G.R. No.

147839

June 8, 2006

GAISANO CAGAYAN, INC. Petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, Respondent. Facts: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy." The policies also provide for the following conditions: 1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI. On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded. In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the claim of the insured. The RTC rendered its decision dismissing respondent's complaint. the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay: Issue: WON a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI or insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner. Held:

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."; and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this

Policy." Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid. The Court is not persuaded. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied) xxxx Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer. Accordingly, petitioner bears the risk of loss of the goods delivered. IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property. Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

G.R. No. 167330

June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent

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 decision1 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. Phil Health Care Providers, Inc. 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. 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.

he 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. CTA partially granting the petition for review the petitioner was ordered to pay the deficiency vat in the amount of P53 M, Further,ore CIR is ordered to desist from collecting the said DST deficiency tax. CIR appealed the CTA decision to the CA 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. CA reverse the early decision and ordered the petitioner to pay 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. PHILIPPINE HEALTH CARE PROVIDERS, INC appealed the decision before the SC which affirmed the CA decision. Which held that in 2008 ruling: Petitioner's health care agreement is primarily a contract of indemnity. It is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. 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. The event insured against must be designated in the contract and must either be unknown or contingent. The petitioner filed motion of reconsideration Issue Whether or not the health care agreement between petitioner and its beneficiaries is an insurance contract. Held: 2009 ruling; The SC ruled in favor of the petitioner and granted the motion for reconsideration. The Court ruled that the health agreement between the petitioner and beneficiaries is not a contract of insurance. The Court based its decision on the fact that the HMO agreement does not qualify as an insurance business based on principle object and purpose test The test is based on Sec 2 (2) of the Insurance Code. Accordingly an enterprise is considered engaged in insurance business when the principal object of the enterprise is the assumption of risk and indemnification of loss. If the enterprise assumes risks and indemnifies beneficiaries for losses, then it is an insurance company. American courts have pointed out that the main difference between HMO and an insurance cooompany is that HMOs undertake to provide or to arrange provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured medical expenses incurred up to the pre paid limit. A substantial portion of the petitioners services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseas. As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or minimize the possibility of any assumption of risks on its part. Thus its undertaking its agreement is not to indemnify its members agaist loss or damage arising from medical condition but, on contraru to provide the health and medical services needed to prevent sch loss or damage. Over all the petitioner appears to provide insurance-type benefits to its members with respect to curative medical services but these are incidental to principal activity of providing them medical care . The insurance-like aspect of petitioners business is miniscule compared to non insurance activities.

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents.

Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled against petitioners. After the trial the court ruled against the petitioners. On Appeal affirmed the decision of the trial court but deleted awards of damages. Petitioners motion for reconsideration was denied. Hence the petitioner brought the instant petition for review raising the primary argument that a health care agreement is not an insurance contract, hence the incontestability clause under the insurance Code does not apply. Issue: Whether or not a healthcare agreement is not an insurance contract. Ruling: The SC ruled that there is valid insurance contract. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurers promise, the insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) (2) of himself, of his spouse and of his children; of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and of any person upon whose life any estate or interest vested in him depends.

(3)

(4)

In the case at bar, the insurable interest of respondents husband 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 contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of insurance. The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance 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. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

The Insular Life Assurance Company, Ltd vs. Ebrado. On September 1, 1968: Buenaventura Cristor Ebrado was issued by The Insular Life Assurance Co., Ltd., Policy on a whole-life for P5,882.00 with a, rider for Accidental Death and designated Carponia T. Ebrado as the revocable beneficiary in his policy October 21, 1969: Buenaventura was hit by a falling branch of tree and died. Carponia filed a claim as the designated beneficiary, although she admits that they were merely living as husband and wife without the benefit of marriage Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the CFI

CFI: Carponia was disqualified because of adultery CA: affirmed CFI decision

ISSUES: W/N Carponia is disqualified for violating the Civil Code which supplements the silent Insurance Code. Can a common-;aw wife named as beneficiary in the life insurance policy of legally married man claim the proceed thereof in the case of death of latter. HELD: 1. YES. CA affirmed. 2. NO Civil Code Art. 2011 Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. Art. 2012 Art. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. Art. 739 Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action.

Common-law spouses are, definitely, barred from receiving donations from each other In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts.

We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case

Compaia Maritima vs. Insurance Company of North America Facts: October, 1952: Macleod and Company of the Philippines (Macleod) contracted by telephone the services of the Compaia Maritima (CM), a shipping corporation, for: shipment of 2,645 bales of hemp from the Macleod's Sasa private pier at Davao City to Manila subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to CM's branch office in Davao in compliance with which the CM sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. The 2 lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part: Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. Early hours of October 30: LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein o Macleod promptly notified the carrier's main office in Manila and its branch in Davao advising it of its liability The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. o total loss adds up to P60,421.02 All abaca shipments of Macleod were insured with the Insurance Company of North America against all losses and damages Macleod filed a claim for the loss it suffered with the insurance company and was paid P64,018.55 o subrogation agreement between Macleod and the insurance company wherein the Macleod assigned its rights over the insured and damaged cargo October 28, 1953.: failing to recover from the carrier P60,421.02 (amount supported by receipts), the insurance company instituted the present action

CA affirmed RTC: ordering CM to pay the insurance co. ISSUES 1) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; 2) Can respondent insurance company sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this jurisdiction?; HELD

2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim of force majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out. Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the Court of Appeals:

Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom it should be noted that on the night of the nautical accident there was no storm, flood, or other natural disaster or calamity. The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy compartments'.

3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein.

Estoppel due to insurers inequitable conduct FIELDMENS INSURANCE CO., INC. vs. MERCEDES VDA. DE SONGCO G.R. No. L-24833, 23 September 1968 FACTS: Federico Songco, a man who was only able to finish grade 1, owned a private jeepney which he, through the inducement of Fieldmens insurance agent, insured with the plaintiff company. The policy is a Common Carriers Accident Insurance Policy. He is paying the annual premium of P16.50 duration is from one year effective 09/15/ 960 to 09/15/1961. The insurance agent told Federico that whether his vehicle was an owner type or for passengers it could be insured because their company is not owned by the Governent and that the Government has nothing to do with their company, hence, they could do what they please whenever they believe a vehicle is insurable. During the policys covered period, the insured vehicle while being driven by Rodolfo, a duly licensed driver and son of Federico figured in a vehicular accident resulting in the death of both father and son as well as physical injuries to the other passengers of the jeepney. The insurance company refused payment. ISSUE: Whether or not the insurance company is liable HELD: YES. Where inequitable conduct is shown by an insurance firm, it is estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured. After petitioner Fieldmens Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppels could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. It would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. Nature of contract to borrow once again the language of the Qua Chee Gan opinion. The contract of insurance is one of the perfect good faith ( uberrima fides) not for the insured alone, but equally so far for the insurer, in fact it is more so for the latter, since it is a dominant bargaining position carries with it stricter responsibility. WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmens Insurance Co.,Inc.

Enriquez vs. Sun Life Assurance Company of Canada [GR 15895, 29 November 1920] En Banc, Malcolm (J): 4 concur, 1 dissents Facts: On 24 September 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. The application was immediately forwarded to the head office of the company at Montreal, Canada. On 26 November 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 to Herrer that the application had been accepted, is a disputed point.) On 4 December 1917, the policy was issued at Montreal. On 18 December 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 26 November 1917. This letter was received by Mr. Torres on the morning of 21 December 1917. Mr. Herrer died on 20 December 1917. An action was brought by Rafaek Enriquez as administrator of the estate of the late Joaquin Ma. Herrer to recover from Sun Life Assurance Company of Canada the sum of P6,000 paid by the deceased for a life annuity. The trial court gave judgment for Sun Life. Enriquez appealed. Issue: Whether Herrer received notice of acceptance of his application, to hold that the contract for a life annuity was perfected. Held: NO. The letter of 26 November 1917, notifying Mr. Ferrer 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 was never actually mailed and thus was never received by the applicant. 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, 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 poienitentise is ended when the acceptance has passed beyond the control of the party. 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. 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.