G.R. No.

198174 September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and its
accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;

(b)

by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or elevator.

xxxx
EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each and
every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown
in the Policy Schedule with a minimum deductible amount of Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions to Section
III," means loss due to injury or harm to person, property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus,
it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.

We do not agree.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning
of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties,
i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. However, when the terms
of the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular
provisions, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens Memorial
Park Corporation v. Philippine American Life Insurance Company,11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the
insurer from non-compliance with its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against
the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture.1

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.

Agustin M. Gramata for plaintiff and appellee.

BARRERA, J.:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of First Instance of Pangasinan (in Civ
Case No. U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death of the latter's son, to pay the burial expenses, and
attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of an accident insurance policy (No.
ITO-BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for the period beginning November 13, 1956 to November 12, 1957.
On January 1, 1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general
entertainment wherein the insured Eduardo de la Cruz, a non-professional boxer participated. In the course of his bout with another person,
likewise a non-professional, of the same height, weight, and size, Eduardo slipped and was hit by his opponent on the left part of the back of
the head, causing Eduardo to fall, with his head hitting the rope of the ring. He was brought to the Baguio General Hospital the following day.
The cause of death was reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon filed a claim with the insurance
company for payment of the indemnity under the insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of
First Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the death of the insured, caused by his
participation in a boxing contest, was not accidental and, therefore, not covered by insurance. After due hearing the court rendered the
decision in favor of the plaintiff which is the subject of the present appeal.

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which was unintentional. At this opportunity,
his opponent landed on Eduardo's head a blow, which sent the latter to the ropes. That must have caused the cranial injury that led to his
death. Eduardo was insured "against death or disability caused by accidental means". Appellant insurer now contends that while the death
of the insured was due to head injury, said injury was sustained because of his voluntary participation in the contest. It is claimed that the
participation in the boxing contest was the "means" that produced the injury which, in turn, caused the death of the insured. And, since his
inclusion in the boxing card was voluntary on the part of the insured, he cannot be considered to have met his death by "accidental means". 1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning, and are construed by the
courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously,
without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's
foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.1

Appellant however, would like to make a distinction between "accident or accidental" and "accidental means", which is the term used in the
insurance policy involved here. It is argued that to be considered within the protection of the policy, what is required to be accidental is
the means that caused or brought the death and not the death itself. It may be mentioned in this connection, that the tendency of court
decisions in the United States in recent years is to eliminate the fine distinction between the terms "accidental" and "accidental means" and
to consider them as legally synonymous.2 But, even if we take appellant's theory, the death of the insured in the case at bar would still be
entitled to indemnification under the policy. The generally accepted rule is that, death or injury does not result from accident or accidental
means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or
injury.3 There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening
occurs which produces or brings about the result of injury or death.4 In other words, where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death
is within the protection of policies insuring against death or injury from accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate incident, that is, the
unintentional slipping of the deceased, perhaps he could not have received that blow in the head and would not have died. The fact that
boxing is attended with some risks of external injuries does not make any injuries received in the course of the game not accidental. In boxing
as in other equally physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever
does, the injury or death can only be accidental or produced by some unforeseen happening or event as what occurred in this case.
Furthermore, the policy involved herein specifically excluded from its coverage —

(e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking, steeplechasing, polo-playing, racing
of any kind, mountaineering, or motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of the protection of the insurance contract.
Failure of the defendant insurance company to include death resulting from a boxing match or other sports among the prohibitive risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.5

Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with costs against appellant. so ordered.

G.R. No. L-16138 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16139 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16140 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
UNITED INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16141 April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant,
vs.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16142 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16143 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16144 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-16145 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
V. B. Gesunundo for plaintiff-appellant.
M. Perez Cardenas for defendant-appellee.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa, presiding, dismissing the actions filed in the
above-entitled cases.

The facts found by the trial court, which are not disputed in this appeal, are as follows:

At different times within a period of two months prior to December 24, 1953, the plaintiff herein Diosdado C. Ty, employed as operator
mechanic foreman in the Broadway Cotton Factory, in Grace Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself
in 18 local insurance companies, among which being the eight above named defendants, which issued to him personal accident
policies, upon payment of the premium of P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory,
which paid the insurance premiums.

On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting his way out of the factory,
plaintiff was injured on the left hand by a heavy object. He was brought to the Manila Central University hospital, and after receiving
first aid there, he went to the National Orthopedic Hospital for treatment of his injuries which were as follows:

1. Fracture, simple, proximal phalanx index finger, left;

2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx, simple;

3. Fracture, compound, comminute phalanx, 4th finger, left;

4. Fracture, simple, middle phalanx, middle finger, left;

5. Lacerated wound, sutured, volar aspect, small finger, left;

6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment in the Orthopedic Hospital from December
26, 1953 to February 8, 1954. The above-described physical injuries have caused temporary total disability of plaintiff's left hand.
Plaintiff filed the corresponding notice of accident and notice of claim with all of the abovenamed defendants to recover indemnity
under Part II of the policy, which is similarly worded in all of the policies, and which reads pertinently as follows:

INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

 If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and accidental means, and which
shall not prove fatal but shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in Total
or Partial Disability of the Insured, the Company shall pay, subject to the exceptions as provided for hereinafter, the amount set
opposite such injury:

PARTIAL DISABILITY

LOSS OF:

xxx xxx xxx

Either hand ............................................................................ P650.00

xxx xxx xxx

... The loss of a hand shall mean the loss by amputation through the bones of the wrist....

Defendants rejected plaintiff's claim for indemnity for the reason that there being no severance of amputation of the left hand, the
disability suffered by him was not covered by his policy. Hence, plaintiff sued the defendants in the Municipal Court of this City, and
from the decision of said Court dismissing his complaints, plaintiff appealed to this Court. (Decision of the Court of First Instance of
Manila, pp. 223-226, Records).

In view of its finding, the court absolved the defendants from the complaints. Hence this appeal.

The main contention of appellant in these cases is that in order that he may recover on the insurance policies issued him for the loss of his
left hand, it is not necessary that there should be an amputation thereof, but that it is sufficient if the injuries prevent him from performing his
work or labor necessary in the pursuance of his occupation or business. Authorities are cited to the effect that "total disability" in relation to
one's occupation means that the condition of the insurance is such that common prudence requires him to desist from transacting his business
or renders him incapable of working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should be interpreted against the
person who caused the obscurity, and the ones which caused the obscurity in the cases at bar are the defendant insurance companies.

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the clear and express
conditions of the insurance policies, all of which define partial disability as loss of either hand by amputation through the bones of the wrist."
There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was that the physical
injuries "caused temporary total disability of plaintiff's left hand." Note that the disability of plaintiff's hand was merely temporary, having been
caused by fracture of the index, the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties. As the terms of the policies are clear,
express and specific that only amputation of the left hand should be considered as a loss thereof, an interpretation that would include the
mere fracture or other temporary disability not covered by the policies would certainly be unwarranted

G.R. No. 167330 June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

CORONA, J.:

Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under
Section 185 of Republic Act 8424 (Tax Code of 1997)?

This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16, 2004 decision 1 in CA-G.R. SP
No. 70479. Petitioner Philippine Health Care Providers, Inc. believes otherwise and assails the CA decision in this petition for review under
Rule 45 of the Rules of Court.

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial responsibilities of the organization."2 Individuals enrolled in its health care programs pay
an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.3

The pertinent part of petitioner's membership or health care agreement4 provides:

VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for reimbursement] of this Agreement, Members shall
have the following Benefits under this Agreement:

In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which requires confinement in a participating
Hospital[,] the services or benefits stated below shall be provided to the Member free of charge, but in no case shall [petitioner] be
liable to pay more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If a member has exhausted
such maximum benefits with respect to a particular sickness, injury or related causes, all accounts in excess of P75,000.00 shall be
borne by the enrollee. It is[,] however, understood that the payment by [petitioner] of the said maximum in In-Patient Benefits to any
one member shall preclude a subsequent payment of benefits to such member in respect of an unrelated sickness, injury or related
causes happening during the remainder of his membership term.

(a) Room and Board

(b) Services of physician and/or surgeon or specialist

(c) Use of operating room and recovery room

(d) Standard Nursing Services

(e) Drugs and Medication for use in the hospital except those which are used to dissolve blood clots in the vascular systems
(i.e., trombolytic agents)

(f) Anesthesia and its administration

(g) Dressings, plaster casts and other miscellaneous supplies

(h) Laboratory tests, x-rays and other necessary diagnostic services

(i) Transfusion of blood and other blood elements

Condition for in-Patient Care. The provision of the services or benefits mentioned in the immediately preceding paragraph shall be
subject to the following conditions:

(a) The Hospital Confinement must be approved by [petitioner's] Physician, Participating Physician or [petitioner's] Medical
Coordinator in that Hospital prior to confinement.
 (b) The confinement shall be in a Participating Hospital and the accommodation shall be in accordance with the Member[']s
benefit classification.

(c) Professional services shall be provided only by the [petitioner's] Physicians or Participating Physicians.

(d) If discharge from the Hospital has been authorized by [petitioner's] attending Physician or Participating Physician and the
Member shall fail or refuse to do so, [petitioner] shall not be responsible for any charges incurred after discharge has been
authorized.

Out-Patient Services. A Member is entitled free of charge to the following services or benefits which shall be rendered or
administered either in [petitioner's] Clinic or in a Participating Hospital under the direction or supervision of [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator.

(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at [petitioner's]
designated hospital/clinic, to wit:

(i) Taking a medical history

(ii) Physical examination

(iii) Chest x-ray

(iv) Stool examination

(v) Complete Blood Count

(vi) Urinalysis

(vii) Fasting Blood Sugar (FBS)

(viii) SGPT

(ix) Creatinine

(x) Uric Acid

 (xi) Resting Electrocardiogram

(xii) Pap Smear (Optional for women 40 years and above)

(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination.

The following tests are to be done as part of the Member[']s Annual check-up program at [petitioner's] designated clinic, to
wit:

1) Routine Physical Examination

2) CBC (Complete Blood Count)

* Hemoglobin * Hematocrit

* Differential * RBC/WBC

3) Chest X-ray

4) Urinalysis

5) Fecalysis

(c) Preventive Health Care, which shall include:

(i) Periodic Monitoring of Health Problems

(ii) Family planning counseling

(iii) Consultation and advices on diet, exercise and other healthy habits

(iv) Immunization but excluding drugs for vaccines used

(d) Out-Patient Care, which shall include:

(i) Consultation, including specialist evaluation

 (ii) Treatment of injury or illness

(iii) Necessary x-ray and laboratory examination

(iv) Emergency medicines needed for the immediate

relief of symptoms

(v) Minor surgery not requiring confinement

Emergency Care. Subject to the conditions and limitations in this Agreement and those specified below, a Member is entitled to
receive emergency care [in case of emergency. For this purpose, all hospitals and all attending physician(s) in the Emergency Room
automatically become accredited. In participating hospitals, the member shall be entitled to the following services free of charge: (a)
doctor's fees, (b) emergency room fees, (c) medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids
and whole blood and human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and diagnostic examinations
and other medical services related to the emergency treatment of the patient.]5 Provided, however, that in no case shall the total
amount payable by [petitioner] for said Emergency, inclusive of hospital bill and professional fees, exceed P75,000.00.

If the Member received care in a non-participating hospital, [petitioner] shall reimburse [him]6 80% of the hospital bill or the amount of
P5,000.00[,] whichever is lesser, and 50% of the professional fees of non-participating physicians based on [petitioner's] schedule of
fees provided that the total amount[,] inclusive of hospital bills and professional fee shall not exceed P5,000.00.

On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in
the total amount of P224,702,641.18. The assessment represented the following:

Value Added Tax (VAT) DST

1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.92

The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant
to Section 185 of the 1997 Tax Code which provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation
 transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on
all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other
public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits,
which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of
fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition
for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of which read:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to
PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully
paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully
paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and
1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST
from collecting the said DST deficiency tax.

SO ORDERED.8

Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST assessment. He claimed that petitioner's health care
agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care agreement was in the nature of a non-life insurance
contract subject to DST:

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside
the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is
REVERSED and SET ASIDE.

Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996
and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections
248 and 249 of the Tax Code, until the same shall have been fully paid.

SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.

Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a prepaid basis
of medical services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the
insurance business. It is a health maintenance organization regulated by the Department of Health, not an insurance company under the
jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care agreement is not subject to DST.

We do not agree.

The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments.12 It is an excise upon the privilege, opportunity, or facility offered at exchanges for
the transaction of the business.13 In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making
or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for
loss, damage, or liability.

Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.14 The event insured against must be designated in the contract and must
either be unknown or contingent.15

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 this
Court ruled that a health care agreement is in the nature of a non-life insurance policy.

Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical services. Petitioner does not actually
provide medical or hospital services but merely arranges for the same17 and pays for them up to the stipulated maximum amount of coverage.
It is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner
assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The
term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the
member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies
belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than
what the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons
bearing a similar risk, that is, among all the other members of the health care program. This is insurance.

Petitioner's health care agreement is substantially similar to that involved in Philamcare Health Systems, Inc. v. CA.18 The health care
agreement in that case entitled the subscriber to avail of the hospitalization benefits, whether ordinary or emergency, listed therein. It also
provided for "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. This Court
ruled in Philamcare Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own health. The health care agreement
was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingency, the health care provider must pay for the same to
the extent agreed upon under the contract.19 (emphasis supplied)

Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health.
Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency to the extent agreed upon under the contract.

Petitioner's contention that it is a health maintenance organization and not an insurance company is irrelevant. Contracts between companies
like petitioner and the beneficiaries under their plans are treated as insurance contracts.20

Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the
transaction of the business.21 It is an excise on the facilities used in the transaction of the business, separate and apart from the business
itself.22

WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is AFFIRMED.

Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency documentary stamp tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000 until full payment thereof.

Costs against petitioner.

SO ORDERED.
G.R. No. 154514. July 28, 2005

WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., Respondents.

DECISION

QUISUMBING, J.:

This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation
of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker.

The facts are undisputed.

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
White Gold was issued a Certificate of Entry and Acceptance.3Pioneer also issued receipts evidencing payments for the coverage. When
White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter’s unpaid balance. White Gold
on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,63007 and 3018 in relation to Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was
not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I
Clubs vis-à-vis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON
THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP
IS ENGAGED IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING
ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
AND DIRECTORS OF RESPONDENT PIONEER.9

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does
Pioneer need a license as an insurance agent/broker for Steamship Mutual?

The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in the Philippines
although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it cites the definition
of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an association composed of shipowners in general who band together
for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in
favor of third parties." It stresses that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines. It is
merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court
over Hyopsung.

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting an insurance business".
These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of
this Code.

...

The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or
that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.12

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed,
and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.14

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine
adventure.15 Section 9916 of the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members
all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the
profits are divided among themselves, in proportion to their interest.17 Additionally, mutual insurance associations, or clubs, provide three
types of coverage, namely, protection and indemnity, war risks, and defense costs.18

A P & I Club is "a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the
members."19 By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance
business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section
18720 of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note
that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing
business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance company is allowed
to engage in the insurance business without a license or a certificate of authority from the Insurance Commission.21

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 issued by the Insurance Commission. It
has been licensed to do or transact insurance business by virtue of the certificate of authority23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.24

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.
Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive
for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of
January, or within six months thereafter. . .

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers. Regrettably, we are not the
forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated
May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do
business as insurer and insurance agent, respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,

vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1 dated May 17, 1993, of the Court of Appeals and its
Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE CORPORATION as
insurer under its Group policy No. G-1907, in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims for damages, attorney's fees and litigation expenses in the complaint
and counterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs, other than the
widow-beneficiary, for lack of cause of action. 3

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance
plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes,
lung; kidney or stomach disorder or any other physical impairment?

Answer: No. If so give details _____________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [x] Yes [ ] NO. 4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage
indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. 1âwphi 1.nêt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on November 15,
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." 5During the trial, Dr. Hernando Mejia, who issued
the death certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the respondent widow, stated that
Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was
not autopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial court's decision. Hence, the present petition. Petitioners interposed the following assigned errors:

1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE DEVELOPMENT

BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE
PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND
WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE
AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF JURISDICTION OVER
THE SUBJECT OR NATURE OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
 3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP THE
AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE
ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT
WITH DEFENDANT-APPELLANT.

4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM
ARISING FROM THE DEATH OF WILFREDO LEUTERIO. 6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension,
which would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two
hundred (P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to
DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired
no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court's judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale
of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both
the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment
of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. 7 In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. 8 Consequently, where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to be
a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest
of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event
of the debtor's death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor." 10 When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:

Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * * * Subject
to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person
named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. * *
* Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially where the mortgagee's interest is less than the full amount
recoverable under the policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or
has assigned as collateral security any judgment he may obtain. 13

And since 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 it whatever the insured might have recovered, 14the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death. Concealment exists
where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the widow
of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital
record, and that the widow's declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the
attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
certificate stated that hypertension was only "the possible cause of death." The private respondent's statement, as to the medical history of
her husband, was due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by the trial
court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted
a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the
death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this report, the
appellant insurance company refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact
that he had hypertension.

Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from
the statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to Dr. Leuterio's medical history . . .

xxx xxx xxx

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot refuse
payment of the claim. 17

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. 18Misrepresentation as a
defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence
rests upon the insurer. 19 In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance. 1âwphi1.nêt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for private respondent's failure to establish the
same, the action for specific performance should be dismissed. Petitioner's claim is without merit. A life insurance policy is a valued
policy. 20 Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy. 21 The mortgagor paid the premium according to the coverage of his insurance,
which states that:

The policy states that upon receipt of due proof of the Debtor's death during the terms of this insurance, a death benefit in the
amount of P86,200.00 shall be paid.

In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall then be
paid to the beneficiary/ies designated by the debtor." 22(Emphasis omitted)

However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent's memorandum, she states
that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after
it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED
with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs against petitioner. 1âw phi1.nêt

SO ORDERED.

G.R. No. 112329 January 28, 2000

VIRGINIA A. PEREZ, petitioner,

vs.
COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION, respondents.

YNARES-SANTIAGO, J.:

A contract of insurance, like all other contracts, must be assented to by both parties, either in person or through their agents and so long as
an application for insurance has not been either accepted or rejected, it is merely a proposal or an offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in CA-G.R. CV 35529 entitled, "BF Lifeman
Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez. Defendant-Appellee," which declared Insurance Policy 056300 for
P50,000.00 issued by private respondent corporation in favor of the deceased Primitivo B. Perez, null and void and rescinded, thereby
reversing the decision rendered by the Regional Trial Court of Manila, Branch XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. Sometime in October 1987, an
agent of the insurance corporation, Rodolfo Lalog, visited Perez in Guinayangan, Quezon and convinced him to apply for additional insurance
coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually. 1âwphi1.nêt

On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional insurance coverage of P50,000.00. On the same
day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a
"deposit."1 Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up
another application form.2 On November 1, 1987, Perez was made to undergo the required medical examination, which he passed.3

Pursuant to the established procedure of the company, Lalog forwarded the application for additional insurance of Perez, together with all its
supporting papers, to the office of BF Lifeman Insurance Corporation at Gumaca, Quezon which office was supposed to forward the papers
to the Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a storm. At the time of his death, his
application papers for the additional insurance of P50,000.00 were still with the Gumaca office. Lalog testified that when he went to follow up
the papers, he found them still in the Gumaca office and so he personally brought the papers to the Manila office of BF Lifeman Insurance
Corporation. It was only on November 27, 1987 that said papers were received in Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the
corresponding policy for the P50,000.00 on December 2, 1987.4

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under
the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under
the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance
policy. In its letter' of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not
been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which
Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint against Virginia A. Perez seeking the
rescission and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the
elements of a valid contract are present. She then filed a counterclaim against private respondent for the collection of P150,000.00 as actual
damages, P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and P10,000.00 as expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant Virginia A. Perez, ordering the plaintiff
BF Lifeman Insurance Corporation to pay to her the face value of BF Lifeman Insurance Policy No. 056300, plus double indemnity
under the SARDI or in the total amount of P150,000.00 (any refund made and/or premium deficiency to be deducted therefrom).

SO ORDERED.5

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00 had been fully paid and even if the
sum of P2,075.00 were to be considered merely as partial payment, the same does not affect the validity of the policy. The trial court further
stated that the deceased had fully complied with the requirements of the insurance company. He paid, signed the application form and passed
the medical examination. He should not be made to suffer the subsequent delay in the transmittal of his application form to private
respondent's head office since these were no longer within his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance contract for P50,000.00 could not have been
perfected since at the time that the policy was issued, Primitivo was already dead.6Citing the provision in the application form signed by
Primitivo which states that:

. . . there shall be no contract of insurance unless and until a policy is issued on this application and that the policy shall not take
effect until the first premium has been paid and the policy has been delivered to and accepted by me/us in person while I/we, am/are
in good health

the Court of Appeals held that the contract of insurance had to be assented to by both parties and so long as the application for insurance
has not been either accepted or rejected, it is merely an offer or proposal to make a contract.

Petitioner's motion for reconsideration having been denied by respondent court, the instant petition for certiorari was filed on the ground that
there was a consummated contract of insurance between the deceased and BF Lifeman Insurance Corporation and that the condition that
the policy issued by the corporation be delivered and received by the applicant in good health, is potestative, being dependent upon the will
of the insurance company, and is therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject
by specified perils.7 A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to
the other to give something or to render some service.8 Under Article 1318 of the Civil Code, there is no contract unless the following requisites
concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was
subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the
deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form:

there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take
effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good
health.9

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form
and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under
the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health
that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were
still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog
personally delivered the application papers to the head office in Manila. Consequently, there was absolutely no way the acceptance of the
application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead.
In the case of Enriquez vs.Sun Life Assurance Co. of Canada,10 recovery on the life insurance of the deceased was disallowed on the ground
that the contract for annuity was not perfected since it had not been proved satisfactorily that the acceptance of the application ever reached
the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been delivered to and accepted by the
proposed insured in good health is potestative being dependent upon the will of the corporation and is therefore null and void.
We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is considered void. Article 1182 of the New
Civil Code states: When the fulfillment of the condition depends upon the sole will the debtor, the conditional obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the perfection of the contract of insurance:

(a) a policy must have been issued;

(b) the premiums paid; and

(c) the policy must have been delivered to and accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant while he is in good health
can hardly be considered as a potestative or facultative condition. On the contrary, the health of the applicant at the time of the delivery of
the policy is beyond the control or will of the insurance company. Rather, the condition is a suspensive one whereby the acquisition of rights
depends upon the happening of an event which constitutes the condition. In this case, the suspensive condition was the policy must have
been delivered and accepted by the applicant while he is in good health. There was non-fulfillment of the condition, however, inasmuch as
the applicant was already dead at the time the policy was issued. Hence, the non-fulfillment of the condition resulted in the non-perfection of
the contract.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. So long
as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to
be binding from the date of application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties
have met in agreement.11

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It should be noted that an application is a
mere offer which requires the overt act of the insurer for it to ripen into a contract. Delay in acting on the application does not constitute
acceptance even though the insured has forwarded his first premium with his application. The corporation may not be penalized for the delay
in the processing of the application papers. Moreover, while it may have taken some time for the application papers to reach the main office,
in the case at bar, the same was acted upon less than a week after it was received. The processing of applications by respondent corporation
normally takes two to three weeks, the longest being a month.12 In this case, however, the requisite medical examination was undergone by
the deceased on November 1, 1987; the application papers were forwarded to the head office on November 27, 1987; and the policy was
issued on December 2, 1987. Under these circumstances, we hold that the delay could not be deemed unreasonable so as to constitute
gross negligence.
A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy 056300 for P50,000.00 null and void and
rescinded. The Court of Appeals corrected this in its Resolution of the motion for reconsideration filed by petitioner, thus:

Anent the appearance of the word "rescinded" in the dispositive portion of the decision, to which defendant-appellee attaches undue
significance and makes capital of, it is clear that the use of the words "and rescinded" is, as it is hereby declared, a superfluity. It is
apparent from the context of the decision that the insurance policy in question was found null and void, and did not have to be
"rescinded".13

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no contract at all and hence could not be
the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED insofar as it declared Insurance Policy
No. 056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of no force and effect and hence null and void. No costs

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant life
insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff
appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company's Manila office and
was given a receipt reading as follows:

MANILA, I. F., 26 de septiembre, 1917.

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer
hoy, sujeta al examen medico y aprobacion de la Oficina Central de la Compañia.

The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26, 1917, the head office
gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office of
Herrer that the application had been accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was issued
at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to
withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention
to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of acceptance of his application. To resolve
this question, we propose to go directly to the evidence of record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he manager, he new nothing of what became of it. The
local manager, Mr. White, testified to having received the cablegram accepting the application of Mr. Herrer from the home office on November
26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after
being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had every
actually been placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the defense,
attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application
for a life annuity, and that he said that the only document relating to the transaction in his possession was the provisional receipt. Rafael
Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found no letter of notification
from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his application had
been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be applied to the facts. In order to reach
our legal goal, the obvious signposts along the way must be noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the Code of Commerce and the Civil Code.
In the Code of the Commerce, there formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with insurance
contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and life annuities,
respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No. 2427. Chapter IV of this
Act concerns life and health insurance. The Act expressly repealed Title VIII of Book II and Section III of Title III of Book III of the code of
Commerce. The law of insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be followed in order that there may be a
contract of insurance. On the other hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly similar to the
one we are considering, but in two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of the
Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of this
Code." On the supposition, therefore, which is incontestable, that the special law on the subject of insurance is deficient in enunciating the
principles governing acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article
1262 providing that "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are
to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his
knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made." This latter article is
in opposition to the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion, then the only duty remaining is for the
court to apply the law as it is found. The legislature in its wisdom having enacted a new law on insurance, and expressly repealed the
provisions in the Code of Commerce on the same subject, and having thus left a void in the commercial law, it would seem logical to make
use of the only pertinent provision of law found in the Civil code, closely related to the chapter concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge,
may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to
security. Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it is identical with the principles
announced by a considerable number of respectable courts in the United States. The courts who take this view have expressly held that an
acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing
of acceptance, it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed
beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)

In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an
acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1)
There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company;
and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head
office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent
in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter
of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as
announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a
rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course
of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed
to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant. lawph!l .net

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with legal interest from November 20,
1918, until paid, without special finding as to costs in either instance. So ordered.

G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

DECISION

VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as
approval of the application?

The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as
Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended
upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid
balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for
insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be
required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability
satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears
up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller.
Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not approved by the Company.3

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to the claim were
the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen;
(3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documents relative to its insurance
claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3) Application for
Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife on November 15,
1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986,9 a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982
for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to
his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health
shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under
the policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had
been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after
his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was
a party to the Contract and was therefore aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us
in trust for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums
which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil
Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE,
ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang,
plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, as testified to by Eternal’s
witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms &
Cert."10 It further ruled that due to Philamlife’s inaction from the submission of the requirements of the group insurance on December 29, 1982
to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the same period, Philamlife was deemed to
have approved Chuang’s application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment
must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and the
complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated December 29, 1982. It
further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has
decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang;

II. There was no valid insurance coverage; and

 III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court’s Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering
their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v.
Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or
its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings
of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.12(Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance
application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of insurable interests of buyers for October 1982
was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding
"Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15,
1983. Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before
his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing
that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife,
which must prove that the letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed
to have received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter
are correct and accounted for.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in the
best position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses’
demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted,14 that, if considered, might affect
the result of the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony
of Edilberto Mendoza:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of
Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the number
of copy.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]
 A As far as I remember I do not know where the original but when I submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals are attached therein.16

In other words, the witness admitted not knowing where the original insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor inconsistencies that do not affect
the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of
witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed.17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a whole or reflect on the
witnesses’ honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and coherent whole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December
10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the
insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears
to require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor
of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor
of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way as to preclude the insurer from noncompliance with its obligations.19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor
of the insured, especially to avoid forfeiture.20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of
the insured and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the
mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of
the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts
are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must
be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE.
The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment
of this award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs.

G.R. No. 158085 October 14, 2005

REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.

DECISION

PANGANIBAN, J.:

aving satisfactorily proven to the Court of Tax Appeals, to the Court of Appeals and to this Court that it is a bona fide cooperative, respondent
is entitled to exemption from the payment of taxes on life insurance premiums and documentary stamps. Not being governed by the
Cooperative Code of the Philippines, it is not required to be registered with the Cooperative Development Authority in order to avail itself of
the tax exemptions. Significantly, neither the Tax Code nor the Insurance Code mandates this administrative registration.

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the January 23, 2003 Decision2 and the April 21,
2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 69125. The dispositive portion of the Decision reads as follows:

"WHEREFORE, the petition for review is hereby DENIED."4

The Facts

The antecedents, as narrated by the CA, are as follows:

"Sun Life is a mutual life insurance company organized and existing under the laws of Canada. It is registered and authorized by the Securities
and Exchange Commission and the Insurance Commission to engage in business in the Philippines as a mutual life insurance company with
principal office at Paseo de Roxas, Legaspi Village, Makati City.

"On October 20, 1997, Sun Life filed with the [Commissioner of Internal Revenue] (CIR) its insurance premium tax return for the third quarter
of 1997 and paid the premium tax in the amount of ₱31,485,834.51. For the period covering August 21 to December 18, 1997, petitioner filed
with the CIR its [documentary stamp tax (DST)] declaration returns and paid the total amount of ₱30,000,000.00.

"On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which held that
mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. This
pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life
insurance company, it was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the
CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods.

"For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund
dwindling away and about to expire, Sun Life filed with the CTA a petition for review on August 23, 1999. In its petition, it prayed for the
issuance of a tax credit certificate in the amount of ₱61,485,834.51 representing ₱31,485,834.51 of erroneously paid premium tax for the
third quarter of 1997 and ₱30,000[,000].00 of DST on policies of insurance from August 21 to December 18, 1997. Sun Life stood firm on its
contention that it is a mutual life insurance company vested with all the characteristic features and elements of a cooperative company or
association as defined in [S]ection 121 of the Tax Code. Primarily, the management and affairs of Sun Life were conducted by its members;
secondly, it is operated with money collected from its members; and, lastly, it has for its purpose the mutual protection of its members and
not for profit or gain.

"In its answer, the CIR, then respondent, raised as special and affirmative defenses the following:

‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to administrative routinary investigation/examination by respondent’s (CIR’s)
Bureau.
‘8. Petitioner must prove that it falls under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and be entitled to the refund sought.

‘9. Claims for tax refund/credit are construed strictly against the claimants thereof as they are in the nature of exemption from payment of tax.

‘10. In an action for tax credit/refund, the burden is upon the taxpayer to establish its right thereto, and failure to sustain this burden is fatal to
said claim x x x.

‘11. It is incumbent upon petitioner to show that it has complied with the provisions of Section 204[,] in relation to Section 229, both in the
1997 Tax Code.’

"On November 12, 2002, the CTA found in favor of Sun Life. Quoting largely from its earlier findings in Insular Life Assurance Company, Ltd.
v. [CIR], which it found to be on all fours with the present action, the CTA ruled:

‘The [CA] has already spoken. It ruled that a mutual life insurance company is a purely cooperative company[;] thus, exempted from the
payment of premium and documentary stamp taxes. Petitioner Sun Life is without doubt a mutual life insurance company. x x x.

‘xxxxxxxxx

‘Being similarly situated with Insular, Petitioner at bar is entitled to the same interpretation given by this Court in the earlier cases of The
Insular Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and 5601) and by the [CA] in the case entitled [CIR] vs. The Insular
Life Assurance Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner Sun Life as a mutual life insurance company is[,]
therefore[,] a cooperative company or association and is exempted from the payment of premium tax and [DST] on policies of insurance
pursuant to Section 121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the Tax Code.’

"Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative
Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or
associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could not avail of the exemptions prayed for. Moreover,
the CIR alleged that Sun Life failed to prove that ownership of the company was vested in its members who are entitled to vote and elect the
Board of Trustees among [them]. The CIR further claimed that change in the 1997 Tax Code subjecting mutual life insurance companies to
the regular corporate income tax rate reflected the legislature’s recognition that these companies must be earning profits.

"Notwithstanding these arguments, the CTA denied the CIR’s motion for reconsideration.

"Thwarted anew but nonetheless undaunted, the CIR comes to this court via this petition on the sole ground that:
‘The Tax Court erred in granting the refund[,] because respondent does not fall under the exception provided for under Section 121 (now
123) of the Tax Code to be exempted from premium tax and DST and be entitled to the refund.’

"The CIR repleads the arguments it raised with the CTA and proposes further that the [CA] decision in [CIR] v. Insular Life Assurance
Company, Ltd. is not controlling and cannot constitute res judicata in the present action. At best, the pronouncements are merely persuasive
as the decisions of the Supreme Court alone have a universal and mandatory effect."5

Ruling of the Court of Appeals

In upholding the CTA, the CA reasoned that respondent was a purely cooperative corporation duly licensed to engage in mutual life insurance
business in the Philippines. Thus, respondent was deemed exempt from premium and documentary stamp taxes, because its affairs are
managed and conducted by its members with money collected from among themselves, solely for their own protection, and not for profit. Its
members or policyholders constituted both insurer and insured who contribute, by a system of premiums or assessments, to the creation of
a fund from which all losses and liabilities were paid. The dividends it distributed to them were not profits, but returns of amounts that had
been overcharged them for insurance.

For having satisfactorily shown with substantial evidence that it had erroneously paid and seasonably filed its claim for premium and
documentary stamp taxes, respondent was entitled to a refund, the CA ruled.

Hence, this Petition.6

The Issues

Petitioner raises the following issues for our consideration:

"I.

"Whether or not respondent is a purely cooperative company or association under Section 121 of the National Internal Revenue Code and a
fraternal or beneficiary society, order or cooperative company on the lodge system or local cooperation plan and organized and conducted
solely by the members thereof for the exclusive benefit of each member and not for profit under Section 199 of the National Internal Revenue
Code.

"II.

"Whether or not registration with the Cooperative Development Authority is a sine qua non requirement to be entitled to tax exemption.
"III.

"Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax."7

We shall tackle the issues seriatim.

The Court’s Ruling

The Petition has no merit.

First Issue:

Whether Respondent Is a Cooperative

The Tax Code defines a cooperative as an association "conducted by the members thereof with the money collected from among themselves
and solely for their own protection and not for profit."8 Without a doubt, respondent is a cooperative engaged in a mutual life insurance
business.

First, it is managed by its members. Both the CA and the CTA found that the management and affairs of respondent were conducted by its
member-policyholders.9

A stock insurance company doing business in the Philippines may "alter its organization and transform itself into a mutual insurance
company."10 Respondent has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance
corporation11 pursuant to Section 266 of the Insurance Code of 1978.12 On the basis of its bylaws, its ownership has been vested in its
member-policyholders who are each entitled to one vote;13and who, in turn, elect from among themselves the members of its board of
trustees.14 Being the governing body of a nonstock corporation, the board exercises corporate powers, lays down all corporate business
policies, and assumes responsibility for the efficiency of management.15

Second, it is operated with money collected from its members. Since respondent is composed entirely of members who are also its
policyholders, all premiums collected obviously come only from them.16

The member-policyholders constitute "both insurer and insured"17 who "contribute, by a system of premiums or assessments, to the creation
of a fund from which all losses and liabilities are paid."18 The premiums19 pooled into this fund are earmarked for the payment of their indemnity
and benefit claims.

Third, it is licensed for the mutual protection of its members, not for the profit of anyone.
As early as October 30, 1947, the director of commerce had already issued a license to respondent -- a corporation organized and existing
under the laws of Canada -- to engage in business in the Philippines.20 Pursuant to Section 225 of Canada’s Insurance Companies Act, the
Canadian minister of state (for finance and privatization) also declared in its Amending Letters Patent that respondent would be a mutual
company effective June 1, 1992.21 In the Philippines, the insurance commissioner also granted it annual Certificates of Authority to transact
life insurance business, the most relevant of which were dated July 1, 1997 and July 1, 1998.22

A mutual life insurance company is conducted for the benefit of its member-policyholders,23 who pay into its capital by way of premiums. To
that extent, they are responsible for the payment of all its losses.24 "The cash paid in for premiums and the premium notes constitute their
assets x x x."25 In the event that the company itself fails before the terms of the policies expire, the member-policyholders do not acquire the
status of creditors.26 Rather, they simply become debtors for whatever premiums that they have originally agreed to pay the company, if they
have not yet paid those amounts in full, for "[m]utual companies x x x depend solely upon x x x premiums."27 Only when the premiums will
have accumulated to a sum larger than that required to pay for company losses will the member-policyholders be entitled to a "pro rata division
thereof as profits."28

Contributing to its capital, the member-policyholders of a mutual company are obviously also its owners.29Sustaining a dual relationship inter
se, they not only contribute to the payment of its losses, but are also entitled to a proportionate share30 and participate alike31 in its profits and
surplus.

Where the insurance is taken at cost, it is important that the rates of premium charged by a mutual company be larger than might reasonably
be expected to carry the insurance, in order to constitute a margin of safety. The table of mortality used will show an admittedly higher death
rate than will probably prevail; the assumed interest rate on the investments of the company is made lower than is expected to be realized;
and the provision for contingencies and expenses, made greater than would ordinarily be necessary.32 This course of action is taken, because
a mutual company has no capital stock and relies solely upon its premiums to meet unexpected losses, contingencies and expenses.

Certainly, many factors are considered in calculating the insurance premium. Since they vary with the kind of insurance taken and with the
group of policyholders insured, any excess in the amount anticipated by a mutual company to cover the cost of providing for the insurance
over its actual realized cost will also vary. If a member-policyholder receives an excess payment, then the apportionment must have been
based upon a calculation of the actual cost of insurance that the company has provided for that particular member-policyholder. Accordingly,
in apportioning divisible surpluses, any mutual company uses a contribution method that aims to distribute those surpluses among its member-
policyholders, in the same proportion as they have contributed to the surpluses by their payments.33

Sharing in the common fund, any member-policyholder may choose to withdraw dividends in cash or to apply them in order to reduce a
subsequent premium, purchase additional insurance, or accelerate the payment period. Although the premium made at the beginning of a
year is more than necessary to provide for the cost of carrying the insurance, the member-policyholder will nevertheless receive the benefit
of the overcharge by way of dividends, at the end of the year when the cost is actually ascertained. "The declaration of a dividend upon a
policy reduces pro tanto the cost of insurance to the holder of the policy. That is its purpose and effect."34
A stipulated insurance premium "cannot be increased, but may be lessened annually by so much as the experience of the preceding year
has determined it to have been greater than the cost of carrying the insurance x x x."35 The difference between that premium and the cost of
carrying the risk of loss constitutes the so-called "dividend" which, however, "is not in any real sense a dividend."36 It is a technical term that
is well understood in the insurance business to be widely different from that to which it is ordinarily attached.

The so-called "dividend" that is received by member-policyholders is not a portion of profits set aside for distribution to the stockholders in
proportion to their subscription to the capital stock of a corporation.37 One, a mutual company has no capital stock
to which subscription is necessary; there are no stockholders to speak of, but only members. And, two, the amount they receive does not
partake of the nature of a profit or income. The quasi-appearance of profit will not change its character. It remains an overpayment, a benefit
to which the member-policyholder is equitably entitled.38

Verily, a mutual life insurance corporation is a cooperative that promotes the welfare of its own members. It does not operate for profit, but
for the mutual benefit of its member-policyholders. They receive their insurance at cost, while reasonably and properly guarding and
maintaining the stability and solvency of the company.39 "The economic benefits filter to the cooperative members. Either equally or
proportionally, they are distributed among members in correlation with the resources of the association utilized."40

It does not follow that because respondent is registered as a nonstock corporation and thus exists for a purpose other than profit, the company
can no longer make any profits.41 Earning profits is merely its secondary, not primary, purpose. In fact, it may not lawfully engage in any
business activity for profit, for to do so would change or contradict its nature42 as a non-profit entity.43 It may, however, invest its corporate
funds in order to earn additional income for paying its operating expenses and meeting benefit claims. Any excess profit it obtains as an
incident to its operations can only be used, whenever necessary or proper, for the furtherance of the purpose for which it was organized.44

Second Issue:

Whether CDA Registration Is Necessary

Under the Tax Code although respondent is a cooperative, registration with the Cooperative Development Authority (CDA)45 is not necessary
in order for it to be exempt from the payment of both percentage taxes on insurance premiums, under Section 121; and documentary stamp
taxes on policies of insurance or annuities it grants, under Section 199.

First, the Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company to register with that
agency in order to enjoy exemption from both percentage and documentary stamp taxes.

A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 requires the submission of the Certificate of Registration with
the CDA,46 before the issuance of a tax exemption certificate. That provision cannot prevail over the clear absence of an equivalent
requirement under the Tax Code. One, as we will explain below, the Circular does not apply to respondent, but only to cooperatives that need
to be registered under the Cooperative Code. Two, it is a mere issuance directing all internal revenue officers to publicize a new tax legislation.
Although the Circular does not derogate from their authority to implement the law, it cannot add a registration requirement, 47when there is
none under the law to begin with.

Second, the provisions of the Cooperative Code of the Philippines48 do not apply. Let us trace the Code’s development in our history.

As early as 1917, a cooperative company or association was already defined as one "conducted by the members thereof with money collected
from among themselves and solely for their own protection and not profit."49 In 1990, it was further defined by the Cooperative Code as a
"duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common
social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the
undertaking in accordance with universally accepted cooperative principles."50

The Cooperative Code was actually an offshoot of the old law on cooperatives. In 1973, Presidential Decree (PD) No. 175 was
signed into law by then President Ferdinand E. Marcos in order to strengthen the cooperative movement.51 The promotion of cooperative
development was one of the major programs of the "New Society" under his administration. It sought to improve the country’s trade and
commerce by enhancing agricultural production, cottage industries, community development, and agrarian reform through cooperatives.52

The whole cooperative system, with its vertical and horizontal linkages -- from the market cooperative of agricultural products to cooperative
rural banks, consumer cooperatives and cooperative insurance -- was envisioned to offer considerable economic opportunities to people who
joined cooperatives.53 As an effective instrument in redistributing income and wealth,54 cooperatives were promoted primarily to support the
agrarian reform program of the government.55

Notably, the cooperative under PD 175 referred only to an organization composed primarily of small producers and consumers who voluntarily
joined to form a business enterprise that they themselves owned, controlled, and patronized.56 The Bureau of Cooperatives Development --
under the Department of Local Government and Community Development (later Ministry of Agriculture)57 -- had the authority to register,
regulate and supervise only the following cooperatives: (1) barrio associations involved in the issuance of certificates of land transfer; (2)
local or primary cooperatives composed of natural persons and/or barrio associations; (3) federations composed of cooperatives that may or
may not perform business activities; and (4) unions of cooperatives that did not perform any business activities.58 Respondent does not fall
under any of the above-mentioned types of cooperatives required to be registered under PD 175.

When the Cooperative Code was enacted years later, all cooperatives that were registered under PD 175 and previous laws were also
deemed registered with the CDA.59 Since respondent was not required to be registered under the old law on cooperatives, it followed that it
was not required to be registered even under the new law.

Furthermore, only cooperatives to be formed or organized under the Cooperative Code needed registration with the CDA.60 Respondent
already existed before the passage of the new law on cooperatives. It was not even required to organize under the Cooperative Code, not
only because it performed a different set of functions, but also because it did not operate to serve the same objectives under the new law --
particularly on productivity, marketing and credit extension.61
The insurance against losses of the members of a cooperative referred to in Article 6(7) of the Cooperative Code is not the same as the life
insurance provided by respondent to member-policyholders. The former is a function of a service cooperative,62 the latter is not. Cooperative
insurance under the Code is limited in scope and local in character. It is not the same as mutual life insurance.

We have already determined that respondent is a cooperative. The distinguishing feature of a cooperative enterprise 63 is the mutuality of
cooperation among its member-policyholders united for that purpose.64 So long as respondent meets this essential feature, it does not even
have to use65 and carry the name of a cooperative to operate its mutual life insurance business. Gratia argumenti that registration is
mandatory, it cannot deprive respondent of its tax exemption privilege merely because it failed to register. The nature of its operations is
clear; its purpose well-defined. Exemption when granted cannot prevail over administrative convenience.

Third, not even the Insurance Code requires registration with the CDA. The provisions of this Code primarily govern insurance contracts; only
if a particular matter in question is not specifically provided for shall the provisions of the Civil Code on contracts and special laws govern.66

True, the provisions of the Insurance Code relative to the organization and operation of an insurance company also apply to cooperative
insurance entities organized under the Cooperative Code.67 The latter law, however, does not apply to respondent, which already existed as
a cooperative company engaged in mutual life insurance prior to the laws passage of that law. The statutes prevailing at the time of its
organization and mutualization were the Insurance Code and the Corporation Code, which imposed no registration requirement with the CDA.

Third Issue:

Whether Respondent Is Exempted

from Premium Taxes and DST

Having determined that respondent is a cooperative that does not have to be registered with the CDA, we hold that it is entitled to exemption
from both premium taxes and documentary stamp taxes (DST).

The Tax Code is clear. On the one hand, Section 121 of the Code exempts cooperative companies from the 5 percent percentage tax on
insurance premiums. On the other hand, Section 199 also exempts from the DST, policies of insurance or annuities made or granted by
cooperative companies. Being a cooperative, respondent is thus exempt from both types of taxes.

It is worthy to note that while RA 8424 amending the Tax Code has deleted the income tax of 10 percent imposed upon the gross investment
income of mutual life insurance companies -- domestic68 and foreign69 -- the provisions of Section 121 and 199 remain unchanged.70

Having been seasonably filed and amply substantiated, the claim for exemption in the amount of ₱61,485,834.51, representing percentage
taxes on insurance premiums and documentary stamp taxes on policies of insurance or annuities that were paid by respondent in 1997, is in
order. Thus, the grant of a tax credit certificate to respondent as ordered by the appellate court was correct.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution are AFFIRMED. No pronouncement as to costs.