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Sun Life of Canada vs Sandra Tan

- Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Ki, whose
application for a life insurance policy, with face value of P300,000.00, was granted by petitioner
on October 28, 1999.
- On February 19, 2001, or within the two-year contestability period, Norberto died of
disseminated gastric carcinoma. Consequently, respondent Tan Kit filed a claim under the
subject policy.
- petitioner denied respondent Tan Kits claim on account of Norbertos failure to fully and
faithfully disclose in his insurance application certain material and relevant information about
his health and smoking history.
- Specifically, Norberto answered "No" to the question inquiring whether he had smoked
cigarettes or cigars within the last 12 months prior to filling out said application.
- However, the medical report of Dr. Anna Chua (Dr. Chua), one of the several physicians that
Norberto consulted for his illness, reveals that he was a smoker and had only stopped smoking
in August 1999.
- According to petitioner, its underwriters would not have approved Norbertos application for life
insurance had they been given the correct information. Believing that the policy is null and void,
petitioner opined that its liability is limited to the refund of all the premiums paid. Accordingly,
it enclosed in the said letter a check for P13,080.93 representing the premium refund.
- Respondent Tan Kit refused to accept the check and insisted on the payment of the insurance
- On October 4, 2002, petitioner filed a Complaint for Rescission of Insurance Contract before the
RTC of Makati City.
- RTC rules in favor of the respondents and ordered to pay Sandra
- CA reversed and set aside the RTCs ruling

ISSUE: whether petitioner is liable to pay interest on the premium to be refunded to respondents.


There are two kinds of interest monetary and compensatory.

"Monetary interest refers to the compensation set by the parties for the use or forbearance of money."
No such interest shall be due unless it has been expressly stipulated in writing. "On the other hand,
compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts."
The interest mentioned in Articles 2209 and 2212 of the Civil Code applies to compensatory interest.

Clearly and contrary to respondents assertion, the interest imposed by the CA is not monetary interest
because aside from the fact that there is no use or forbearance of money involved in this case, the
subject interest was not one which was agreed upon by the parties in writing.
There can be no other conclusion than that the interest imposed by the appellate court is in the nature
of compensatory interest.

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of
death of the insured until fully paid. As a form of damages, compensatory interest is due only if the
obligor is proven to have failed to comply with his obligation.

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching to
the said notice a check representing the amount of refund. However, respondents refused to accept the
same since they were seeking for the release of the proceeds of the policy. Because of this discord,
petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse judgment
from the RTC, appealed to the CA. And as may be recalled, the appellate court found Norberto guilty of
concealment and thus upheld the rescission of the insurance contract and consequently decreed the
obligation of petitioner to return to respondents the premium paid by Norberto. Moreover, we find that
petitioner did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under the law and
contract. Hence, it should not be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the
premium paid within 15 days from date of finality of this Decision. If petitioner fails to pay within the
said period, then the amount shall be deemed equivalent to a forbearance of credit. In such a case, the
rate of interest shall be 6% per annum.

- Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M.
Garcia a crossed check dated February 24, 1995 in the amount of US$100,000 payable to the
order of a certain Marilou Santiago.
- Thereafter, petitioner received from respondent every month the amount of US$3,0006 and
- In June 1995, respondent received from petitioner another crossed check in the amount of
P500,000, also payable to the order of Marilou Santiago.
- Consequently, petitioner received from respondent the amount of P20,000 every month on
August Nov.
- According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due.
- Thus petitioner filed a complaint for sum of money and damages in the RTC of Makati City
seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October
26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus
attorneys fees and actual damages.
- Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on
October 26, 1995. The amount of this loan was covered by the first check. On June 29, 1995,
respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the
maturity date of which was on November 5, 1995.14 The amount of this loan was covered by
the second check.
- For both loans, no promissory note was executed since petitioner and respondent were close
friends at the time.
- Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she
failed to pay the principal amounts despite repeated demands.
- Respondent denied that she contracted the two loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago.
- She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate
petitioners request that respondent use her own checks instead of Santiagos.
- RTC ruled in favor of petitioner.
- CA reversed the decision of the RTC and ruled that there was no contract of loan between the

HELD: A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the
object of the contract. This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object
of the contract.

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound
to pay the creditor an equal amount.

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main
question to be answered is: who borrowed money from petitioner respondent or Santiago?

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
actual or constructive possession or control of another. Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amounts to Santiago.

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil

Hence, respondent is liable for the payment of legal interest per annum to be computed from November
21, 1995, the date when she received petitioners demand letter. From the finality of the decision until it
is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed
equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since
the RTC decision did not explain the factual bases for these damages.