G.R. No. 166245. April 9, 2008.

*
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, respondent.

Evidence; Witnesses; We ruled in People v. Paredes, 368 SCRA 102 (2001), 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.—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, 368 SCRA
102 (2001), that minor inconsistencies are too trivial to affect the credibility of witnesses, and

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* SECOND DIVISION.

2 SUPREME COURT REPORTS ANNOTATED

Eternal Gardens Memorial Park Corporation vs.
Philippine American Life Insurance Company

these may even serve to strengthen their credibility as these negate any suspicion that
the testimonies have been rehearsed.
Contracts; Insurance Law; 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.—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, 270 SCRA 242 (1997), 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. (Emphasis
supplied.)
Same; Same; 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 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.
Same; Same; Insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the
3

VOL. 551, APRIL 9, 2008 3

Eternal Gardens Memorial Park Corporation vs.
Philippine American Life Insurance Company

insurer and the insured are to be delineated.—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.

Qqqqqqqqqqqqqqqqqqqqqqq

Pacific Timber Export Corp. vs. Court of Appeals

No. L-38613. February 25, 1982. *

PACIFIC TIMBER EXPORT CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and
WORKMEN’S INSURANCE COMPANY, INC., respondents.

Insurance Law; A “Cover Note” issued in advance of the issuance of a marine policy is binding as an insurance contract although
no separate premium was paid therefor.—The fact that no separate premium was paid on the Cover Note before the loss insured against
occurred, does not militate against the validity of petitioner’s contention, for no such premium could have been paid, since by the nature
of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This
is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the respondent company
(p. 33, tsn, September 24, 1965).
Same; Same.—At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued
by private respondent after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner
due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead
of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer.
 Same; Same.—The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as
if

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* FIRST DIVISION

200

200 SUPREME COURT REPORTS ANNOTATED

Pacific Timber Export Corp. vs. Court of Appeals
there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during
the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of
premium. This is how the cover note as a “binder” should legally operate; otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption
is that a credit was intended and policy is valid.
Same; Delay of insured in reporting the loss must be objected to promptly by insurer. Sending of insurance adjuster to assess the
loss amounts to waiver of delay in giving notice of loss.—The defense of delay as raised by private respondent in resisting the claim
cannot be sustained. The law requires this ground of delay to be promptly and specifically asserted when a claim on the insurance
agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting to petitioner’s claim of recovery
on the cover note, it took steps clearly indicative that this particular ground for objection to the claim was never in its mind. The nature
of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it could determine
whether delay would be a valid ground upon which to object to a claim against it.
Same; Same.—In the proceedings that took place later in the Office of the Insurance Commissioner, private respondent should
then have raised this ground of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this Court fails
to find a real and substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that
as expressly provided by law, waiver can successfully be raised against private respondent.

Ccccccccccccccccccccccccc

Commissioner of Internal Revenue vs. Lincoln Philippine Life

Insurance Company, Inc.

G.R. No. 119176. March 19, 2002. *

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

Insurance; Any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract
of insurance.—Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a contract of
insurance is set forth. Section 50 of the same Code provides that the policy, which is required to be in printed form, may contain any
word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance. It is thus clear that
any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract of insurance.
Same; Taxation; Documentary Stamp Taxes; The payment of documentary stamp taxes is done at the time the act is done or
transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 of the
Insurance Code is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement; The
amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of any “automatic
increase clause” embodied in the policy without the need of another contract.—The subject insurance policy at the time it was issued
contained an “automatic increase clause.” Although the clause was to take effect only in 1984, it was written into the policy at the time
of its issuance. The distinctive feature of the “junior estate builder policy” called the “automatic increase clause” already formed part
and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage
that took effect in 1984 when the assured reached a certain age. It is clear from Section 173 that the payment of documentary stamp
taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary
measurement. What then is the amount fixed in the policy? Logically, we believe that the amount fixed in the policy is the figure

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 * FIRST DIVISION.

424

424 SUPREME COURT REPORTS

ANNOTATED
Commissioner of Internal Revenue vs. Lincoln Philippine
Life Insurance Company, Inc.
written on its face and whatever increases will take effect in the future by reason of the “automatic increase clause” embodied in
the policy without the need of another contract.
Same; Same; Same; The amount insured by the policy at the time of its issuance necessarily includes the additional sum covered
by the automatic increase clause because it is already determinate at the time the transaction is entered into and forms part of the policy.—
Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as
well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy
at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already
determinable at the time the transaction was entered into and formed part of the policy. The “automatic increase clause” in the policy
is in the nature of a conditional obligation under Article 1181, by which the increase of the insurance coverage shall depend upon the
happening of the event which constitutes the obligation. In the instant case, the additional insurance that took effect in 1984 was an
obligation subject to a suspensive obligation, but still a part of the insurance sold to which private respondent was liable for the payment
of the documentary stamp tax.
Same; Same; Tax Avoidance; Tax Evasion; While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be
circumvented in order to evade the payment of just taxes.—It should be emphasized that while tax avoidance schemes and arrangements
are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the
increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should
not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that
the tax be computed on the basis of the amount insured by the policy.

Pineda vs. Court of Appeals

G.R. No. 105562. September 27, 1993. *

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

Insurance Law; Group Insurance Policies; In group insurance policies, the employer is the agent of the insurer.—In Elfstrom vs.
New York Life Insurance Company, the California Supreme Court explicitlyruled that in group insurance policies, the employer is the
agent of the insurer. Thus: “We are convinced that the employer is the agent of the insurer in performing the duties of administering
group insurance policies. It cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if the employer relieves the insurer of these tasks, and this,
of course, is advantageous to both the employer and the employees, the insurer also enjoys significant advantages from the arrangement.
The reduction in the premium which results from employer-administration permits the insurer to realize a larger volume of sales, and
at the same time the insurer’s own administrative costs are markedly reduced. x x x The most persuasive rationale for adopting the view
that the employer acts as the agent of the insurer, however, is that the employee has no knowledge of or control over the employer’s
actions in handling the policy or its administration. An agency relationship is based upon consent by one person that another shall act
in his behalf and be subject to his control. It is clear from the evidence regarding procedural techniques here that the insurer-employer
relationship meets this agency test with regard to the administration of the policy, whereas that between the employer and its employees
fails to reflect true agency. The insurer directs the performance of the employer’s administrative acts, and if these duties are not
undertaken properly the insurer is in a position to exercise more constricted control over the employer’s conduct.”
Same; Same; Civil Law; Family Law; Guardianship; The father and mother are the legal guardian of the child’s property if the
market value of the property or the annual income of the child does not exceed

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* FIRST DIVISION.

755
 VOL. 226, SEPTEMBER 27, 1993 755
Pineda vs. Court of Appeals
P50,000.00, otherwise a bond is required.—Nor can we agree with the opinion of the public respondent that since the shares of
the minors in the insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code their mothers could receive
such shares without need of either court appointment as guardian or the posting of a bond. It is of the view that said Article had repealed
the third paragraph of Section 180 of the Insurance Code. The pertinent portion of Article 225 of the Family Code reads as follows: “ART.
225. The father and the mother shall jointly exercise legal guardianship over the property of their unemancipated common child without
the necessity of a court appointment. In case of disagreement, the father’s decision shall prevail, unless there is judicial order to the
contrary. Where the market value of the property or the annual income of the child exceeds P50,000, the parent concerned shall be
required to furnish a bond in such amount as the court may determine, but not less than ten per centum (10%) of the value of the
property or annual income, to guarantee the performance of the obligations prescribed for general guardians.” It is clear from the said
Article that regardless of the value of the unemancipated common child’s property, the father and mother ipso jure become the legal
guardian of the child’s property. However, if the market value of the property or the annual income of the child exceeds P50,000.00, a
bond has to be posted by the parents concerned to guarantee the performance of the obligations of a general guardian. It must, however,
be noted that the second paragraph of Article 225 of the Family Code speaks of the “market value of the property or the annual income
of the child,” which means, therefore, the aggregate of the child’s property or annual income; if this exceeds P50,000.00, a bond is
required. There is no evidence that the share of each of the minors in the proceeds of the group policy in question is the minor’s only
property. Without such evidence, it would not be safe to conclude that, indeed, that is his only property.

The Insular Life Assurance Company, Ltd. vs. Ebrado

No. L-44059. October 28, 1977. *

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs.CARPONIA T. EBRADO and PASCUALA
VDA. DE EBRADO, defendants-appellants.

Commercial Law; Insurance; Insurance Code; Word “Interest” in Sec. 50 of Insurance Act which provides that insurance shall be
applied exclusively to the proper interest of the person in whose name it is made refers only to the insured and not to the beneficiary;
contract of insurance personal in character.—Section 50 of the Insurance Act which provides that “(t)he insurance shall be applied
exclusively to the proper interest of the person in whose name it is made” cannot be validly seized upon to hold that the same includes
the beneficiary. The word “interest” highly suggests that the provision refers only to the “insured” and not the beneficiary, since a
contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.
Same; Same; On matters not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by
general rules of civil law.—Rather the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011
of the New Civil Code states: “The contract of insurance is governed by special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code.” When not otherwise specifically provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code, “any person who is
forbiden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot
make a donation to him.” Common-law spouses are, definitely, barred from receiving donations from each other.
Same; Same; Life Insurance policy no different from civil donation as far as beneficiary is concerned; Both are founded on
liberality; Common-law spouses designated as beneficiary barred from receiving life insurance proceeds from a legally married person;
Reasons therefor.—In essence, a life insurance policy is no different

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* FIRST DIVISION.

182

182 SUPREME COURT REPORTS ANNOTATED

The Insular Life Assurance Company, Ltd. vs. Ebrado
from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate
in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named
as beneficiary in the life insurance policy of the person who cannot make the donation. Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause
designating the beneficiary by rules under which wills are interpreted.
Same; Same; Conviction for adultery or concubinage for those barred from receiving donations or life insurance not required as
only preponderance of evidence is necessary.—We do not think that a conviction for adultery or concubinage is exacted before the
disabilities mentioned in Article 739 may effectuate. More specifically, with regard to the disability on “persons who were guilty of
adultery or concubinage at the time of the donation,” x x x The underscored clause neatly conveys that no criminal conviction for the
disqualifying offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a criminal
prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved “in the same action” for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.
Same; Same; Remedial Law; Evidence; Requisite proof of common-law relationship between insured and beneficiary supplied by
stipulations of parties at pre-trial conference; Considered judicial admissions, of which judgment may be validly rendered without rigors
of trial to prove illicit relationship.—In the case before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It was agreed
upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has
six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are nothing less than judicial admission which, as a consequence, no longer require proof
183

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The Insular Life Assurance Company, Ltd. vs. Ebrado
and cannot be contradicted. A fortiori, on the basis of these admissions, a judgment may be validly rendered without going
through the rigors of a trial for the sole purpose of proving the illicit liason between the insured and the beneficiary. In fact, in that pre-
trial, the parties even agreed “that a decision be rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy.”