G.R. No.
L-6114 October 30, 1954 action for interpleading against the three conflicting claimants as
SOUTHERN LUZON EMPLOYEES' ASSOCIATION, plaintiff,
vs.
JUANITA GOLPEO, ET AL., defendants-appellants;
AQUILINO MALOLES , ET AL., defendants-appellees;
ELSIE HICBAN, ET AL., defendants;
MARCELINO CONCEPCION, ET AL., intervenors-appellants.
The plaintiff, Southern Luzon Employees' Association is composed of
laborers and employees of Laguna tayabas Bus Co., and Batangas
Transportation Company, and one of its purposes is mutual aid of its
members and their defendants in case of death. Roman A. Concepcion was
a member until his death on December 13, 1950. The association adopted
on September 17, 1949 the following resolution:
RESOLVED: That a family record card of each member be printed
wherein the members will put down his dependents and/or
beneficiaries.
BE IT RESOLVED, FURTHER, that a member may, if he chooses, put
down his common-law wife as his beneficiary and/or children had
with her as the case may be; that in case of a widower, he may put
down his legitimate children with the first marriage who are below
21 years of age, single, and may at the same time, also name his
common-law wife, if he has any, as dependents and/or
beneficiaries; and
BE IT RESOLVED: That such person so named by the member will
be sole persons to be recognized by the Association regarding
claims for condolence contributions.
In the form required by the association to be accomplished by its
members, with reference to the death benefit, Roman A. Concepcion listed
as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr., Estela M.
Concepcion, Rolando M. Concepcion and Robin M. Concepcion. After the
death of Roman A. Concepcion, the association was able to collect
voluntary contributions from its members amounting to P2,5055. Three
sets of claimants presented themselves, namely, (1) Juanita Golpeo, legal
wife of Roman A. Concepcion, and her children, named beneficiaries by the
deceased; and (3) Elsie Hicban, another common law wife of Roman A.
Concepcion, and her child. The plaintiff association was accordingly
constrained to institute in the Court of First Instance of Laguna the present
defendants. Marcelino and Josefina Concepcion, children of the deceased
Roman A. Concepcion with Juanita Golpeo, intervened in their own rights,
aligning themselves with the defendants, Juanita Golpeo and her minor
children. After hearing, the court rendered a decision, declaring the
defendants Aquilina Maloles and her children the sole beneficiaries of the
sum of P2,505.00, and ordering the plaintiff to deliver said amount to
them. From this decision only the defendants Juanita Golpeo and her minor
children and the intervenors Marcelino and Josefina Concepcion have
appealed to this court.
The decision is based mainly on the theory that the contract between the
plaintiff and the deceased Roman A. Concepcion partook of the nature of
an insurance and that, therefore, the amount in question belonged
exclusively to the beneficiaries, invoking the following pronouncements of
this Court in the case of Del Val vs. Del Val, 29 Phil., 534:
With the finding of the trial court that the proceeds of the life-
insurance policy belongs exclusively to the defendant as his
individual and separate property, we agree. That the proceeds of
an insurance policy belong exclusively to the beneficiary and not to
the estate of the person whose life was insured, and that such
proceeds are the separate and individual property of the
beneficiary, and not of the heirs of the person whose life was
insured, is the doctrine in America. We believe that the same
doctrine obtains in these Islands by virtue of section 428 of the
Code of Commerce, which reads:
"The amounts which the underwriter must deliver to the person
insured, in fulfillment of the contract, shall be the property
creditors of any kind whatsoever of the person who effected the
insurance in favor of the formers."
It is claimed by the attorney for the plaintiffs that the section just
quoted in subordinated to the provisions of the civil code as found
in article 10035. This article reads:
"An heir by force of law surviving with others of the same character
to a succession must bring into the hereditary estate the property
or securities he may bring into the hereditary estate the property
or securities he may have been received from the deceased during
the life of the same, by way of dowry, gift, or for any good
consideration, in order to compute it in fixing the legal portions and
in the amount of the division."
 Counsel also claims that the proceed of the insurance policy were
donation or gift made by the father during his lifetime to the
defendant and that, as such, its ultimate destination is determined
by those provisions of the Civil Code which relate to donations,
especially article 819. This article provides that "gifts made to
children which are not betterments shall be considered as part of
their legal portion."
We cannot agree with these contention. The contract of life
insurance is a special contract and the destination of the proceeds
thereof is determined by special laws which deal exclusively with
that subject. The Civil Code has no provisions which relate directly
and specifically to life-insurance contract or to the destination of
life-insurance proceeds. That subject is regulate exclusively by the
Code of Commerce which provides for the terms of the contract,
the relations of the parties and the destination of the proceeds of
the policy. (Supra, pp. 540-541.)
actions, had acquiesced in the illicit relations between her husband and
appellee Aquilina Maloles, appellant argument would certainly not apply to
the children of Aquilina likewise named beneficiaries by the deceased
Roman A. Concepcion. As a matter of a fact the new Civil Code recognized
certain successional rights of illegitimate children. (Article 287.)
The other contention advanced rather exhaustively by counsel for
appellants, and the citations in support there of are either negative or
rendered inapplicable by the decisive considerations already stated. In this
connection it is noteworthy that the estate of the deceased Roman A.
Concepcion was not entirely left without anything legally due it since it is
an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus
Co., employer of the deceased to the appellants under the Workmen's
Compensation Act. Wherefore, the appealed decision is affirmed, and it is
so ordered without costs.

It is argued for the appellants, however, that the Insurance Law is not
applicable because the plaintiff is a mutual benefit association as defined
in section 1628 of the Revised Administrative Code. This argument
evidently ignore the fact that the trial court has no considered the plaintiff
as a regular insurance company but merely ruled that the death benefit in
question is analogous to an insurance. Moreover, section 1628 of the
Revised Administrative Code defines a mutual benefit association as one,
among others, "providing for any method of accident or life insurance
among its members out of dues or assessments collected from the
membership." The comparison made in the appealed decision is, therefore,
well taken.

Appellant also contend that the stipulation between the plaintiff and the
deceased Roman A. Concepcion regarding the specification of the latter's
beneficiaries, and the resolution of September 17, 1949, are void for the
being contrary to law, moral or public policy. Specifically, the appellants
cite article 2012 of the new Civil Code providing that "Any person who is
forbidden from receiving any donation under article 739 cannot be named
beneficiary of a life insurance policy and by the person who cannot make
any donation to him, according to said article." Inasmuch as, according to
article 739 of the new Civil Code, a donation is valid when made "between
persons who are guilty or adultery or concubinage at the time of the
donation," it is alleged that the defendant-appellee Aquilina Maloles,
cannot be named a beneficiary, every assuming that the insurance law is
applicable. Without considering the intimation in the brief for the
defendant appellees that appellant Juanita Golpeo, by her silence and
 with a, rider for Accidental Death for the same amount Buenaventura C.
Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He
to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when

he was hit by a failing branch of a tree. As the policy was in force, The
Insular Life Assurance Co., Ltd. liable to pay the coverage in the total
amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for the premium
due November, 1969, minus the unpaid premiums and interest thereon
due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that she
and the insured Buenaventura C. Ebrado were merely living as husband
and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds,
not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The
Insular Life Assurance Co., Ltd. commenced an action for Interpleader
before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8,
1972, after which, a pre-trial order was entered reading as follows: ñé+.
£ªwph!1

G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-
appellants.
This is a novel question in insurance law: Can a common-law wife named
as beneficiary in the life insurance policy of a legally married man claim
the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The
Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00
During the pre-trial conference, the parties manifested to
the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the
parties submit their evidence for the purpose of the pre-
trial and make admissions for the purpose of pretrial.
During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six — (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all
surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance Co.
Under Policy No. 009929 whole life plan, dated September
 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and
Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of
Buenaventura Ebrado, he was living with his common-wife,
Carponia Ebrado, with whom she had 2 children although
he was not legally separated from his legal wife; 4) that
Buenaventura in accident on October 21, 1969 as
evidenced by the death Exhibit 3 and affidavit of the police
report of his death Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life Assurance Co. which
was contested by Pascuala Ebrado who also filed claim for
the proceeds of said policy 6) that in view ofthe adverse
claims the insurance company filed this action against the
two herein claimants Carponia and Pascuala Ebrado; 7)
that there is now due from the Insular Life Assurance Co.
as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is
Carponia Ebrado and the insured made reservation to
change the beneficiary but although the insured made the
option to change the beneficiary, same was never changed
up to the time of his death and the wife did not have any
opportunity to write the company that there was
reservation to change the designation of the parties agreed
that a decision be rendered based on and stipulation of
facts as to who among the two claimants is entitled to the
policy.
Upon motion of the parties, they are given ten (10) days to
file their simultaneous memoranda from the receipt of this
order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring
among others, Carponia T. Ebrado disqualified from becoming beneficiary
of the insured Buenaventura Cristor Ebrado and directing the payment of
the insurance proceeds to the estate of the deceased insured. The trial
court held: ñé+.£ªwph!1
It is patent from the last paragraph of Art. 739 of the Civil
Code that a criminal conviction for adultery or concubinage
is not essential in order to establish the disqualification
mentioned therein. Neither is it also necessary that a
finding of such guilt or commission of those acts be made
in a separate independent action brought for the purpose.
The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the
action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage
exists at the time defendant Carponia T. Ebrado was made
beneficiary in the policy in question for the disqualification
and incapacity to exist and that it is only necessary that
such fact be established by preponderance of evidence in
the trial. Since it is agreed in their stipulation above-quoted
that the deceased insured and defendant Carponia T.
Ebrado were living together as husband and wife without
being legally married and that the marriage of the insured
with the other defendant Pascuala Vda. de Ebrado was
valid and still existing at the time the insurance in question
was purchased there is no question that defendant
Carponia T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as such she is not
entitled to the proceeds of the insurance upon the death of
the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals,
but on July 11, 1976, the Appellate Court certified the case to Us as
involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or
even the new Insurance Code (PD No. 612, as amended) does not contain
any specific provision grossly resolutory of the prime question at hand.
Section 50 of the Insurance Act which provides that "(t)he insurance shag
be applied exclusively to the proper interest of the person in whose name
it is made" 1 cannot be validly seized upon to hold that the mm includes
the beneficiary. The word "interest" highly suggests that the provision
refers only to the "insured" and not to the beneficiary, since a contract of
insurance is personal in character. 2 Otherwise, the prohibitory laws against
illicit relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of
insurance. 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. 3 And under Article 2012 of the same Code, "any
person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a fife insurance policy by the person who
cannot make a donation to him. 4 Common-law spouses are, definitely,
barred from receiving donations from each other. Article 739 of the new
Civil Code provides: ñé+.£ªwph!1
The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
Those made between persons found guilty of the same
criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants
or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should
equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be
named as beneficiary in the life insurance policy of the person who cannot
make the donation.5 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 wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to Property
relations since such hip ultimately encroaches upon the nuptial and filial
rights of the legitimate family There is every reason to hold that the bar in
donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on
similar consideration As above pointed out, a beneficiary in a fife insurance
policy is no different from a donee. Both are recipients of pure beneficence.
So long as manage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married couple
should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason
should an illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of
the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and
improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no se
enganen desponjandose el uno al otro por amor que han
de consuno' (According to) the Partidas (Part IV, Tit. XI,
LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason to
apply the same prohibitive policy to persons living together
as husband and wife without the benefit of nuptials. For it
is not to be doubted that assent to such irregular
connection for thirty years bespeaks greater influence of
one party over the other, so that the danger that the law
seeks to avoid is correspondingly increased. Moreover, as
already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr.
1), 'it would not be just that such donations should subsist,
lest the condition 6f those who incurred guilt should turn
out to be better.' So long as marriage remains the
cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should
likewise attach to concubinage.
It is hardly necessary to add that even in the absence of
the above pronouncement, any other conclusion cannot
stand the test of scrutiny. It would be to indict the frame of
the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished.
Moreover, if it is at all to be differentiated the policy of the
law which embodies a deeply rooted notion of what is just
 and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would
be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every any
occasion where the principle of statutory construction that
what is within the spirit of the law is as much a part of it as
what is written, this is it. Otherwise the basic purpose
discernible in such codal provision would not be attained.
Whatever omission may be apparent in an interpretation
purely literal of the language used must be remedied by an
adherence to its avowed objective.
be rendered based on this agreement and stipulation of facts as to who
among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance policy.
As a consequence, the proceeds of the policy are hereby held payable to
the estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.

4. We do not think that a conviction for adultery or concubinage is exacted

before the disabilities mentioned in Article 739 may effectuate. More
specifically, with record to the disability on "persons who were guilty of
adultery or concubinage at the time of the donation," Article 739 itself
provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of

nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the
offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the
law plainly states that the guilt of the party may be proved "in the same
acting for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship

between the insured and the beneficiary has been conveniently supplied
by the stipulations between the parties in the pre-trial conference of the
case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she
has six legitimate children; that during his lifetime, the deceased insured
was living with his common-law wife, Carponia Ebrado, with whom he has
two children. These stipulations are nothing less thanjudicial
admissions which, as a consequence, no longer require proof and cannot
be contradicted. 8 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 liaison between the insured and the
beneficiary. In fact, in that pretrial, the parties even agreed "that a decision

G.R. No. 198174 September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision 1 dated May 31, 2011 and Resolution 2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor
vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the
petitioner to pay the respondent the amount of Six Hundred Thirty
Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26,
2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver,
Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to
a nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the
same, said efforts proved futile. Resultantly, respondent promptly reported
the incident to the police and concomitantly notified petitioner of the said
loss and demanded payment of the insurance proceeds in the total sum
of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police
Report and your Affidavit, which states that the culprit, who stole the
Insure[d] unit, is employed with you. We would like to invite you on the
provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family
or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated
her claim and argued that the exception refers to damage of the motor
vehicle and not to its loss. However, petitioner’s denial of respondent’s
insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual
basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of
Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby
AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the
same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds
for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED
IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER
AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE
BECAUSE 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.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN
TOTO THE JUDGMENT OF THE TRIAL COURT. 5
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.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III
thereof did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident
from the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or
damage to the goods. Such interpretation should result from the natural
and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to
the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be
held liable, then this would result to an absurd situation where the insurer
would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed by
the insured himself, the same would be an exception to the coverage since
in that case there would be fraud on the part of the insured or breach of
material warranty under Section 69 of the Insurance Code. 7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean
different things in common ordinary usage. The word "loss" refers to the
act or fact of losing, or failure to keep possession, while the word "damage"
means deterioration or injury to property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under
the insurance policy under paragraph 4 of "Exceptions to Section III," since
the same refers only to "malicious damage," or more specifically, "injury"
to the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate "loss of property," as what
happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the
subject policy as one of the exceptions from coverage, is the damage that
is the direct result from the deliberate or willful act of the insured,
members of his family, and any person in the insured’s service, whose
clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it should have used the
term "damage" alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance
contract. Which is why the Court finds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the
insured vehicle.
The Court does not find the particular contention to be well taken.
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, G.R. No. 115278 May 23, 1995
in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
Indemnity and liability insurance policies are construed in accordance with vs.
the general rule of resolving any ambiguity therein in favor of the insured, COURT OF APPEALS and PRODUCERS BANK OF THE
where the contract or policy is prepared by the insurer. A contract of PHILIPPINES, respondents.
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be The fundamental legal issue raised in this petition for review on certiorari is
construed liberally in favor of the insured and strictly against the insurer. whether the petitioner is liable under the Money, Security, and Payroll
Limitations of liability should be regarded with extreme jealousy and must Robbery policy it issued to the private respondent or whether recovery
be construed in such a way as to preclude the insurer from non-compliance thereunder is precluded under the general exceptions clause thereof. Both
with its obligations. the trial court and the Court of Appeals held that there should be recovery.
The petitioner contends otherwise.
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that: This case began with the filing with the Regional Trial Court (RTC) of Makati,
Metro Manila, by private respondent Producers Bank of the Philippines
When the terms of insurance contract contain limitations on liability, courts (hereinafter Producers) against petitioner Fortune Insurance and Surety
should construe them in such a way as to preclude the insurer from non- Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
compliance with his obligation. Being a contract of adhesion, the terms of P725,000.00 under the policy issued by Fortune. The sum was allegedly
an insurance contract are to be construed strictly against the party which lost during a robbery of Producer's armored vehicle while it was in transit
prepared the contract, the insurer. By reason of the exclusive control of the to transfer the money from its Pasay City Branch to its head office in
insurance company over the terms and phraseology of the insurance Makati. The case was docketed as Civil Case No. 1817 and assigned to
contract, ambiguity must be strictly interpreted against the insurer and Branch 146 thereof.
liberally in favor of the insured, especially to avoid forfeiture. 12
After joinder of issues, the parties asked the trial court to render judgment
WHEREFORE, premises considered, the instant Petition for Review on based on the following stipulation of facts:
Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby 1. The plaintiff was insured by the
AFFIRMED. defendants and an insurance policy was
issued, the duplicate original of which is
SO ORDERED. hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in

the process of transferring cash in the sum
of P725,000.00 under the custody of its 7. Demands were made by the plaintiff
teller, Maribeth Alampay, from its Pasay upon the defendant to pay the amount of
Branch to its Head Office at 8737 Paseo de the loss of P725,000.00, but the latter
Roxas, Makati, Metro Manila on June 29, refused to pay as the loss is excluded from
1987, was robbed of the said cash. The the coverage of the insurance policy,
robbery took place while the armored car attached hereto as Exhibit "A," specifically
was traveling along Taft Avenue in Pasay under page 1 thereof, "General Exceptions"
City; Section (b), which is marked as Exhibit "A-
1," and which reads as follows:
3. The said armored car was driven by
Benjamin Magalong Y de Vera, escorted by GENERAL EXCEPTIONS
Security Guard Saturnino Atiga Y Rosete.
Driver Magalong was assigned by PRC The company shall not be liable under this
Management Systems with the plaintiff by policy in report of
virtue of an Agreement executed on August
7, 1983, a duplicate original copy of which xxx xxx xxx
is hereto attached as Exhibit "B";
(b) any loss caused by any
4. The Security Guard Atiga was assigned dishonest, fraudulent or
by Unicorn Security Services, Inc. with the criminal act of the insured
plaintiff by virtue of a contract of Security or any officer, employee,
Service executed on October 25, 1982, a partner, director, trustee or
duplicate original copy of which is hereto authorized
attached as Exhibit "C"; representative of the
Insured whether acting
5. After an investigation conducted by the alone or in conjunction with
Pasay police authorities, the driver others. . . .
Magalong and guard Atiga were charged,
together with Edelmer Bantigue Y Eulalio, 8. The plaintiff opposes the contention of
Reynaldo Aquino and John Doe, with the defendant and contends that Atiga and
violation of P.D. 532 (Anti-Highway Robbery Magalong are not its "officer,
Law) before the Fiscal of Pasay City. A copy employee, . . . trustee or authorized
of the complaint is hereto attached as representative . . . at the time of the
Exhibit "D"; robbery. 1

6. The Fiscal of Pasay City then filed an On 26 April 1990, the trial court rendered its decision in favor of Producers.
information charging the aforesaid persons The dispositive portion thereof reads as follows:
with the said crime before Branch 112 of
the Regional Trial Court of Pasay City. A
WHEREFORE, premises considered, the Court finds for
copy of the said information is hereto
plaintiff and against defendant, and
attached as Exhibit "E." The case is still
being tried as of this date;
(a) orders defendant to pay
plaintiff the net amount of
 P540,000.00 as liability
under Policy No. 0207 (as
mitigated by the
P40,000.00 special clause
deduction and by the
recovered sum of
P145,000.00), with interest
thereon at the legal rate,
until fully paid;
(b) orders defendant to pay
plaintiff the sum of
P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay
costs of suit.
All other claims and counterclaims are accordingly
dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have
selected and engaged Magalong and Atiga, their services
as armored car driver and as security guard having been
merely offered by PRC Management and by Unicorn
Security and which latter firms assigned them to plaintiff.
The wages and salaries of both Magalong and Atiga are
presumably paid by their respective firms, which alone
wields the power to dismiss them. Magalong and Atiga are
assigned to plaintiff in fulfillment of agreements to provide
driving services and property protection as such — in a
context which does not impress the Court as translating
into plaintiff's power to control the conduct of any assigned
driver or security guard, beyond perhaps entitling plaintiff
to request are replacement for such driver guard. The
finding is accordingly compelled that neither Magalong nor
Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the
general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that
driver Magalong and guard Atiga were the "authorized
representatives" of plaintiff. They were merely an assigned
armored car driver and security guard, respectively, for the
June 29, 1987 money transfer from plaintiff's Pasay Branch
to its Makati Head Office. Quite plainly — it was teller
Maribeth Alampay who had "custody" of the P725,000.00
cash being transferred along a specified money route, and
hence plaintiff's then designated "messenger" adverted to
in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May
1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally
in favor of the insured and strictly against the insurance
company (New Life Enterprises vs. Court of Appeals, 207
SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals,
211 SCRA 554). Contracts of insurance, like other
contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and
popular sense (New Life Enterprises Case, supra, p. 676;
Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA
193).
The language used by defendant-appellant in the above
quoted stipulation is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" must be
taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing
with/and specifically designed to protect labor and
therefore its definition as to employer-employee
 relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an
insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in
defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance
policy.
Said driver and security guard cannot be considered as
employees of plaintiff-appellee bank because it has no
power to hire or to dismiss said driver and security guard
under the contracts (Exhs. 8 and C) except only to ask for
their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its
head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody
of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the presence and absence of a
power to control the putative employee's conduct. Of the four, the right-of-
control test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article 106
of the Labor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-
only" contracting where the person supplying workers to an
employer does not have substantial capital or investment
in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and
placed by such persons are performing activities which are
directly related to the principal business of such employer.
In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7 that
a finding that a contractor is a "labor-only" contractor is equivalent to a
finding that there is an employer-employee relationship between the owner
of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not
its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control
of their conduct. Producers argued that the rule in International Timber
Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule
in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car
and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of speech. 13 The terms "service" and "employment" are generally associated
P1,400.00 per driver to PRC Management Systems and not to Magalong, it with the idea of selection, control, and compensation. 14
is clear that Magalong was not Producers' employee. As to Atiga, Producers
relies on the provision of its contract with Unicorn Security Services which A contract of insurance is a contract of adhesion, thus any ambiguity
provides that the guards of the latter "are in no sense employees of the therein should be resolved against the insurer, 15 or it should be construed
CLIENT." liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy
There is merit in this petition. and must be construed
in such a way, as to preclude the insurer from non-compliance with its
It should be noted that the insurance policy entered into by the parties is a obligation. 17 It goes without saying then that if the terms of the contract
theft or robbery insurance policy which is a form of casualty insurance. are clear and unambiguous, there is no room for construction and such
Section 174 of the Insurance Code provides: terms cannot be enlarged or diminished by judicial construction. 18

Sec. 174. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as
falling exclusively within the scope of insurance such as
fire or marine. It includes, but is not limited to, employer's
liability insurance, public liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as
written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases
supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's
service and employment. 11 The purpose of the exception is to guard
against liability should the theft be committed by one having unrestricted
access to the property. 12 In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect
of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or
any officer, employee, partner,
director, trustee or authorized
representative of the Insured whether
acting alone or in conjunction with others. .
. . (emphases supplied)
There is marked disagreement between the parties on the correct meaning
of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is
not the employer of Magalong. Notwithstanding such express
assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall supply
to Producers are not the latter's employees, it may, in fact, be that
it is because the contracts are, indeed, "labor-only" contracts.
Whether they are is, in the light of the criteria provided for in
Article 106 of the Labor Code, a question of fact. Since the parties
opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance
policy, the contracts with PRC Management Systems and Unicorn
Security Services, the complaint for violation of P.D. No. 532, and
the information therefor filed by the City Fiscal of Pasay City, there
is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn Security
Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of
another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817
are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 76452 July 26, 1994
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO
DE LOS REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance
Commissioner, and RAMON MONTILLA PATERNO, JR., respondents.
This is a petition for certiorari and prohibition under Rule 65 of the Revised
Rules of Court, with preliminary injunction or temporary restraining order,
to annul and set aside the Order dated November 6, 1986 of the Insurance
Commissioner and the entire proceedings taken in I.C. Special Case No. 1-
86.
We grant the petition.
The instant case arose from a letter-complaint of private respondent
Ramon M. Paterno, Jr. dated April 17, 1986, to respondent Commissioner,
alleging certain problems encountered by agents, supervisors, managers
and public consumers of the Philippine American Life Insurance Company
(Philamlife) as a result of certain practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested
petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to
comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner, petitioner De (1) Private respondent's letter of August 11, 1986 does not
los Reyes suggested that private respondent "submit some sort of a 'bill of contain any of the particular information which Philamlife
particulars' listing and citing actual cases, facts, dates, figures, provisions was seeking from him and which he promised to submit.
of law, rules and regulations, and all other pertinent data which are
necessary to enable him to prepare an intelligent reply" (Rollo, p. 37). A (2) That since the Commission's quasi-judicial power was
copy of this letter was sent by the Insurance Commissioner to private being invoked with regard to the complaint, private
respondent for his comments thereon. respondent must file a verified formal complaint before any
further proceedings.
On May 16, 1986, respondent Commissioner received a letter from private
respondent maintaining that his letter-complaint of April 17, 1986 was In his letter dated September 9, 1986, private respondent asked for the
sufficient in form and substance, and requested that a hearing thereon be resumption of the hearings on his complaint.
conducted.
On October 1, private respondent executed an affidavit, verifying his
Petitioner De los Reyes, in his letter to respondent Commissioner dated letters of April 17, 1986, and July 31, 1986.
June 6, 1986, reiterated his claim that private respondent's letter of May
16, 1986 did not supply the information he needed to enable him to In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior
answer the letter-complaint. Assistant Vice-President and Executive Assistant to the President, asked
that respondent Commission first rule on the questions of the jurisdiction
On July 14, a hearing on the letter-complaint was held by respondent of the Insurance Commissioner over the subject matter of the letters-
Commissioner on the validity of the Contract of Agency complained of by complaint and the legal standing of private respondent.
private respondent.
On October 27, respondent Commissioner notified both parties of the
In said hearing, private respondent was required by respondent hearing of the case on November 5, 1986.
Commissioner to specify the provisions of the agency contract which he
claimed to be illegal. On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice
on the following grounds;
On August 4, private respondent submitted a letter of specification to
respondent Commissioner dated July 31, 1986, reiterating his letter of April 1. The Subpoena/Notice has no legal basis and is
17, 1986 and praying that the provisions on charges and fees stated in the premature because:
Contract of Agency executed between Philamlife and its agents, as well as
the implementing provisions as published in the agents' handbook, agency
(1) No complaint sufficient in form and
bulletins and circulars, be declared as null and void. He also asked that the
contents has been filed;
amounts of such charges and fees already deducted and collected by
Philamlife in connection therewith be reimbursed to the agents, with
interest at the prevailing rate reckoned from the date when they were (2) No summons has been issued nor
deducted. received by the respondent De los Reyes,
and hence, no jurisdiction has been
acquired over his person;
Respondent Commissioner furnished petitioner De los Reyes with a copy of
private respondent's letter of July 31, 1986, and requested his answer
thereto. (3) No answer has been filed, and hence,
the hearing scheduled on November 5,
1986 in the Subpoena/Notice, and wherein
Petitioner De los Reyes submitted an Answer dated September 8, 1986,
the respondent is required to appear, is
stating inter alia that:
premature and lacks legal basis.
 II. The Insurance Commission has no jurisdiction over;
(1) the subject matter or nature of the
action; and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied
the Motion to Quash. The dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru
counsel tenable and considering the fact that the instant
case is an informal administrative litigation falling outside
the operation of the aforecited memorandum circular but
cognizable by this Commission, the hearing officer, in open
session ruled as it is hereby ruled to deny the Motion to
Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the resolution of the
legality of the Contract of Agency falls within the jurisdiction of the
Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has
jurisdiction to take cognizance of the complaint in the exercise of its quasi-
judicial powers. The Solicitor General, upholding the jurisdiction of the
Insurance Commissioner, claims that under Sections 414 and 415 of the
Insurance Code, the Commissioner has authority to nullify the alleged
illegal provisions of the Contract of Agency.
III
The general regulatory authority of the Insurance Commissioner is
described in Section 414 of the Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see
that all laws relating to insurance, insurance companies
and other insurance matters, mutual benefit associations
and trusts for charitable uses are faithfully executed and to
perform the duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided
elsewhere in this Code, the Insurance Commissioner is
hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply with, or
violation of any provision of this Code, or any order,
instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities, and/or
conducting business in an unsafe and unsound manner as
may be determined by the the Insurance Commissioner,
the following:
(a) fines not in excess of five hundred
pesos a day; and
(b) suspension, or after due hearing,
removal of directors and/or officers and/or
agents.
A plain reading of the above-quoted provisions show that the Insurance
Commissioner has the authority to regulate the business of insurance,
which is defined as follows:
(2) The term "doing an insurance business" or "transacting
an insurance business," within the meaning of this Code,
shall include
(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. (Insurance Code, Sec.
2[2]; Emphasis supplied).
Since the contract of agency entered into between Philamlife and its
agents is not included within the meaning of an insurance business,
Section 2 of the Insurance Code cannot be invoked to give jurisdiction over
the same to the Insurance Commissioner. Expressio unius est exclusio
alterius.
With regard to private respondent's contention that the quasi-judicial
power of the Insurance Commissioner under Section 416 of the Insurance
Code applies in his case, we likewise rule in the negative. Section 416 of
the Code in pertinent part, provides:
The Commissioner shall have the power to adjudicate
claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under any
kind of policy or contract of insurance, or for which such
insurer may be liable under a contract of suretyship, or for
which a reinsurer may be used under any contract or
reinsurance it may have entered into, or for which a mutual
benefit association may be held liable under the
membership certificates it has issued to its members,
where the amount of any such loss, damage or liability,
excluding interest, costs and attorney's fees, being claimed
or sued upon any kind of insurance, bond, reinsurance
contract, or membership certificate does not exceed in any
single claim one hundred thousand pesos.
We have held in the cases of Great Pacific Life Assurance Corporation v.
Judico, 180 SCRA 445 (1989), andInvestment Planning Corporation of the
Philippines v. Social Security Commission, 21 SCRA 904 (1962), that an
insurance company may have two classes of agents who sell its insurance
policies: (1) salaried employees who keep definite hours and work under
the control and supervision of the company; and (2) registered
representatives, who work on commission basis.
Under the first category, the relationship between the insurance company
and its agents is governed by the Contract of Employment and the
provisions of the Labor Code, while under the second category, the same is
governed by the Contract of Agency and the provisions of the Civil Code on
the Agency. Disputes involving the latter are cognizable by the regular
courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986
of the Insurance Commission is SET ASIDE.
SO ORDERED.

A reading of the said section shows that the quasi-judicial power of the
Insurance Commissioner is limited by law "to claims and complaints
involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, . . ." Hence,
this power does not cover the relationship affecting the insurance company
and its agents but is limited to adjudicating claims and complaints filed by
the insured against the insurance company.

While the subject of Insurance Agents and Brokers is discussed under

Chapter IV, Title I of the Insurance Code, the provisions of said Chapter
speak only of the licensing requirements and limitations imposed on
insurance agents and brokers.

The Insurance Code does not have provisions governing the relations
between insurance companies and their agents. It follows that the
Insurance Commissioner cannot, in the exercise of its quasi-judicial powers,
assume jurisdiction over controversies between the insurance companies
and their agents.

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.
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. 3 Pioneer 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 186 4 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 Appeals 10 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 registration22 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. 158085 October 14, 2005
REPUBLIC OF THE PHILIPPINES, Represented by the
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
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 Review 1 under Rule 45 of the Rules of Court,
seeking to nullify the January 23, 2003 Decision 2 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 P31,485,834.51. 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 P30,000,000.00.
"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 ofP61,485,834.51 representing P31,485,834.51 of
erroneously paid premium tax for the third quarter of 1997
andP30,000[,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.
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.

"Thwarted anew but nonetheless undaunted, the CIR comes to this

"Whether or not respondent is a purely cooperative company or
court via this petition on the sole ground that:
association under Section 121 of the National Internal Revenue Code and a
fraternal or beneficiary society, order or cooperative company on the lodge
‘The Tax Court erred in granting the refund[,] because respondent does not system or local cooperation plan and organized and conducted solely by
fall under the exception provided for under Section 121 (now 123) of the the members thereof for the exclusive benefit of each member and not for
Tax Code to be exempted from premium tax and DST and be entitled to the profit under Section 199 of the National Internal Revenue Code.
refund.’
"II.
"The CIR repleads the arguments it raised with the CTA and proposes
further that the [CA] decision in [CIR] v. Insular Life Assurance Company,
"Whether or not registration with the Cooperative Development Authority
Ltd. is not controlling and cannot constitute res judicata in the present
is a sine qua non requirement to be entitled to tax exemption.
action. At best, the pronouncements are merely persuasive as the
decisions of the Supreme Court alone have a universal and mandatory
effect."5 "III.

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

In upholding the CTA, the CA reasoned that respondent was a purely

cooperative corporation duly licensed to engage in mutual life insurance We shall tackle the issues seriatim.
business in the Philippines. Thus, respondent was deemed exempt from
premium and documentary stamp taxes, because its affairs are managed The Court’s Ruling
and conducted by its members with money collected from among
themselves, solely for their own protection, and not for profit. Its members The Petition has no merit.
or policyholders constituted both insurer and insured who contribute, by a
system of premiums or assessments, to the creation of a fund from which First Issue:
all losses and liabilities were paid. The dividends it distributed to them
were not profits, but returns of amounts that had been overcharged them Whether Respondent Is a Cooperative
for insurance.
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;13 and who, in turn, elect
from among themselves the members of its board of trustees. 14Being 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. 20Pursuant 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.26Rather, 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 non-profit entity.43 It may, however, invest its corporate funds in order to
withdraw dividends in cash or to apply them in order to reduce a earn additional income for paying its operating expenses and meeting
subsequent premium, purchase additional insurance, or accelerate the benefit claims. Any excess profit it obtains as an incident to its operations
payment period. Although the premium made at the beginning of a year is can only be used, whenever necessary or proper, for the furtherance of the
more than necessary to provide for the cost of carrying the insurance, the purpose for which it was organized.44
member-policyholder will nevertheless receive the benefit of the
overcharge by way of dividends, at the end of the year when the cost is Second Issue:
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 Whether CDA Registration Is Necessary
its purpose and effect."34
Under the Tax Code although respondent is a cooperative, registration with
A stipulated insurance premium "cannot be increased, but may be the Cooperative Development Authority (CDA)45 is not necessary in order
lessened annually by so much as the experience of the preceding year has for it to be exempt from the payment of both percentage taxes on
determined it to have been greater than the cost of carrying the insurance insurance premiums, under Section 121; and documentary stamp taxes on
x x x."35 The difference between that premium and the cost of carrying the policies of insurance or annuities it grants, under Section 199.
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
First, the Tax Code does not require registration with the CDA. No tax
the insurance business to be widely different from that to which it is
provision requires a mutual life insurance company to register with that
ordinarily attached.
agency in order to enjoy exemption from both percentage and
documentary stamp taxes.
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
A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-91
to their subscription to the capital stock of a corporation. 37 One, a mutual
requires the submission of the Certificate of Registration with the
company has no capital stock
CDA,46 before the issuance of a tax exemption certificate. That provision
to which subscription is necessary; there are no stockholders to speak of,
cannot prevail over the clear absence of an equivalent requirement under
but only members. And, two, the amount they receive does not partake of
the Tax Code. One, as we will explain below, the Circular does not apply to
the nature of a profit or income. The quasi-appearance of profit will not
respondent, but only to cooperatives that need to be registered under the
change its character. It remains an overpayment, a benefit to which the
Cooperative Code. Two, it is a mere issuance directing all internal revenue
member-policyholder is equitably entitled.38
officers to publicize a new tax legislation. Although the Circular does not
derogate from their authority to implement the law, it cannot add a
Verily, a mutual life insurance corporation is a cooperative that promotes registration requirement,47 when there is none under the law to begin with.
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
Second, the provisions of the Cooperative Code of the Philippines 48 do not
cost, while reasonably and properly guarding and maintaining the stability
apply. Let us trace the Code’s development in our history.
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 As early as 1917, a cooperative company or association was already
utilized."40 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
It does not follow that because respondent is registered as a nonstock
registered association of persons, with a common bond of interest, who
corporation and thus exists for a purpose other than profit, the company
have voluntarily joined together to achieve a lawful common social or
can no longer make any profits.41 Earning profits is merely its secondary,
economic end, making equitable contributions to the capital required and
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 nature 42 as a
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 P61,485,834.51, 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.

SO ORDERED.
G.R. No. 181132 June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse

VICENTA PANGILINAN MARAMAG,Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE
MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and
GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

This is a petition 1 for review on certiorari under Rule 45 of the Rules,

seeking to reverse and set aside the Resolution2 dated January 8, 2008 of
the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’
appeal for lack of jurisdiction.

The case stems from a petition 3 filed against respondents with the Regional
Trial Court, Branch 29, for revocation and/or reduction of insurance
proceeds for being void and/or inofficious, with prayer for a temporary
restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and
children of Loreto Maramag (Loreto), while respondents were Loreto’s
illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of
Loreto and a suspect in the killing of the latter, thus, she is disqualified to
receive any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance
Corporation (Grepalife);5(3) the illegitimate children of Loreto—Odessa, Karl
Brian, and Trisha Angelie—were entitled only to one-half of the legitime of
the legitimate children, thus, the proceeds released to Odessa and those to
be released to Karl Brian and Trisha Angelie were inofficious and should be
reduced; and (4) petitioners could not be deprived of their legitimes, which
should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction,
petitioners alleged, among others, that part of the insurance proceeds had
already been released in favor of Odessa, while the rest of the proceeds
are to be released in favor of Karl Brian and Trisha Angelie, both minors,
upon the appointment of their legal guardian. Petitioners also prayed for
the total amount of P320,000.00 as actual litigation expenses and
attorney’s fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his
legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate
children, and that they filed their claims for the insurance proceeds of the
insurance policies; that when it ascertained that Eva was not the legal wife
of Loreto, it disqualified her as a beneficiary and divided the proceeds
among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries; and that it released Odessa’s share as she was of age, but
withheld the release of the shares of minors Karl Brian and Trisha Angelie
pending submission of letters of guardianship. Insular alleged that the
complaint or petition failed to state a cause of action insofar as it sought to
declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to
declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie,
considering that no settlement of Loreto’s estate had been filed nor had
the respective shares of the heirs been determined. Insular further claimed
that it was bound to honor the insurance policies designating the children
of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance
Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that
Eva was not designated as an insurance policy beneficiary; that the claims
filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto
was ineligible for insurance due to a misrepresentation in his application
form that he was born on December 10, 1936 and, thus, not more than 65
years old when he signed it in September 2001; that the case was
premature, there being no claim filed by the legitimate family of Loreto;
and that the law on succession does not apply where the designation of
insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not
known to petitioners, summons by publication was resorted to. Still, the
illegitimate family of Loreto failed to file their answer. Hence, the trial
court, upon motion of petitioners, declared them in default in its Order
dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that
the issues raised in their respective answers be resolved first. The trial
court ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and
Grepalife was purely legal – whether the complaint itself was proper or not
– and that the designation of a beneficiary is an act of liberality or a
donation and, therefore, subject to the provisions of Articles 752 8 and
7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds
belong exclusively to the designated beneficiaries in the policies, not to the
estate or to the heirs of the insured. Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive
portion of which reads –
WHEREFORE, the motion to dismiss incorporated in the answer of
defendants Insular Life and Grepalife is granted with respect to defendants
Odessa, Karl Brian and Trisha Maramag. The action shall proceed with
respect to the other defendants Eva Verna de Guzman, Insular Life and
Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus –
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code. The principal law on
insurance is the Insurance Code, as amended. Only in case of deficiency in
the Insurance Code that the Civil Code may be resorted to. (Enriquez v.
Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom
the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof
that the insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made,
unless otherwise specified in the policy. Since the defendants are the ones
named as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein the insurance proceeds shall
exclusively be paid to them. This is because the beneficiary has a vested
right to the indemnity, unless the insured reserves the right to change the
beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules
on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a contract
of insurance is not the donee spoken in the law of donation. The rules on
testamentary succession cannot apply here, for the insurance indemnity
does not partake of a donation. As such, the insurance indemnity cannot
be considered as an advance of the inheritance which can be subject to
collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon
Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme
Court made the following pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance
Policy belongs exclusively to the defendant as his individual and separate
property, we agree that the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual
property of the beneficiary and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine
obtains in these Islands by virtue of Section 428 of the Code of Commerce
x x x."
In [the] light of the above pronouncements, it is very clear that the
plaintiffs has (sic) no sufficient cause of action against defendants Odessa,
Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration
of inofficiousness of donation as primary beneficiary (sic) in the insurances
(sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One
of the named beneficiary (sic) in the insurances (sic) taken by the late
Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person
who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil Code).
If a concubine is made the beneficiary, it is believed that the insurance
contract will still remain valid, but the indemnity must go to the legal heirs
and not to the concubine, for evidently, what is prohibited under Art. 2012
is the naming of the improper beneficiary. In such case, the action for the
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 (Comment of Edgardo L. Paras, Civil Code of
the Philippines, page 897). Since the designation of defendant Eva Verna
de Guzman as one of the primary beneficiary (sic) in the insurances (sic)
taken by the late Loreto C. Maramag is void under Art. 739 of the Civil
Code, the insurance indemnity that should be paid to her must go to the
legal heirs of the deceased which this court may properly take cognizance
as the action for the declaration for the nullity of a void donation falls
within the general jurisdiction of this Court.11
Insular12 and Grepalife13 filed their respective motions for reconsideration,
arguing, in the main, that the petition failed to state a cause of action.
Insular further averred that the proceeds were divided among the three
children as the remaining named beneficiaries. Grepalife, for its part, also
alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and
posited that whether the complaint may be dismissed for failure to state a
cause of action must be determined solely on the basis of the allegations in
the complaint, such that the defenses of Insular and Grepalife would be
better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for
Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated 21
September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET
ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the
trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a
beneficiary in the other policy such that the entire proceeds would be paid
to the illegitimate children of Loreto with Eva pursuant to Section 53 of the
Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the estate of the insured.
As to the claim that the proceeds to be paid to Loreto’s illegitimate children
should be reduced based on the rules on legitime, the trial court held that
the distribution of the insurance proceeds is governed primarily by the
Insurance Code, and the provisions of the Civil Code are irrelevant and
inapplicable. With respect to the Grepalife policy, the trial court noted that
Eva was never designated as a beneficiary, but only Odessa, Karl Brian,
and Trisha Angelie; thus, it upheld the dismissal of the case as to the
illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only
upon denial of the claim of the named beneficiaries for the insurance
proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it
dismissed the appeal for lack of jurisdiction, holding that the decision of
the trial court dismissing the complaint for failure to state a cause of action
involved a pure question of law. The appellate court also noted that
petitioners did not file within the reglementary period a motion for
reconsideration of the trial court’s Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie;
thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to
state a cause of action, may the Court consider matters which
were not alleged in the Complaint, particularly the defenses put up
by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss
for failure to state a cause of action, did not the Regional Trial
Court engage in the examination and determination of what were
the facts and their probative value, or the truth thereof, when it
premised the dismissal on allegations of the defendants in their
answer – which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the
proceeds of the insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should
not have been dismissed for failure to state a cause of action because the
finding that Eva was either disqualified as a beneficiary by the insurance
companies or that her designation was revoked by Loreto, hypothetically
admitted as true, was raised only in the answers and motions for
reconsideration of both Insular and Grepalife. They argue that for a motion
to dismiss to prosper on that ground, only the allegations in the complaint
should be considered. They further contend that, even assuming Insular
disqualified Eva as a beneficiary, her share should not have been
distributed to her children with Loreto but, instead, awarded to them, being
the legitimate heirs of the insured deceased, in accordance with law and
jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court’s finding
that the petition failed to state a cause of action, as provided in Rule 16,
Section 1(g), of the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be
made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of
another.16 A complaint states a cause of action when it contains the three
(3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the
correlative obligation of the defendant; and (3) the act or omission of the
defendant in violation of the legal right. If any of these elements is absent,
the complaint becomes vulnerable to a motion to dismiss on the ground of
failure to state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon
should be based only on the facts alleged in the complaint. The court must
resolve the issue on the strength of such allegations, assuming them to be
true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the
court can render a valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there
is no hypothetical admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations
appear unfounded; or
5. there is evidence which has been presented to the court by
stipulation of the parties or in the course of the hearings related to
the case.18
In this case, it is clear from the petition filed before the trial court that,
although petitioners are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of
Loreto and a suspect in his murder, is disqualified from being designated
as beneficiary of the insurance policies, and that Eva’s children with Loreto,
being illegitimate children, are entitled to a lesser share of the proceeds of
the policies. They also argued that pursuant to Section 12 of the Insurance
Code,19 Eva’s share in the proceeds should be forfeited in their favor, the
former having brought about the death of Loreto. Thus, they prayed that
the share of Eva and portions of the shares of Loreto’s illegitimate children
should be awarded to them, being the legitimate heirs of Loreto entitled to
their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled
to a favorable judgment in light of Article 2011 of the Civil Code which
expressly provides that insurance contracts shall be governed by special
laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—
SECTION 53. The insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made
unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary, if
the insured is already deceased, upon the maturation of the policy. 20The
exception to this rule is a situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the
form of favorable stipulations or indemnity. In such a case, third parties
may directly sue and claim from the insurer.21
Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the
insurance proceeds to petitioners. The revocation of Eva as a beneficiary in
one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries
in Loreto’s insurance policies remains valid. Because no legal proscription
exists in naming as beneficiaries the children of illicit relationships by the
insured,22 the shares of Eva in the insurance proceeds, whether forfeited by
the court in view of the prohibition on donations under Article 739 of the
Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases
where the insured has not designated any beneficiary, 23 or when the
designated beneficiary is disqualified by law to receive the proceeds, 24 that
the insurance policy proceeds shall redound to the benefit of the estate of
the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court
should be upheld. In the same light, the Decision of the CA dated January
8, 2008 should be sustained. Indeed, the appellate court had no
jurisdiction to take cognizance of the appeal; the issue of failure to state a
cause of action is a question of law and not of fact, there being no findings
of fact in the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
SO ORDERED.
G.R. No. 167622 June 29, 2010

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and
RENATO A. VERGEL DE DIOS,Respondents.

This resolves the Motion for Reconsideration 1 dated December 3, 2008 filed
by respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife)
to set aside our Decision of November 7, 2008. In the assailed decision, we
found that an employer-employee relationship existed between Manulife
and petitioner Gregorio Tongko and ordered Manulife to pay Tongko
backwages and separation pay for illegal dismissal.

The following facts have been stated in our Decision of November 7, 2008,
now under reconsideration, but are repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic
phases. The first or initial phase began on July 1, 1977, under a Career
Agent’s Agreement (Agreement) that provided:

It is understood and agreed that the Agent is an independent contractor

and nothing contained herein shall be construed or interpreted as creating
an employer-employee relationship between the Company and the Agent.

xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities,
Group policies and other products offered by the Company, and collect, in
exchange for provisional receipts issued by the Agent, money due to or
become due to the Company in respect of applications or policies obtained
by or through the Agent or from policyholders allotted by the Company to
the Agent for servicing, subject to subsequent confirmation of receipt of
payment by the Company as evidenced by an Official Receipt issued by the
Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of
any of the provisions hereof by the Agent by giving written notice to the
Agent within fifteen (15) days from the time of the discovery of the breach.
No waiver, extinguishment, abandonment, withdrawal or cancellation of
the right to terminate this Agreement by the Company shall be construed
for any previous failure to exercise its right under any provision of this
Agreement.
Either of the parties hereto may likewise terminate his Agreement at any
time without cause, by giving to the other party fifteen (15) days notice in
writing.2
Tongko additionally agreed (1) to comply with all regulations and
requirements of Manulife, and (2) to maintain a standard of knowledge and
competency in the sale of Manulife’s products, satisfactory to Manulife and
sufficient to meet the volume of the new business, required by his
Production Club membership.3
The second phase started in 1983 when Tongko was named Unit Manager
in Manulife’s Sales Agency Organization. In 1990, he became a Branch
Manager. Six years later (or in 1996), Tongko became a Regional Sales
Manager.4
Tongko’s gross earnings consisted of commissions, persistency income,
and management overrides. Since the beginning, Tongko consistently
declared himself self-employed in his income tax returns. Thus, under oath,
he declared his gross business income and deducted his business
expenses to arrive at his taxable business income. Manulife withheld the
corresponding 10% tax on Tongko’s earnings.5
In 2001, Manulife instituted manpower development programs at the
regional sales management level. Respondent Renato Vergel de Dios wrote
Tongko a letter dated November 6, 2001 on concerns that were brought up
during the October 18, 2001 Metro North Sales Managers Meeting. De Dios
wrote:
The first step to transforming Manulife into a big league player has been
very clear – to increase the number of agents to at least 1,000 strong for a
start. This may seem diametrically opposed to the way Manulife was run
when you first joined the organization. Since then, however, substantial
changes have taken place in the organization, as these have been
influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives
hence the need for a Senior Managers’ meeting earlier last month when
Kevin O’Connor, SVP-Agency, took to the floor to determine from our senior
agency leaders what more could be done to bolster manpower
development. At earlier meetings, Kevin had presented information where
evidently, your Region was the lowest performer (on a per Manager basis)
in terms of recruiting in 2000 and, as of today, continues to remain one of
the laggards in this area.
While discussions, in general, were positive other than for certain
comments from your end which were perceived to be uncalled for, it
became clear that a one-on-one meeting with you was necessary to ensure
that you and management, were on the same plane. As gleaned from some
of your previous comments in prior meetings (both in group and one-on-
one), it was not clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of
which I joined briefly. In those subsequent meetings you reiterated certain
views, the validity of which we challenged and subsequently found as
having no basis.
With such views coming from you, I was a bit concerned that the rest of the
Metro North Managers may be a bit confused as to the directions the
company was taking. For this reason, I sought a meeting with everyone in
your management team, including you, to clear the air, so to speak.
This note is intended to confirm the items that were discussed at the said
Metro North Region’s Sales Managers meeting held at the 7/F Conference
room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would
want to revert to the position of agents."
This is an often repeated issue you have raised with me and with Kevin. For
this reason, I placed the issue on the table before the rest of your Region’s
Sales Managers to verify its validity. As you must have noted, no Sales
Manager came forward on their own to confirm your statement and it took
you to name Malou Samson as a source of the same, an allegation that
Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at
all. I now believe what I had thought all along, that these allegations were
simply meant to muddle the issues surrounding the inability of your Region
to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do
but, in the process, they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we
found that you made a lot more money in the Year 2000 versus 1999. In
addition, you also volunteered the information to Kevin when you said that
you probably will make more money in the Year 2001 compared to Year
2000. Obviously, your above statement about making "less money" did not
refer to you but the way you argued this point had us almost believing that
you were spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability
to lead this group towards the new direction that we have been discussing
these past few weeks, i.e., Manulife’s goal to become a major agency-led
distribution company in the Philippines. While as you claim, you have not
stopped anyone from recruiting, I have never heard you proactively push
for greater agency recruiting. You have not been proactive all these years
when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental
goals next year and so, we are making the following changes in the
interim:
1. You will hire at your expense a competent assistant who can unload you
of much of the routine tasks which can be easily delegated. This assistant
should be so chosen as to complement your skills and help you in the
areas where you feel "may not be your cup of tea."
You have stated, if not implied, that your work as Regional Manager may
be too taxing for you and for your health. The above could solve this
problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will
deal with the North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control
and allow you to concentrate more fully on overseeing the remaining
groups under Metro North, your Central Unit and the rest of the Sales
Managers in Metro North. I will hold you solely responsible for meeting the
objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further.
This, however, is entirely dependent upon you. But you have to understand
that meeting corporate objectives by everyone is primary and will not be
compromised. We are meeting tough challenges next year, and I would
want everybody on board. Any resistance or holding back by anyone will be
dealt with accordingly.6
Subsequently, de Dios wrote Tongko another letter, dated December 18,
2001, terminating Tongko’s services:
It would appear, however, that despite the series of meetings and
communications, both one-on-one meetings between yourself and SVP
Kevin O’Connor, some of them with me, as well as group meetings with
your Sales Managers, all these efforts have failed in helping you align your
directions with Management’s avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under
Section 14 of your Agents Contract as we are now issuing this notice of
termination of your Agency Agreement with us effective fifteen days from
the date of this letter.7
Tongko responded by filing an illegal dismissal complaint with the National
Labor Relations Commission (NLRC) Arbitration Branch. He essentially
alleged – despite the clear terms of the letter terminating his Agency
Agreement – that he was Manulife’s employee before he was illegally
dismissed.8
Thus, the threshold issue is the existence of an employment relationship. A
finding that none exists renders the question of illegal dismissal moot; a
finding that an employment relationship exists, on the other hand,
necessarily leads to the need to determine the validity of the termination
of the relationship.
A. Tongko’s Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider
not exceeding P50,000.00, regardless of production levels attained and
exclusive of commissions and bonuses. He also claimed that as Regional
Sales Manager, he was given a travel and entertainment allowance
of P36,000.00 per year in addition to his overriding commissions; he was
tasked with numerous administrative functions and supervisory authority
over Manulife’s employees, aside from merely selling policies and
recruiting agents for Manulife; and he recommended and recruited
insurance agents subject to vetting and approval by Manulife. He further
alleges that he was assigned a definite place in the Manulife offices when
he was not in the field – at the 3rd Floor, Manulife Center, 108 Tordesillas
corner Gallardo Sts., Salcedo Village, Makati City – for which he never paid
any rental. Manulife provided the office equipment he used, including
tables, chairs, computers and printers (and even office stationery), and
paid for the electricity, water and telephone bills. As Regional Sales
Manager, Tongko additionally asserts that he was required to follow at least
three codes of conduct.9
B. Manulife’s Case – Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the
Agreement, Tongko was paid commissions of varying amounts, computed
based on the premium paid in full and actually received by Manulife on
policies obtained through an agent. As sales manager, Tongko was paid
overriding sales commission derived from sales made by agents under his
unit/structure/branch/region. Manulife also points out that it deducted and
withheld a 10% tax from all commissions Tongko received; Tongko even
declared himself to be self-employed and consistently paid taxes as such—
i.e., he availed of tax deductions such as ordinary and necessary trade,
business and professional expenses to which a business is entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s
claim as he was not its employee as characterized in the four-fold test and
our ruling in Carungcong v. National Labor Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed
between the parties. However, the NLRC reversed the labor arbiter’s
decision on appeal; it found the existence of an employer-employee
relationship and concluded that Tongko had been illegally dismissed. In the
petition for certiorari with the Court of Appeals (CA), the appellate court
found that the NLRC gravely abused its discretion in its ruling and reverted
to the labor arbiter’s decision that no employer-employee relationship
existed between Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found
that an employment relationship existed between Tongko and Manulife. We
concluded that Tongko is Manulife’s employee for the following reasons:
1. Our ruling in the first Insular11 case did not foreclose the
possibility of an insurance agent becoming an employee of an
insurance company; if evidence exists showing that the company
promulgated rules or regulations that effectively controlled or
restricted an insurance agent’s choice of methods or the methods
themselves in selling insurance, an employer-employee
relationship would be present. The determination of the existence
of an employer-employee relationship is thus on a case-to-case
basis depending on the evidence on record.
2. Manulife had the power of control over Tongko, sufficient to
characterize him as an employee, as shown by the following
indicators:
2.1 Tongko undertook to comply with Manulife’s rules,
regulations and other requirements, i.e., the different
codes of conduct such as the Agent Code of Conduct, the
Manulife Financial Code of Conduct, and the Financial Code
of Conduct Agreement;
2.2 The various affidavits of Manulife’s insurance agents
and managers, who occupied similar positions as Tongko,
showed that they performed administrative duties that
established employment with Manulife;12 and
2.3 Tongko was tasked to recruit some agents in addition to
his other administrative functions. De Dios’ letter harped
on the direction Manulife intended to take, viz., greater
agency recruitment as the primary means to sell more
policies; Tongko’s alleged failure to follow this directive led
to the termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for
reconsideration on the following GROUNDS:
1. The November 7[, 2008] Decision violates Manulife’s right to due
process by: (a) confining the review only to the issue of "control"
and utterly disregarding all the other issues that had been joined in
this case; (b) mischaracterizing the divergence of conclusions
between the CA and the NLRC decisions as confined only to that on
"control"; (c) grossly failing to consider the findings and
conclusions of the CA on the majority of the material evidence,
especially [Tongko’s] declaration in his income tax returns that he
was a "business person" or "self-employed"; and (d) allowing
[Tongko] to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in
contract law and agency, distorts not only the legal relationships of
 agencies to sell but also distributorship and franchising, and
ignores the constitutional and policy context of contract law vis-à-
vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA
on the three elements of the four-fold test other than the "control"
test, reverses well-settled doctrines of law on employer-employee
relationships, and grossly misapplies the "control test," by
selecting, without basis, a few items of evidence to the exclusion of
more material evidence to support its conclusion that there is
"control."
4. The November 7[, 2008] Decision is judicial legislation, beyond
the scope authorized by Articles 8 and 9 of the Civil Code, beyond
the powers granted to this Court under Article VIII, Section 1 of the
Constitution and contravenes through judicial legislation, the
constitutional prohibition against impairment of contracts under
Article III, Section 10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision
made unsustainable and reversible errors, which should be
corrected, in concluding that Respondent Manulife and Petitioner
had an employer-employee relationship, that Respondent Manulife
illegally dismissed Petitioner, and for consequently ordering
Respondent Manulife to pay Petitioner backwages, separation pay,
nominal damages and attorney’s fees.13
THE COURT’S RULING
A. The Insurance and the Civil Codes;
the Parties’ Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective,
oblivious that the factual antecedents were set in the insurance industry so
that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code
is wholly devoted to "Insurance Agents and Brokers" and specifically
defines the agents and brokers relationship with the insurance company
and how they are governed by the Code and regulated by the Insurance
Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that
it speaks of, as agency is a civil law matter governed by the Civil Code.
Thus, at the very least, three sets of laws – namely, the Insurance Code,
the Labor Code and the Civil Code – have to be considered in looking at the
present case. Not to be forgotten, too, is the Agreement (partly reproduced
on page 2 of this Dissent and which no one disputes) that the parties
adopted to govern their relationship for purposes of selling the insurance
the company offers. To forget these other laws is to take a myopic view of
the present case and to add to the uncertainties that now exist in
considering the legal relationship between the insurance company and its
"agents."
The main issue of whether an agency or an employment relationship exists
depends on the incidents of the relationship. The Labor Code concept of
"control" has to be compared and distinguished with the "control" that
must necessarily exist in a principal-agent relationship. The principal
cannot but also have his or her say in directing the course of the principal-
agent relationship, especially in cases where the company-representative
relationship in the insurance industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the
country, in terms particularly of who can be in the insurance business, who
can act for and in behalf of an insurer, and how these parties shall conduct
themselves in the insurance business. Section 186 of the Insurance Code
provides that "No person, partnership, or association of persons shall
transact any insurance business in the Philippines except as agent of a
person or corporation authorized to do the business of insurance in the
Philippines." Sections 299 and 300 of the Insurance Code on Insurance
Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor
any agent thereof, shall pay any commission or other compensation to any
person for services in obtaining insurance, unless such person shall have
first procured from the Commissioner a license to act as an insurance
agent of such company or as an insurance broker as hereinafter provided.
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 x x x The Commissioner shall satisfy himself as to the
competence and trustworthiness of the applicant and shall have the right
to refuse to issue or renew and to suspend or revoke any such license in
his discretion.1avvphi1.net
Section 300. Any person who for compensation solicits or obtains insurance
on behalf of any insurance company or transmits for a person other than
himself an application for a policy or contract of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance
shall be an insurance agent within the intent of this section and shall
thereby become liable to all the duties, requirements, liabilities and
penalties to which an insurance agent is subject.
The application for an insurance agent’s license requires a written
examination, and the applicant must be of good moral character and must
not have been convicted of a crime involving moral turpitude. 14 The
insurance agent who collects premiums from an insured person for
remittance to the insurance company does so in a fiduciary capacity, and
an insurance company which delivers an insurance policy or contract to an
authorized agent is deemed to have authorized the agent to receive
payment on the company’s behalf.15 Section 361 further prohibits the offer,
negotiation, or collection of any amount other than that specified in the
policy and this covers any rebate from the premium or any special favor or
advantage in the dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of
qualification, be licensed and must also act within the parameters of the
authority granted under the license and under the contract with the
principal. Other than the need for a license, the agent is limited in the way
he offers and negotiates for the sale of the company’s insurance products,
in his collection activities, and in the delivery of the insurance contract or
policy. Rules regarding the desired results (e.g., the required volume to
continue to qualify as a company agent, rules to check on the parameters
on the authority given to the agent, and rules to ensure that industry, legal
and ethical rules are followed) are built-in elements of control specific to an
insurance agency and should not and cannot be read as elements of
control that attend an employment relationship governed by the Labor
Code.
On the other hand, the Civil Code defines an agent as a "person [who]
binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter." 16 While
this is a very broad definition that on its face may even encompass an
employment relationship, the distinctions between agency and
employment are sufficiently established by law and jurisprudence.
Generally, the determinative element is the control exercised over the one
rendering service. The employer controls the employee both in the results
and in the means and manner of achieving this result. The principal in an
agency relationship, on the other hand, also has the prerogative to
exercise control over the agent in undertaking the assigned task based on
the parameters outlined in the pertinent laws.
Under the general law on agency as applied to insurance, an agency must
be express in light of the need for a license and for the designation by the
insurance company. In the present case, the Agreement fully serves as
grant of authority to Tongko as Manulife’s insurance agent. 17 This
agreement is supplemented by the company’s agency practices and
usages, duly accepted by the agent in carrying out the agency. 18 By
authority of the Insurance Code, an insurance agency is for
compensation,19 a matter the Civil Code Rules on Agency presumes in the
absence of proof to the contrary. 20 Other than the compensation, the
principal is bound to advance to, or to reimburse, the agent the agreed
sums necessary for the execution of the agency. 21 By implication at least
under Article 1994 of the Civil Code, the principal can appoint two or more
agents to carry out the same assigned tasks, 22 based necessarily on the
specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the
execution of the agency, the agent shall act in accordance with the
instructions of the principal."23 This provision is pertinent for purposes of
the necessary control that the principal exercises over the agent in
undertaking the assigned task, and is an area where the instructions can
intrude into the labor law concept of control so that minute consideration
of the facts is necessary. A related article is Article 1891 of the Civil Code
which binds the agent to render an account of his transactions to the
principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife
cases to establish that the company rules and regulations that an agent
has to comply with are indicative of an employer-employee
relationship.24 The Dissenting Opinions of Justice Presbitero Velasco, Jr. and
Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v.
National Labor Relations Commission (second Insular case) 25 to support the
view that Tongko is Manulife’s employee. On the other hand, Manulife cites
the Carungcong case and AFP Mutual Benefit Association, Inc. v. National
Labor Relations Commission (AFPMBAI case) 26 to support its allegation that
Tongko was not its employee.
A caveat has been given above with respect to the use of the rulings in the
cited cases because none of them is on all fours with the present case; the
uniqueness of the factual situation of the present case prevents it from
being directly and readily cast in the mold of the cited cases. These cited
cases are themselves different from one another; this difference
underscores the need to read and quote them in the context of their own
factual situations.
The present case at first glance appears aligned with the facts in the
Carungcong, the Grepalife, and the second Insular Life cases. A critical
difference, however, exists as these cited cases dealt with the proper legal
characterization of a subsequent management contract that superseded
the original agency contract between the insurance company and its
agent. Carungcong dealt with a subsequent Agreement making
Carungcong a New Business Manager that clearly superseded the
Agreement designating Carungcong as an agent empowered to solicit
applications for insurance. The Grepalife case, on the other hand, dealt
with the proper legal characterization of the appointment of the Ruiz
brothers to positions higher than their original position as insurance
agents. Thus, after analyzing the duties and functions of the Ruiz brothers,
as these were enumerated in their contracts, we concluded that the
company practically dictated the manner by which the Ruiz brothers were
to carry out their jobs. Finally, the second Insular Life case dealt with the
implications of de los Reyes’ appointment as acting unit manager which,
like the subsequent contracts in the Carungcong and the Grepalife cases,
was clearly defined under a subsequent contract. In all these cited cases, a
determination of the presence of the Labor Code element of control was
made on the basis of the stipulations of the subsequent contracts.
In stark contrast with the Carungcong, the Grepalife, and the second
Insular Life cases, the only contract or document extant and submitted as
evidence in the present case is the Agreement – a pure agency agreement
in the Civil Code context similar to the original contract in the first Insular
Life case and the contract in the AFPMBAI case. And while Tongko was later
on designated unit manager in 1983, Branch Manager in 1990, and
Regional Sales Manager in 1996, no formal contract regarding these
undertakings appears in the records of the case. Any such contract or
agreement, had there been any, could have at the very least provided the
bases for properly ascertaining the juridical relationship established
between the parties.
These critical differences, particularly between the present case and the
Grepalife and the second Insular Life cases, should therefore immediately
drive us to be more prudent and cautious in applying the rulings in these
cases.
C. Analysis of the Evidence
c.1. The Agreement
The primary evidence in the present case is the July 1, 1977 Agreement
that governed and defined the parties’ relations until the Agreement’s
termination in 2001. This Agreement stood for more than two decades and,
based on the records of the case, was never modified or novated. It
assumes primacy because it directly dealt with the nature of the parties’
relationship up to the very end; moreover, both parties never disputed its
authenticity or the accuracy of its terms.
By the Agreement’s express terms, Tongko served as an "insurance agent"
for Manulife, not as an employee. To be sure, the Agreement’s legal
characterization of the nature of the relationship cannot be conclusive and
binding on the courts; as the dissent clearly stated, the characterization of
the juridical relationship the Agreement embodied is a matter of law that is
for the courts to determine. At the same time, though, the characterization
the parties gave to their relationship in the Agreement cannot simply be
brushed aside because it embodies their intent at the time they entered
the Agreement, and they were governed by this understanding throughout
their relationship. At the very least, the provision on the absence of
employer-employee relationship between the parties can be an aid in
considering the Agreement and its implementation, and in appreciating the
other evidence on record.
The parties’ legal characterization of their intent, although not conclusive,
is critical in this case because this intent is not illegal or outside the
contemplation of law, particularly of the Insurance and the Civil Codes.
From this perspective, the provisions of the Insurance Code cannot be
disregarded as this Code (as heretofore already noted) expressly envisions
a principal-agent relationship between the insurance company and the
insurance agent in the sale of insurance to the public.1awph!1 For this
reason, we can take judicial notice that as a matter of Insurance Code-
based business practice, an agency relationship prevails in the insurance
industry for the purpose of selling insurance. The Agreement, by its
express terms, is in accordance with the Insurance Code model when it
provided for a principal-agent relationship, and thus cannot lightly be set
aside nor simply be considered as an agreement that does not reflect the
parties’ true intent. This intent, incidentally, is reinforced by the system of
compensation the Agreement provides, which likewise is in accordance
with the production-based sales commissions the Insurance Code provides.
Significantly, evidence shows that Tongko’s role as an insurance agent
never changed during his relationship with Manulife. If changes occurred at
all, the changes did not appear to be in the nature of their core
relationship. Tongko essentially remained an agent, but moved up in this
role through Manulife’s recognition that he could use other agents
approved by Manulife, but operating under his guidance and in whose
commissions he had a share. For want of a better term, Tongko perhaps
could be labeled as a "lead agent" who guided under his wing other
Manulife agents similarly tasked with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under
their own agency agreements. Thus, if Tongko’s compensation scheme
changed at all during his relationship with Manulife, the change was solely
for purposes of crediting him with his share in the commissions the agents
under his wing generated. As an agent who was recruiting and guiding
other insurance agents, Tongko likewise moved up in terms of the
reimbursement of expenses he incurred in the course of his lead agency, a
prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus,
Tongko received greater reimbursements for his expenses and was even
allowed to use Manulife facilities in his interactions with the agents, all of
whom were, in the strict sense, Manulife agents approved and certified as
such by Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained
an agent is the inevitable conclusion that results from the reading of the
Agreement (the only agreement on record in this case) and his continuing
role thereunder as sales agent, from the perspective of the Insurance and
the Civil Codes and in light of what Tongko himself attested to as his role as
Regional Sales Manager. To be sure, this interpretation could have been
contradicted if other agreements had been submitted as evidence of the
relationship between Manulife and Tongko on the latter’s expanded
undertakings. In the absence of any such evidence, however, this reading –
based on the available evidence and the applicable insurance and civil law
provisions – must stand, subject only to objective and evidentiary Labor
Code tests on the existence of an employer-employee relationship.
In applying such Labor Code tests, however, the enforcement of the
Agreement during the course of the parties’ relationship should be noted.
From 1977 until the termination of the Agreement, Tongko’s occupation
was to sell Manulife’s insurance policies and products. Both parties
acquiesced with the terms and conditions of the Agreement. Tongko, for his
part, accepted all the benefits flowing from the Agreement, particularly the
generous commissions.
Evidence indicates that Tongko consistently clung to the view that he was
an independent agent selling Manulife insurance products since he
invariably declared himself a business or self-employed person in his
income tax returns. This consistency with, and action made pursuant
to the Agreement were pieces of evidence that were never
mentioned nor considered in our Decision of November 7,
2008. Had they been considered, they could, at the very least, serve as
Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax
returns cannot but be legally significant because he certified under oath
the amount he earned as gross business income, claimed business
deductions, leading to his net taxable income. This should be evidence of
the first order that cannot be brushed aside by a mere denial. Even on a
layman’s view that is devoid of legal considerations, the extent of his
annual income alone renders his claimed employment status doubtful. 27
Hand in hand with the concept of admission against interest in considering
the tax returns, the concept of estoppel – a legal and equitable concept 28 –
necessarily must come into play. Tongko’s previous admissions in several
years of tax returns as an independent agent, as against his belated claim
that he was all along an employee, are too diametrically opposed to be
simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting
opinion states that Tongko was forced to declare himself a business or self-
employed person by Manulife’s persistent refusal to recognize him as its
employee.29 Regrettably, the dissent has shown no basis for this
conclusion, an understandable omission since no evidence in fact
exists on this point in the records of the case. In fact, what the
evidence shows is Tongko’s full conformity with, and action as, an
independent agent until his relationship with Manulife took a bad turn.
Another interesting point the dissent raised with respect to the Agreement
is its conclusion that the Agreement negated any employment relationship
between Tongko and Manulife so that the commissions he earned as a
sales agent should not be considered in the determination of the
backwages and separation pay that should be given to him. This part of
the dissent is correct although it went on to twist this conclusion by
asserting that Tongko had dual roles in his relationship with Manulife; he
was an agent, not an employee, in so far as he sold insurance for Manulife,
but was an employee in his capacity as a manager. Thus, the dissent
concluded that Tongko’s backwages should only be with respect to his role
as Manulife’s manager.
The conclusion with respect to Tongko’s employment as a manager is, of
course, unacceptable for the legal, factual and practical reasons discussed
in this Resolution. In brief, the factual reason is grounded on the lack of
evidentiary support of the conclusion that Manulife exercised control over
Tongko in the sense understood in the Labor Code. The legal reason,
partly based on the lack of factual basis, is the erroneous legal conclusion
that Manulife controlled Tongko and was thus its employee. The practical
reason, on the other hand, is the havoc that the dissent’s unwarranted
conclusion would cause the insurance industry that, by the law’s own
design, operated along the lines of principal-agent relationship in the sale
of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on
record showing that Manulife ever exercised means-and-manner control,
even to a limited extent, over Tongko during his ascent in Manulife’s sales
ladder. In 1983, Tongko was appointed unit manager. Inexplicably, Tongko
never bothered to present any evidence at all on what this designation
meant. This also holds true for Tongko’s appointment as branch manager in
1990, and as Regional Sales Manager in 1996. The best evidence of control
– the agreement or directive relating to Tongko’s duties and responsibilities
– was never introduced as part of the records of the case. The reality is,
prior to de Dios’ letter, Manulife had practically left Tongko alone not only
in doing the business of selling insurance, but also in guiding the agents
under his wing. As discussed below, the alleged directives covered by de
Dios’ letter, heretofore quoted in full, were policy directions and targeted
results that the company wanted Tongko and the other sales groups to
realign with in their own selling activities. This is the reality that the
parties’ presented evidence consistently tells us.
What, to Tongko, serve as evidence of labor law control are the codes of
conduct that Manulife imposes on its agents in the sale of insurance. The
mere presentation of codes or of rules and regulations, however, is not per
se indicative of labor law control as the law and jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both
the insurance company and its agents in the performance of their
respective obligations under the Code, particularly on licenses and their
renewals, on the representations to be made to potential customers, the
collection of premiums, on the delivery of insurance policies, on the matter
of compensation, and on measures to ensure ethical business practice in
the industry.
drew this conclusion from what the other Manulife managers disclosed in
their affidavits (i.e., their enumerated administrative and managerial
functions) and after comparing these statements with the managers in
Grepalife. The dissent compared the control exercised by Manulife over its
managers in the present case with the control the managers in the
Grepalife case exercised over their employees by presenting the following
matrix:31

The general law on agency, on the other hand, expressly allows the
principal an element of control over the agent in a manner consistent with
an agency relationship. In this sense, these control measures cannot be
read as indicative of labor law control. Foremost among these are the
directives that the principal may impose on the agent to achieve the
assigned tasks, to the extent that they do not involve the means and
manner of undertaking these tasks. The law likewise obligates the agent to
render an account; in this sense, the principal may impose on the agent
specific instructions on how an account shall be made, particularly on the
matter of expenses and reimbursements. To these extents, control can be
imposed through rules and regulations without intruding into the labor law
concept of control for purposes of employment.

From jurisprudence, an important lesson that the first Insular Life case
teaches us is that a commitment to abide by the rules and regulations of
an insurance company does not ipso facto make the insurance agent an
employee. Neither do guidelines somehow restrictive of the insurance
agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the
first Insular Life case tells us, should not merely relate to the
mutually desirable result intended by the contractual relationship;
they must have the nature of dictating the means or methods to be
employed in attaining the result, or of fixing the methodology and of
binding or restricting the party hired to the use of these means. In fact,
results-wise, the principal can impose production quotas and can
determine how many agents, with specific territories, ought to be
employed to achieve the company’s objectives. These are management
policy decisions that the labor law element of control cannot reach. Our
ruling in these respects in the first Insular Life case was practically
reiterated in Carungcong. Thus, as will be shown more fully below,
Manulife’s codes of conduct, 30 all of which do not intrude into the insurance
agents’ means and manner of conducting their sales and only control them
as to the desired results and Insurance Code norms, cannot be used as
basis for a finding that the labor law concept of control existed between
Manulife and Tongko.

The dissent considers the imposition of administrative and managerial

functions on Tongko as indicative of labor law control; thus, Tongko as
manager, but not as insurance agent, became Manulife’s employee. It
 Manulife’s authority over Tongko and the performance of his end of the
Duties of Manulife’s Duties of Grepalife’s Managers/Supervisors
relationship with Manulife. We could not deny though that Tongko
Manager
remained, first and foremost, an insurance agent, and that his additional
role as Branch Manager did not lessen his main and dominant role as
insurance agent; this role continued to dominate the relations between
- to render or - train understudies for the position of Tongko and Manulife even after Tongko assumed his leadership role among
recommend district manager agents. This conclusion cannot be denied because it proceeds from the
prospective agents to undisputed fact that Tongko and Manulife never altered their July 1, 1977
be licensed, trained Agreement, a distinction the present case has with the contractual
and contracted to sell changes made in the second Insular Life case. Tongko’s results-based
Manulife products and commissions, too, attest to the primacy he gave to his role as insurance
who will be part of my sales agent.
Unit

The dissent apparently did not also properly analyze and appreciate the
great qualitative difference that exists between:
- to coordinate - properly account, record and document
activities of the the company’s funds, spot-check and audit  the Manulife managers’ role is to coordinate activities of the
agents under [the the work of the zone supervisors, x x x agents under the managers’ Unit in the agents’ daily, weekly, and
managers’] Unit in follow up the submission of weekly monthly selling activities, making sure that their respective sales
[the agents’] daily, remittance reports of the debit agents and targets are met.
weekly and monthly zone supervisors
selling activities,  the District Manager’s duty in Grepalife is to properly account,
making sure that their- direct and supervise the sales activities of record, and document the company's funds, spot-check and audit
respective sales
the debit agents under him, x x x the work of the zone supervisors, conserve the company's business
targets are met; undertake and discharge the functions of in the district through "reinstatements," follow up the submission
absentee debit agents, spot-check the of weekly remittance reports of the debit agents and zone
- to conduct periodic record of debit agents, and insure proper supervisors, preserve company property in good condition, train
training sessions for documentation of sales and collections of understudies for the position of district managers, and maintain his
[the] agents to debit agents. quota of sales (the failure of which is a ground for termination).
further enhance their
sales skill; and  the Zone Supervisor’s (also in Grepalife) has the duty to direct
and supervise the sales activities of the debit agents under him,
- to assist [the] conserve company property through "reinstatements," undertake
agents with their and discharge the functions of absentee debit agents, spot-check
sales activities by the records of debit agents, and insure proper documentation of
way of joint fieldwork, sales and collections by the debit agents.
consultations and
one-on-one These job contents are worlds apart in terms of "control." In Grepalife, the
evaluation and details of how to do the job are specified and pre-determined; in the
analysis of particular present case, the operative words are the "sales target," the methodology
accounts being left undefined except to the extent of being "coordinative." To be
sure, a "coordinative" standard for a manager cannot be indicative of
Aside from these affidavits however, no other evidence exists regarding control; the standard only essentially describes what a Branch Manager is –
the effects of Tongko’s additional roles in Manulife’s sales operations on the the person in the lead who orchestrates activities within the group. To
contractual relationship between them. "coordinate," and thereby to lead and to orchestrate, is not so much a
matter of control by Manulife; it is simply a statement of a branch
manager’s role in relation with his agents from the point of view of
To the dissent, Tongko’s administrative functions as recruiter, trainer, or Manulife whose business Tongko’s sales group carries.
supervisor of other sales agents constituted a substantive alteration of
A disturbing note, with respect to the presented affidavits and Tongko’s
alleged administrative functions, is the selective citation of the portions
supportive of an employment relationship and the consequent omission of
portions leading to the contrary conclusion. For example, the following
portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of
November 7, 2008, while the other portions suggesting labor law control
were highlighted. Specifically, the following portions of the affidavits were
not brought out:32
1.a. I have no fixed wages or salary since my services are
compensated by way of commissions based on the computed
premiums paid in full on the policies obtained thereat;
1.b. I have no fixed working hours and employ my own method in
soliticing insurance at a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily
work load;
1.d. I use my own facilities, tools, materials and supplies in
carrying out my business of selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of
my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of
Internal Revenue (BIR) as income by a self-employed individual or
professional with a ten (10) percent creditable withholding tax. I
also remit monthly for professionals.
These statements, read with the above comparative analysis of the
Manulife and the Grepalife cases, would have readily yielded the
conclusion that no employer-employee relationship existed between
Manulife and Tongko.
Even de Dios’ letter is not determinative of control as it indicates the least
amount of intrusion into Tongko’s exercise of his role as manager in guiding
the sales agents. Strictly viewed, de Dios’ directives are merely operational
guidelines on how Tongko could align his operations with Manulife’s re-
directed goal of being a "big league player." The method is to expand
coverage through the use of more agents. This requirement for the
recruitment of more agents is not a means-and-method control as it
relates, more than anything else, and is directly relevant, to Manulife’s
objective of expanded business operations through the use of a bigger
sales force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not supervising regular full-
time employees of Manulife engaged in the running of the insurance
business; Tongko was effectively guiding his corps of sales agents, who are
bound to Manulife through the same Agreement that he had with Manulife,
all the while sharing in these agents’ commissions through his overrides.
This is the lead agent concept mentioned above for want of a more
appropriate term, since the title of Branch Manager used by the parties is
really a misnomer given that what is involved is not a specific regular
branch of the company but a corps of non-employed agents, defined in
terms of covered territory, through which the company sells insurance. Still
another point to consider is that Tongko was not even setting policies in the
way a regular company manager does; company aims and objectives were
simply relayed to him with suggestions on how these objectives can be
reached through the expansion of a non-employee sales force.
Interestingly, a large part of de Dios’ letter focused on income, which
Manulife demonstrated, in Tongko’s case, to be unaffected by the new goal
and direction the company had set. Income in insurance agency, of course,
is dependent on results, not on the means and manner of selling – a matter
for Tongko and his agents to determine and an area into which Manulife
had not waded. Undeniably, de Dios’ letter contained a directive to secure
a competent assistant at Tongko’s own expense. While couched in terms of
a directive, it cannot strictly be understood as an intrusion into Tongko’s
method of operating and supervising the group of agents within his
delineated territory. More than anything else, the "directive" was a signal
to Tongko that his results were unsatisfactory, and was a suggestion on
how Tongko’s perceived weakness in delivering results could be remedied.
It was a solution, with an eye on results, for a consistently underperforming
group; its obvious intent was to save Tongko from the result that he then
failed to grasp – that he could lose even his own status as an agent, as he
in fact eventually did.
The present case must be distinguished from the second Insular Life case
that showed the hallmarks of an employer-employee relationship in the
management system established. These were: exclusivity of service,
control of assignments and removal of agents under the private
respondent’s unit, and furnishing of company facilities and materials as
well as capital described as Unit Development Fund. All these are obviously
absent in the present case. If there is a commonality in these cases, it is in
the collection of premiums which is a basic authority that can be delegated
to agents under the Insurance Code.
As previously discussed, what simply happened in Tongko’s case was the
grant of an expanded sales agency role that recognized him as leader
amongst agents in an area that Manulife defined. Whether this
consequently resulted in the establishment of an employment
relationship can be answered by concrete evidence that
corresponds to the following questions:
 as lead agent, what were Tongko’s specific functions and the terms
of his additional engagement;
 was he paid additional compensation as a so-called Area Sales
Manager, apart from the commissions he received from the
insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his
agency contract; and
 to what extent does Manulife control the means and methods of
Tongko’s role as lead agent?
The answers to these questions may, to some extent, be deduced from the
evidence at hand, as partly discussed above. But strictly speaking, the
questions cannot definitively and concretely be answered through the
evidence on record. The concrete evidence required to settle these
questions is simply not there, since only the Agreement and the anecdotal
affidavits have been marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite
confluence of the factors determinative of the existence of employer-
employee relationship, the Court cannot conclusively find that the
relationship exists in the present case, even if such relationship only refers
to Tongko’s additional functions. While a rough deduction can be made, the
answer will not be fully supported by the substantial evidence needed.
Under this legal situation, the only conclusion that can be made is that the
absence of evidence showing Manulife’s control over Tongko’s contractual
duties points to the absence of any employer-employee relationship
between Tongko and Manulife. In the context of the established evidence,
Tongko remained an agent all along; although his subsequent duties made
him a lead agent with leadership role, he was nevertheless only an agent
whose basic contract yields no evidence of means-and-manner control.
This conclusion renders unnecessary any further discussion of the question
of whether an agent may simultaneously assume conflicting dual
personalities. But to set the record straight, the concept of a single person
having the dual role of agent and employee while doing the same task is a
novel one in our jurisprudence, which must be viewed with caution
especially when it is devoid of any jurisprudential support or precedent.
The quoted portions in Justice Carpio-Morales’ dissent, 33 borrowed from
both the Grepalife and the second Insular Life cases, to support the duality
approach of the Decision of November 7, 2008, are regrettably far removed
from their context – i.e., the cases’ factual situations, the issues they
decided and the totality of the rulings in these cases – and cannot yield the
conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers’
appointment as zone supervisor and district manager made them
employees of Grepalife. Indeed, because of the presence of the element of
control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they
were simultaneously considered agents as well as employees of Grepalife;
the Court’s ruling never implied that this situation existed insofar as the
Ruiz brothers were concerned. The Court’s statement – the Insurance Code
may govern the licensing requirements and other particular duties of
insurance agents, but it does not bar the application of the Labor Code
with regard to labor standards and labor relations – simply means that
when an insurance company has exercised control over its agents so as to
make them their employees, the relationship between the parties, which
was otherwise one for agency governed by the Civil Code and the
Insurance Code, will now be governed by the Labor Code. The reason for
this is simple – the contract of agency has been transformed into an
employer-employee relationship.
The second Insular Life case, on the other hand, involved the issue of
whether the labor bodies have jurisdiction over an illegal termination
dispute involving parties who had two contracts – first, an original contract
(agency contract), which was undoubtedly one for agency, and another
subsequent contract that in turn designated the agent acting unit manager
(a management contract). Both the Insular Life and the labor arbiter were
one in the position that both were agency contracts. The Court disagreed
with this conclusion and held that insofar as the management contract is
concerned, the labor arbiter has jurisdiction. It is in this light that we
remanded the case to the labor arbiter for further proceedings. We never
said in this case though that the insurance agent had effectively assumed
dual personalities for the simple reason that the agency contract has been
effectively superseded by the management contract. The management
contract provided that if the appointment was terminated for any reason
other than for cause, the acting unit manager would be reverted to agent
status and assigned to any unit.
The dissent pointed out, as an argument to support its employment
relationship conclusion, that any doubt in the existence of an employer-
employee relationship should be resolved in favor of the existence of the
relationship.34This observation, apparently drawn from Article 4 of the
Labor Code, is misplaced, as Article 4 applies only when a doubt exists in
the "implementation and application" of the Labor Code and its
implementing rules; it does not apply where no doubt exists as in a
situation where the claimant clearly failed to substantiate his claim of
employment relationship by the quantum of evidence the Labor Code
requires.
On the dissent’s last point regarding the lack of jurisprudential value of our
November 7, 2008 Decision, suffice it to state that, as discussed above, the
Decision was not supported by the evidence adduced and was not in
accordance with controlling jurisprudence. It should, therefore, be
reconsidered and abandoned, but not in the manner the dissent suggests
as the dissenting opinions are as factually and as legally erroneous as the
Decision under reconsideration.
In light of these conclusions, the sufficiency of Tongko’s failure to comply
with the guidelines of de Dios’ letter, as a ground for termination of
Tongko’s agency, is a matter that the labor tribunals cannot rule upon in
the absence of an employer-employee relationship. Jurisdiction over the
matter belongs to the courts applying the laws of insurance, agency and
contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our
Decision of November 7, 2008, GRANT Manulife’s motion for
reconsideration and, accordingly, DISMISS Tongko’s petition. No costs.
SO ORDERED.