercise of such discretion is ordinarily not to be disturbed unless it is shown that the

court has gravely abused such discretion. (See Tell vs.Tell, 48 Phil., 70; Macke vs.Camps, 5

Phil., 185; Calvo vs.De Gutierrez, 4 Phil., 203; Manzanares vs.Moreta, 38 Phil., 821; Salva vs.

Palacio and Leuterio, 90 Phil., 731.) In denying the motion for reopening the trial court said:

"After going over the same arguments, this Court is of the opinion, and so holds that the

decision of this Court of January 18, 1954 should not be disturbed." Considering the stature,

ability and experience of counsel Leon Ma. Guerrero, and the fact that he was given almost

one month notice before the date set for trial, we are persuaded to conclude that the trial

court did not abuse its discretion in refusing to reconsider its decision.

Coming now to the merits of the case, we note that the lower court made the following

findings: On December 18, 1951, plaintiff obtained from defendant a loan in the sum of

P12,000 subject to the following conditions: (a) that plaintiff shall pay to defendant an

interest in the amount of P250 a month; (b) that defendant shall deduct from the loan

certain obligations of plaintiff to third persons amounting to P4,550, plus the sum of P250 as

interest for the first month; and (c) that after making the above deductions, defendant shall

deliver to plaintiff only the balance of the loan of P12,000.

Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of

P2,250.00 corresponding to nine months from December 18, 1951, on the basis of P250.00 a

month, which is more than the maximum interest authorized by law. To secure the payment

of the aforesaid loan, defendant required plaintiff to sign a document known as "Conditional

Sale of Residential Building", purporting to convey to defendant, with right to repurchase, a

two-story building of strong materials belonging to plaintiff. This document did not express

the true intention of the parties which was merely to place said property as security for the

payment of the loan.

After the execution of the aforesaid document, defendant insured the building aga inst fire

with the Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy

having been issued in the name of defendant. The building was partly destroyed by fire and,

after proper demand, defendant collected from the insurance company an indemnity o f

P13,107.00. Plaintiff demanded from defendant that she be credited with the necessary

amount to pay her obligation out of the insurance proceeds but defendant refused to do so.

And on the strength of these facts, the court rendered decision the dispositive part of which

reads as follows:

Wherefore, judgment is hereby rendered declaring the transaction had between

plaintiff and defendant, as shown in Exhibit A, an equitable mortgage to secure the

payment of the sum of P12,000 loaned by the defendant to plaintiff; ordering the

defendant to credit the sum of P13,107 received by the defendant from the

Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in

the sum of P12,000.00 as stated in the complaint, thus considering the agreement

of December 18, 1951 between the herein plaintiff and defendant completely paid

and leaving still a balance in the sum of P1,107 from the insurance collected by

defendant; that as plaintiff had paid to the defendant the sum of P2,250.00 for

nine months as interest on t he sum of P12,000 loaned to plaintiff and the legal

interest allowed by law in this transaction does not exceed 12 per cent per a nnum,

or the sum of P1,440 for one year, so the herein plaintiff and o verpaid the sum of

P810 to the defendant, which this Co urt hereby likewise orders the said defendant

to refund to herein plaintiff, plus the balance of P1,107 representing the difference

of the sum loan of P12,000 and the collected insurance of P13,107 from the

insurance company abovementioned to which the herein plaintiff is entitled to

receive, and to pay the costs.

The question that now arises is: I s the trial court justified in considering the obligation of

plaintiff fully compensated by the insurance amount and in ordering defendant to refund to

plaintiff the sum of P1,107 representing the difference of the loan of P12,000 and the sum of

P13,107 collected by said defendant from the insurance company notwithstanding the fact

that it was not proven that the insurance was taken for the benefit of the mortgagor?

Is is our opinion that on this score the court is in error for its ruling runs counter to the rule

governing an insurance taken by a mortgagee independently of the mortgagor. The rule is

that "where a mortgagee, independently of the mortgagor, insures the mortgaged property

in his own name and for his own interest, he is entitled to the insurance proceeds in case of

loss,but in such case, he is not allowed to retain his claim against the mortgagor, but is

passed by subrogation to the insurer to the extent of t he money paid." (Vance on Insurance,

2d ed., p. 654)Or, stated in another way, "the mortgagee may insure his interest in the


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property independently of the mortgagor. In that event, upon the destruction of the

property the insurance money paid to the mo rtgageewill not inure to the benefit of the

mortgagor, and the amount due under the mortgage d ebt remains unchanged. The

mortgagee,however,is not allowed to retain his claim against the mortgagor, but it passes

by subrogation to the insurer, to the extent of the insurance money paid." (Vance on

Insurance, 3rd ed., pp. 772-773) This is the same rule upheld by this Court in a case that

arose in this jurisdiction. In the case mentioned, an insurance contract was taken out by the

mortgagee upon his own interest, it being stipulated that the proceeds would be paid to him

only and when the case came up for decision, this Court held that the mortgagee, in case of

loss, may only recover upon the policy to the extent of his credit at the time of the loss. It

was declared that the mortgaged had no right of action against the mortgagee on the policy.

(San Miguel Brewery vs.Law Union, 40 Phil., 674.)

It is true that there are authorities which hold that "If a mortgagee procures insurance on his

separate interest at his own expense and for his own benefit, without any agreement with

the mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not

entitled to have the insurance proceeds applied in reduction of th e mortgage debt" (19

R.C.L., p. 405), and that, furthermore, the mortgagee "has still a right to recover his whole

debt of the mortgagor." (King vs.State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs.

Boyden 9 Allen, 123; See also Loomis vs.Eagle Life & Health Ins. Co., 6 Gray, 396; Washington

Mills Emery Mfg. Co. vs.Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs.Equitable

Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the minority view (See

case note, 3 Lawyers' Report Annotated, new series, p. 79). "The general rule and the weight

of authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under

the mortgage. This is put upon the analogy of the situation of the insurer to that of a surety."

(Jones on Mortgages, Vol. I, pp. 671-672.)

Considering the foregoing rules, it would appear that the lower court erred in declaring that

the proceeds of the insurance taken out by the defendant on the property mortgaged inured

to the benefit of the plaintiff and in ordering said defendant to deliver to the plaintiff the

difference between her indebtedness and the amount of insurance received by the

defendant, for, in the light of the majority rule we have above enunciated, the correct

solution should be that the proceeds of the insurance should be delivered to the defendant

but that her claim against the plaintiff should b e considered assigned to the insurance

company who is deemed subrogated to the r ights of the defendant to t he extent of the

money paid as indemnity.

Consistent with the foregoing pronouncement, we therefore modify the judgment of the

lower court as follows:(1) the transaction had between the plaintiff and defendant as s hown

in Exhibit A is merely an equitable mortgage intended to secure the payment of t he loan of

P12,000;(2) that the proceeds of the insurance amounting to P13,107.00 was properly

collected by defendant who is not required to account for it to the plaintiff; (3) that the

collection of said insurance proceeds shall not be deemed to have compensated the

obligation of the plaintiff to the defendant, but bars the latter from claiming its payment

from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00 representing

the overpayment made by plaintiff by way of interest on the loan. No pronouncement as to

costs.

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 p roceeds 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 po licy 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 h usband 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 on e 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: +.wph!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 o f 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;


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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 o f 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 t he 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 tim e of his

death and the wife did not have any opportunity to write the com pany

that there was reservation to change the designation of the parties

agreed that a decision be rendered based on and stipulation o f 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: +.wph!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 o r 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 p olicy in

question for the disqualification and incapacity to exist and t hat 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 lo wer court.

1. It is quite unfortunate t hat the Insurance Act (RA 2327, as amended) or even the new

Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly

resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that

"(t)he insurance shag be applied exclusively to the proper interest of the person in whose

name it is made"1cannot be validly seized upon to hold that the mm includes the

beneficiary. The word "interest" highly suggests that the prov ision 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 co uld easily be circumvented by modes of

insurance. Rather, the general rules of civil law should be applied t o resolve this void in t he

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.3And under Article 2012 of the same Code, "any person who is forbidden from

receiving any donation under Article 739 cannot be named beneficiary of a fife insurance

policy by the person who cannot make a donation to him.4Common-law spouses are,

definitely, barred from receiving donations from each other. Article 739 of the new Civil Code

provides: +.wph!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 t he 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.


8/39

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.5Under American law, a policy of life insurance is

considered as a testament and in construing it, the courts will, so far as possible treat it as a

will and determine the effect of a clause designating the beneficiary by rules under which

wins are interpreted.6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier

between common law spouses in record to Property relations since such hip ultimately

encroaches upon the nuptial and filial rights of the legitimate family There is every reason to

hold that the bar in donations between legitimate spouses and those between illegitimate

ones should be enforced in life insurance policies since the same are based on similar

consideration As above pointed out, a beneficiary in a fife insurance policy is no different

from a donee. Both are recipients of pure beneficence. So long as manage remains the

threshold of family laws, reason and morality dictate that t he 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,7this Court,

through Justice Fernando, said: +.wph!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 t he

donation," Article 739 itself provides: +.wph!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 thanjudicial admissions which, as a consequence, no longer require proof and

cannot be contradicted.8Afortiori, 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 t wo 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.


9/39

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.

G.R. No. L-6114 October 30, 1954

SOUTHERN LUZON EMPLOYEES' ASSOCIATION, plaintiff,

vs.

JUANITA GOLPEO, ET AL., defendants-appellants;

AQUILINO MALOLES , ET AL., defendants-appellees;

ELSIE HICBAN, ET AL., defendants;

MARCELINO CONCEPCION, ET AL., intervenors-appellants.

Enrique Al. Capistrano, Pio O. Golfeo, Jose E. Erfe and Hilario Mutuc for appellants.

Manuel Alvero and Elden B. Brion for appellees.

Juan A. Baes for defendant Elsie Hicban.

PARAS, C.J.:

The plaintiff, Southern Luzon Employees' Association is composed of laborers and employees

of Laguna tayabas Bus Co., and B atangas Transportation Company, and one of its purposes is

mutual aid of its members and their defendants in case of death. Roman A. Concepcion was a

member until his death on December 13, 1950. The association adopted on September 17,

1949 the following resolution:

RESOLVED: That a family record card of each member be printed wherein the

members will put down his dependents and/or beneficiaries.

BE IT RESOLVED, FURTHER, that a member may, if he chooses, put down his

common-law wife as his beneficiary and/or children had with her as the case may

be; that in case of a widower, he may put down his legitimate children with the

first marriage who are below 21 years of age, single, and may at the same time,

also name his common-law wife, if he has any, as dependents and/or beneficiaries;

and

BE IT RESOLVED: That such person so named by the member will be sole persons to

be recognized by the Association regarding claims for condolence contributions.

In the form required by the association t o be accomplished by its members, with reference to

the death benefit, Roman A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman

M. Concepcion, Jr., Estela M. Concepcion, Rolando M. Concepcion and Robin M. Concepcion.

After the death of Roman A. Concepcion, the association was able to collect voluntary

contributions from its members amounting to P2,5055. Three sets of claimants presented

themselves, namely, (1) Juanita Golpeo, legal wife of Roman A. Concepcion, and her children,

named beneficiaries by the deceased; and (3) Elsie Hicban, another common law wife of

Roman A. Concepcion, and her child. The plaintiff association was accordingly constrained to

institute in the Court of First Instance of Laguna the present action for interpleading against

the three conflicting claimants as defendants. Marcelino and Josefina Concepcion, children of

the deceased Roman A. Concepcion with Juanita Golpeo, intervened in t heir own rights,

aligning themselves with the defendants, Juanita Golpeo and her minor children. After

hearing, the court rendered a decision, declaring the defendants Aquilina Maloles and her

children the sole beneficiaries of the sum of P2,505.00, and ordering the plaintiff to deliver

said amount to them. From this decision only the defendants Juanita Golpeo and her minor

children and the intervenors Marcelino and Josefina Concepcion have appealed to this court.

The decision is based mainly on t he theory that the contract between the plaintiff and the

deceased Roman A. Concepcion partook of the nature of an insurance and that, therefore,

the amount in question belonged exclusively to the beneficiaries, invoking the following

pronouncements of this Court in the case of Del Val vs. Del Val, 29 Phil., 534:

With the finding of the trial court that the proceeds of 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 o f 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 p erson whose life was insured, is the doctrine in America. We

believe that the same doctrine obtains in t hese Islands by virtue of section 428 of

the Code of Commerce, which reads:

"The amounts which the underwriter must deliver to the person insured, in

fulfillment of the contract, shall be the property creditors of any kind whatsoever

of the person who effected the insurance in favor of the formers."

It is claimed by the attorney for the plaintiffs that the section just quoted in

subordinated to the provisions of the civil code as found in article 10035. This

article reads:

"An heir by force of law surviving with others of the same character to a succession

must bring into the hereditary estate the property or securities he may bring into

the hereditary estate the property or securities he may have been received from

the deceased during the life of the same, by way of dowry, gift, or for any good

consideration, in order to compute it in fixing the legal portions and in the amount

of the division."

Counsel also claims that the proceed of the insurance policy were donation or gift

made by the father during his lifetime to the defendant and that, as such, its

ultimate destination is determined by those provisions of the Civil Code which

relate to donations, especially article 819. This article provides that "gifts made to

children which are not betterments shall be considered as part of their legal

portion."


10/39

We cannot agree with these contention. The contract of life insurance is a special

contract and the destination of the proceeds thereof is determined by special laws

which deal exclusively with that subject. The Civil Code has no provisions which

relate directly and specifically to life-insurance contract or to the destination of life-

insurance proceeds. That subject is regulate exclusively by the Code of Commerce

which provides for the terms of the contract, the relations of the parties and t he

destination of the proceeds of the policy. (Supra, pp. 540-541.)

It is argued for the appellants, however, that t he Insurance Law is not applicable because the

plaintiff is a mutual benefit association as defined in section 1628 of the Revised

Administrative Code. This argument evidently ignore the fact that the trial court has no

considered the plaintiff as a regular insurance company but merely ruled that th e death

benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised

Administrative Code defines a mutual benefit association as one, among others, "providing

for any method of accident or life insurance among its members out of dues or assessments

collected from the membership." The comparison made in the appealed decision is,

therefore, well taken.

Appellant also contend that the stipulation between the plaintiff and the deceased Roman A.

Concepcion regarding the specification of the latter's beneficiaries, and the resolution of

September 17, 1949, are void for the b eing contrary to law, moral or public policy.

Specifically, the appellants cite article 2012 of the new Civil Code prov iding that "Any person

who is forbidden from receiving any donation under article 739 cannot be named beneficiary

of a life insurance policy and by the person who cannot make any donation to him, according

to said article." Inasmuch as, according to article 739 of the new Civil Code, a donation is

valid when made "between persons who are guilty or adultery or concubinage at the time of

the donation," it is alleged that the defendant-appellee Aquilina Maloles, cannot be named a

beneficiary, every assuming that the insurance law is applicable. Without considering the

intimation in the brief for the defendant appellees that appellant Juanita Golpeo, by her

silence and actions, had acquiesced in the illicit relations between her husband and appellee

Aquilina Maloles, appellant argument would certainly not apply to the children of Aquilina

likewise named beneficiaries by the deceased Roman A. Concepcion. As a matter of a fact the

new Civil Code recognized certain successional rights of illegitimate children. (Article 287.)

The other contention advanced rather exhaustively by counsel for appellants, and the

citations in support there of are either negative or rendered inapplicable by the decisive

considerations already stated. In this connection it is noteworthy that the estate of the

deceased Roman A. Concepcion was not entirely left without anything legally due it since it i s

an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus Co., employer of

the deceased to the appellants under the Workmen's Compensation Act. Wherefore, the

appealed decision is affirmed, and it is so ordered without co sts.

G.R. No. 23703 September 28, 1925

HILARIO GERCIO,plaintiff-appellee,

vs.

SUN LIFE ASSURANCE OF CANADA, ET AL.,defendants.

SUN LIFE ASSURANCE OF CANADA,appellant.

Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.

Vicente Romualdez, Feria and La O and P. J. Sevilla for appellee.

MALCOLM, J.:

The question of first impression in t he law of life insurance to be here decided is whether the

insured the husband has the power to change the beneficiary the former wife and

to name instead his actual wife, where the insured and the beneficiary have been divorced

and where the policy of insurance does not expressly reserve to the insured the right to

change the beneficiary. Although the authorities have been exhausted, no legal situation

exactly like the one before us has been encountered.

Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the insurer,

and Andrea Zialcita, the beneficiary, are the defendants. The complaint is in the nature of

mandamus. Its purpose is to compel the defendant Sun Life Assurance Co. of Canada to

change the beneficiary in the policy issued by t he defendant company on the life of the

plaintiff Hilario Gercio, with one Andrea Zialcita as beneficiary.

A default judgment was taken in the lower court against the defendant Andrea Zialcita. The

other defendant, the Sun Life Assurance Co. of Canada, first demurred to the complaint and

when the demurrer was overruled, filed an answer in the nature of a general denial. The case

was then submitted for decision on an agreed statement of facts. The judgment o f the trial

court was in favor of the plaintiff without costs, and ordered the defendant company to

eliminate from the insurance policy the name of Andrea Zialcita as beneficiary and to

substitute therefor such name as the plaintiff might furnish to the defendant for that

purpose.

The Sun Life Assurance Co. of Canada has a ppealed and has assigned three errors alleged to

have been committed by the lower court. The appellee has countered with a motion which

asks the court to dismiss the appeal of the defendant Sun Life Assurance Co. of Canada, with

costs.

As the motion presented by the appellee and the first two errors assigned by the appellant

are preliminary in nature, we will pass upon th e first. Appellee argues that the "substantial

defendant" was Andrea Zialcita, and that since she was adjudged in default, the Sun Life

Assurance Co. of Canada has no i nterest in the appeal. It will be noticed, however, that the

complaint prays for affirmative relief against the insurance company. It will be noticed

further that it is stipulated that the insurance company has persistently refused to change

the beneficiary as desired by the plaintiff. As the rights of Andrea Zialcita in the policy are

rights which are enforceable by her only against th e insurance company, the defendant

insurance company will only be fully protected if t he question at issue is conclusively

determined. Accordingly, we have decided not to accede to the motion of the appellee and

not to order the dismissal o f the appeal of the appellant.


11/39

This brings us to the main issue. Before, however, discussing its legal aspects, it is advisable

to have before us the essential facts. As t hey are stipulated, this part of t he decision can

easily be accomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No.

161481 on the life of Hilario Gercio. The policy was what is known as a twenty-year

endowment policy. By its terms, the insurance company agreed to insure the life of Hilario

Gercio for the sum of P/2,000, t o be paid him on February 1, 1930, or if the insured should

die before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise

to the executors, administrators, or assigns of the insured. The policy also contained a

schedule of reserves, amounts in cash, paid-up policies, and renewed insurance, guaranteed.

The policy did not include any pro vision reserving to the insured the right to change the

beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio.

Towards the end of the year 1919, she was convicted of the crime of adultery. On September

4, 1920, a decree of divorce was issued in civil case no. 17955, which had the effect of

completely dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea

Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that

he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her

stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio

requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the

insurance company has refused and still refuses to do.

With all of these introductory matters disposed of and with the legal question to the

forefront, it becomes our first duty to determine what law should be applied to the facts. In

this connection, it should be remembered that the insurance policy was taken out in 1910,

that the Insurance Act. No. 2427, became effective in 1914, and that the effort to change the

beneficiary was made in 1922. Should the provisions of t he Code of Commerce and the Civi l

Code in force in 1910, or the provisions of the Insurance Act now in force, or the general

principles of law, guide the court in its decision?

On the supposition, first, that the Code of Commerce is applicable, yet there can be fou nd in

it no provision either permitting or prohibiting the insured to change the beneficiary.

On the supposition, next, that the Civil Code regulates insurance contracts, it would be most

difficult, if indeed it is practicable, to test a life insurance policy by its provisions. Should t he

insurance contract, whereby the husband names the wife as the beneficiary, be denominated

a donation inter vivos, a donation causa mortis, a contract in favor of a third person, or an

aleatory contract? The subject is further complicated by the fact that if an insurance contract

should be considered a donation, a husband may t hen never insure his life in favor o f his wife

and vice versa, inasmuch as article 1334 prohibits all donations between spouses during

marriage. It would seem, therefore, that this court was right when in the case of Del Val vs.

Del Val([1915]), 29 Phil., 534), it declined to consider the proceeds of the insurance policy as

a donation or gift, saying "the co ntract of life insurance is a special contract and the

destination of the proceeds thereof is determined by special laws which deal exclusively with

that subject. The Civil Code has no provisions which relate directly and s pecifically to life-

insurance contracts or to the destination of life-insurance proceeds. . . ." Some satisfaction is

gathered from the perplexities of the Louisiana Supreme Court, a c ivil law jurisdiction, where

the jurists have disagreed as to the classification of the insurance contract, but have agreed

in their conclusions as will hereafter see. (Re Succession of Leone Desforges [1914], 52 L.R.A.

[N.S.], 689; Lambert vs Penn Mutual Life Insurance Company of Philadelphia and L'Hote & Co.

[1898], 50 La. Ann., 1027.)

On the further supposition that t he Insurance Act applies, it will be found that in this Law,

there is likewise no provision either permitting or prohibiting the insured to change the

beneficiary.

We must perforce conclude that whether the case be considered as of 1910, or 1914, or

1922, and whether the case be considered in the light of the Code of Commerce, the Civil

Code, or the Insurance Act, the d eficiencies in the law will have to be supplemented by the

general principles prevailing on the subject. To that end, we have gathered the rules which

follow from the best considered American authorities. In adopting these rules, we do so with

the purpose of having the Philippine Law of Insurance conform as nearly as possible to the

modern Law of Insurance as found in th e United States proper.

The wife has an insurable interest in the life o f her husband. The beneficiary has an absolute

vested interest in the policy from the date of its issuance and delivery. So when a policy of

life insurance is taken out by t he husband in which the wife is named as beneficiary, she has

a subsisting interest in the policy. And this applies to a policy to which there are attached the

incidents of a loan value, cash surrender value, an automatic extension by premiums paid,

and to an endowment policy, as well as to an ordinary life insurance policy. If the husband

wishes to retain to himself the control and ownership of the policy he may so provide in the

policy. But if the policy co ntains no provision authorizing a change o f beneficiary without the

beneficiary's consent, the insured cannot make such change. Accordingly, it is held that a life

insurance policy of a husband made payable to the wife as beneficiary, is the separate

property of the beneficiary and beyond the control of the husband.

As to the effect produced by t he divorce, the Philippine Divorce Law, Act No. 2710, merely

provides in section 9 that th e decree of divorce shall dissolve the community property as

soon as such decree becomes final. Unlike the st atutes of a few jurisdictions, there is no

provision in the Philippine Law permitting the beneficiary in a policy for the benefit of the

wife of the husband to be changed after a divorce. It must follow, therefore, in the absence

of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is

named as beneficiary therein, a subsequent divorce does not destroy her rights under the

policy.

These are some of the pertinent principles of th e Law of Insurance. To reinforce them, we

would, even at the expense of clogging t he decision with unnecessary citation of authority,

bring to notice certain decisions which seem to us to have controlling influence.

To begin with, it is said that our Insurance Act is mostly taken from the statute of California.

It should prove of interest, therefore, to know the stand taken by the Supreme Court of that


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State. A California decision oft cited in the Cyclopedias is Yore vs. Booth([1895]), 110 Cal.,

238; 52 Am. St. Rep., 81), in which we find the following:

. . . It seems to be the settled doctrine, with but slight dissent in the courts of this

country, that a person who procures a policy upon his own life, payable to a

designated beneficiary, although he pays the premiums himself, and keeps the

policy in his exclusive possession, has no power to change the beneficiary, unless

the policy itself, or the charter of the insurance company, so provides. In policy,

although he has parted with nothing, and is simply the object of another's bounty,

has acquired a vested and irrevocable interest in the policy, which he may keep

alive for his own benefit by paying the premiums or assessments if the person who

effected the insurance fails or refuses to do so.

As carrying great weight, there should also be taken into account two decisions coming from

the Supreme Court of the United States. The first of these decisions, in point o f time, is

Connecticut Mutual Life Insurance Company vs Schaefer([1877]), 94 U.S., 457). There, Mr.

Justice Bradley, delivering the opinion of the court, in part said:

This was an action on a policy of the court, in part said: July 25, 1868, on the joint

lives of George F. and Francisca Schaefer, then husband and wife, payable to the

survivor on the death of either. In January, 1870, they were divorced, and alimony

was decreed and paid to the wife, and there was never any issue of the marriage.

They both subsequently married again, after which, in February, 1871, George F.

Schaefer died. This action was brought by Francisca, the survivor.

xxx xxx xxx

The other point, relating to the alleged cessation of insurable interest by reason of

the divorce of the parties, is entitled to more serious consideration, although we

have very little difficulty in disposing of it.

It will be proper, in the first place, to ascertain what is an insurable interest. It is

generally agreed that mere wager policies, that is, policies in which the insured

party has no interest in its loss or destruction, are void, as against public policy. . . .

But precisely what interest is necessary, in order to take a policy out of the

category of mere wager, has been the subject o f much discussion. In marine and

fire insurance the difficulty is not so great, because there insurance is considered as

strictly an indemnity. But in life insurance the loss can seldom be measured by

pecuniary values. Still, an interest of some sort in the insured life must exist. A man

cannot take out insurance on the life of a total stranger, nor on that of one who is

not so connected with him as to make the continuance of the life a matter of some

real interest to him.

It is well settled that a man has an insurable interest in his own life and in that of

his wife and children; a woman in the life of her husband; and the creditor in the

life of his debtor. Indeed it may be said generally that any reasonable expectation

of pecuniary benefit or advantage from the continued life of another creates an

insurable interest in such life. And there is no doubt that a man may effect an

insurance on his own life for the benefit of a relative or fried; or two or more

persons, on their joint lives, for the benefit of the survivor or survivors. The old

tontines were based substantially on this principle, and their validity has never

been called in question.

xxx xxx xxx

The policy in question might, in our opinion, be sustained as a joint insurance,

without reference to any other interest, or to the question whether the cessation

of interest avoids a policy good at its inception. We do not hesitate to say,

however, that a policy taken out in good faith and valid at its inception, is not

avoided by the cessation of the insurable interest, unless such be the necessary

effect of the provisions of the policy itself. . . .

. . . .In our judgment of life policy, originally valid, does not cease to be so by the

cessation of the assured party's interest in the life insured.

Another controlling decision of the United States Supreme Court is that of the Central

National Bank of Washington City vs. Hume([1888], 128 U.S., 134). Therein, Mr. Chief Justice

Fuller, as the organ of the court, announced the following doctrines:

We think it cannot be doubted that in the instance of contracts of insurance with a

wife or children, or both, upon their insurable interest in the life of the husband or

father, the latter, while they are living, can exercise no power of disposition over

the same without their consent, nor has he any interest therein of which he can

avail himself; nor upon his death have his personal representatives or his creditors

any interest in the proceeds of su ch contracts, which belong to the beneficiaries to

whom they are payable.

It is indeed the general rule that a policy, and the money to become due under it,

belong, the moment it is issued, to the person or persons named in it as the

beneficiary or beneficiaries, and that there is no power in the person procuring the

insurance, by any act of his, by deed or by will, to transfer to any other person the

interest of the person named.

A jurisdiction which found itself in somewhat the same situation as the Philippines, because

of having to reconcile the civil law with the more modern principles of insurance, is

Louisiana. In a case coming before the Federal Courts, In re Dreuil & Co.([1915]), 221 Fed.,

796), the facts were that an endowment insurance policy provided for payment of the

amount thereof at the expiration of twenty years to the insured, or his executors,

administrators, or assigns, with the proviso that, if the insured die within s uch period,

payment was to be made to his wife if she survive him. It was held that the wife has a vested

interest in the policy, of which she cannot be deprived without her consent. Foster, District

Judge, announced:

In so far as the law of Louisiana is concerned, it may also be considered settled that

where a policy is of the semitontine variety, as in this case, the beneficiary has a

vested right in the policy, o f which she cannot be deprived without her consent.

(Lambert vs Penn Mutual Life Ins. Co., 50 La. Ann., 1027; 24 South., 16.) (See in

same connection a leading decision of the Louisiana Supreme Court, Re Succession

of Leonce Desforges, [1914], 52 L.R.A. [N.S.], 689.)


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14/39

Life Insurance Co. ([1918], 183 Iowa, 658); with which compare Foster vs. Gile([1880], 50

Wis., 603) and Hatch vs. Hatch([1904], 35 Tex. Civ. App., 373).

On the admitted facts and the authorities supporting the nearly universally accepted

principles of insurance, we are irresistibly led to the conclusion that the question at issue

must be answered in the negative.

The judgment appealed from will be reversed and the complaint o rdered dismissed as to the

appellant, without special pronouncement as to the costs in either instance. So ordered.

G.R. No. L-28093 January 30, 1971

BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA LOURDES, JOSE, JR.,

RODRIGO, LINEDA and LUIS, all surnamed CONSUEGRA, petitioners-appellants,

vs.

GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER OF PUBLIC HIGHWAYS,

HIGHWAY DISTRICT ENGINEER OF SURIGAO DEL NORTE, COMMISSIONER OF CIVIL SERVICE,

and ROSARIO DIAZ, respondents-appellees.

Bernardino O. Almeda for petitioners-appellants.

Binag and Arevalo, Jr. for respondent-appellee Government Service Insurance System.

Office of the Solicitor General for other respondents-appellees.

ZALDIVAR,J.:

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao

del Norte, dated March 7, 1967, in its Special Proceeding No. 1720.

The pertinent facts, culled from the stipulation of facts submitted by the parties, are the

following:

The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the

office of the District Engineer in the province of Surigao del Norte. In his lifetime, Consuegra

contracted two marriages, the first with herein respondent Rosario Diaz, solemnized in the

parish church of San Nicolas de Tolentino, Surigao, Surigao, on July 15, 1937, o ut of which

marriage were born two children, namely, Jose Consuegra, Jr. and Pedro Consuegra, but both

predeceased their father; and the second, which was contracted in good faith while the first

marriage was subsisting, with herein petitioner Basilia Berdin, on May 1, 1957 in the same

parish and municipality, out of which marriage were born seven children, namely, Juliana,

Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all surnamed Consuegra.

Being a member of the Government Service Insurance System (GSIS, for short) when

Consuegra died on September 26, 1965, the proceeds of his life insurance under policy No.

601801 were paid by the GSIS to petitioner Basilia Berdin and her children who were the

beneficiaries named in the policy. Having been in the service of the government for 22.5028

years, Consuegra was entitled to retirement insurance benefits in the sum of P6,304.47

pursuant to Section 12(c) of Commonwealth Act 186 as amended by Republic Acts 1616 and

3836. Consuegra did not designate any beneficiary who wo uld receive the retirement

insurance benefits due to him. Respondent Rosario Diaz, the wido w by the first marriage,

filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the

only legal heir of Consuegra, considering that the deceased did not designate any beneficiary

with respect to his retirement insurance benefits. Petitioner Basilia Berdin and her children,

likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in

the life insurance policy of Consuegra, they are the only ones entitled to receive the

retirement insurance benefits due the deceased Consuegra. Resolving the conflicting claims,

the GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by

his first marriage who is entitled t o one-half, or 8/16, of the retirement insurance benefits,

on the one hand; and Basilia Berdin, his widow by the second marriage and their seven

children, on the other hand, who are entitled t o the remaining one-half, or 8/16, each of

them to receive an equal share of 1/16.

Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin

and her children1filed on October 10, 1966 a petition for mandamus with preliminary

injunction in the Court of First Instance of Surigao, naming as respondents the GSIS, the

Commissioner of Public Highways, the Highway District Engineer of Surigao del Norte, the

Commissioner of Civil Service, and Rosario Diaz, praying that they (petitioners therein) be

declared the legal heirs and exclusive beneficiaries of the retirement insurance of the late

Jose Consuegra, and that a writ of preliminary injunction be issued restraining the

implementation of the adjudication made by the GSIS. On October 26, 1966, the trial court

issued an order requiring therein respondents to file their r espective answers, but refrained

from issuing the writ of preliminary injunction prayed for. On February 11, 1967, the parties

submitted a stipulation of facts, prayed that t he same be admitted and approved and that

judgment be rendered on the basis of the stipulation of facts. On March 7, 1967, the court

below rendered judgment, the pertinent portions of which are qu oted hereunder:

This Court, in conformity with the foregoing stipulation of facts, likewise

is in full accord with the parties with respect to the authority cited by

them in support of said stipulation and which is herein-below cited for

purposes of this judgment, to wit:

"When two women innocently and in good faith are legally united in holy

matrimony to the same man, they and their children, born of said

wedlock, will be regarded as legitimate children and each family be

entitled to one half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739;

Estrella vs. Laong Masa, Inc., (CA) 39 OG 79; Pisalbon vs. Bejec, 74 Phil.

88.

WHEREFORE, in view of the above premises, this Court is of the o pinion

that the foregoing stipulation of facts is in order and in accordance with

law and the same is hereby approved. Judgment, therefore, is hereby

rendered declaring the petitioner Basilia Berdin Vda. de Consuegra and

her co-petitioners Juliana, Pacita, Maria Lourdes, Jose, Jr., Rodrigo, Lenida

and Luis, all surnamed Consuegra, beneficiary and entitled to one-half

(1/2) of the retirement benefit in the amount of Six Thousand Three


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Hundred Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the

deceased Jose Consuegra from the Government Service Insurance System

or the amount of P3,152.235 to be divided equally among them in the

proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz

Vda. de Consuegra is hereby declared beneficiary and entitled to the

other half of the retirement benefit of the late Jose Consuegra or the

amount of P3,152.235. The case with respect to the Highway District

Engineer of Surigao del Norte is hereby ordered dismissed.

Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.

It is the contention of appellants that the lower court erred in not holding that the

designated beneficiaries in the life insurance of the late Jose Consuegra are also the exclusive

beneficiaries in the retirement insurance of said deceased. In other words, it is the

submission of appellants that because the deceased Jose Consuegra failed to designate the

beneficiaries in his retirement insurance, the appellants who were the beneficiaries named in

the life insurance should automati

insurance batch 2.1

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