104601855 insurance-cases-1

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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 156956 October 9, 2006
REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner,
petitioner,
vs.
DEL MONTE MOTORS, INC., respondent.
D E C I S I O N
PANGANIBAN, CJ.:
The securities required by the Insurance Code to be deposited with theInsurance Commissioner are intended to answer for the
claims of all policy holders in theevent that the depositing insurance company becomes insolvent or otherwise unable to satisfy
their claims. The security deposit must be ratably distributed among all theinsured who are entitled to their respective shares; it
cannot be garnished or levied upon by a single claimant, to the detriment of theothers.
The Case

Before us is a Petition for Review1
under Rule 45 of theRules of Court, seeking to reverse theJanuary 16, 2003 Order2
of the
Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. TheRTC found Insurance Commissioner
Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution3
of the lower
court. TheJanuary 16, 2003 Order states in full:
"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the
Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court
embodied in a Resolution dated December 18, 2002 directing him to allow thewithdrawal of the security deposit of
Capital Insurance and Surety Co. (CISCO) in theamount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the
satisfaction of theNotice of Garnishment pursuant to a Decision of this Court which has become final and executory.
"During the hearing of theMotion set last January 10, 2003, Commissioner Malinis or his counsel or his duly
authorized representativefailed to appear despitenotice in utter disregard of the order of this Court. However,
Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon
and rejected by this Court. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to
implement the lawful orders of this Court.
"Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of
Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully
disobeying and refusing to implement and obey a lawful order of this Court."4
The Facts
On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding thedefendants (Vilfran Liner, Inc.,
Hilaria Villegas and MauraVillegas) jointly and severally liable to pay Del MonteMotors, Inc., P11,835,375.50 representing the
balance of Vilfran Liner's service contracts with respondent. Thetrial court further ordered theexecution of the Decision against
the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).
On April18, 2002, CISCO opposed theMotion for Execution filed by respondent, claiming that thelatter had no record or
document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable.
On June 13, 2002, theRTC granted theMotion for Execution and issued thecorresponding Writ. Armed with this Writ, Sheriff
Manuel S. Paguyo proceeded to levy on theproperties of CISCO. He also issued a Notice of Garnishment on several depository
banks of the insurance company. Moreover, he served a similar notice on theInsurance Commission, so as to enforce theWrit on
the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code.
On December 18, 2002, after a hearing on all the pending Motions, theRTC ruled that the Notice of Garnishment served by
Sheriff Paguyo on the insurance commission was valid. Thetrial court added that the letter and spirit of the law made the security
deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The
RTC resolved thus:
"Furthermore, the Commissioner of theOffice of the Insurance Commission is hereby ordered to comply with its
obligations under theInsurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited
Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce
contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from thesecurity deposit
of Capital Insurance & Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in
satisfaction of theNotice of Garnishment served on August 16, 2002."5
On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to
obey the December 18, 2002 Resolution of the trial court.
Ruling of the Trial Court
The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the
commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit.
Hence, this Petition.6

Issues
Petitioner raises this sole issue for theCourt's consideration:
"Whether or not thesecurity deposit held by theInsurance Commissioner pursuant to Section 203 of theInsurance
Code may be levied or garnished in favor of only one insured."7
The Court's Ruling
The Petition is meritorious.
Preliminary Issue:
Propriety of Review
Before discussing theprincipal issue, the Court will first disposeof the question of mootness.
Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent thetreasurer of the Philippines a letter dated
March 26, 2003, stating that the former had no objection to the release of the security deposit to Del MonteMotors. Portions of
the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these
circumstances render thecase moot.
Petitioner, however, contends that thepartial releases should not be construed as an abandonment of its stand that security
deposits under Section 203 of theInsurance Code are exempt from levy and garnishment. The Republic claims that the releases
were made pursuant to the commissioner's power of control over the fund, not to thelower court's Order of garnishment.
Petitioner further invokes thejurisdiction of this Court to put to rest the principalissue of whether security deposits made with
the Insurance Commission may be levied and garnished.
The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has
required CISCO to replenish thelatter's security deposit. Respondent, therefore, may one day decide to further garnish the
security deposit, once replenished. Moreover, after the questioned Order of thelower court was issued, similar claims on the
security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution
of the issue will only postponeatask that is certain to crop up in the future.
Besides, the business of insurance is imbued with public interest. It is subject to regulation by theState, with respect not only to
the relations between the insurer and the insured, but also to the internal affairs of insurance companies.8
As this case is
undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate
the bench and thebar by formulating guiding and controlling principles, precepts, doctrines and rules.9
Principal Issue:
Exemption of Security Deposit from Levy or Garnishment
Section 203 of the Insurance Code provides as follows:
"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty -fiveper
centum of theminimum paid-up capital required under section one hundred eighty-eight, invest its funds only in
securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of theGovernment of the
Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and
entities, including the Central Bank of the Philippines: Provided, That such investments shall at all times be maintained
free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the
Commissioner for the faithful performance by thedepositing insurer of all its obligations underits insurance
contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply to thesecurities
deposited under this section.
"Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy
upon any of the securities of the insurerheldon deposit pursuant to the requirement of the Commissioner."
(Emphasis supplied)

Respondent notes that Section 203 does not provide for an absolute prohibition on thelevy and garnishment of thesecurity
deposit. It contends that thelaw requires the deposit, precisely to ensure faithful performance of all theobligations of the
depositing insurer under thelatter's various insurance contracts. Hence, respondent claims that the security deposit should be
answerable for the counterbond issued by CISCO.
The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for
all theobligations of thedepositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and
(3) exempt from levy by any claimant.
To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under
the law to be equally protected by its security deposit. To allow thegarnishment of that deposit would impair thefund by
decreasing it to less than the percentage of paid-up capitalthat the law requires to be maintained. Further, this move would create,
in favor of respondent, a preference of credit over the other policy holders and beneficiaries.
Our Insurance Code is patterned after that of California.10
Thus, the ruling of the state's Supreme Court on a similar concept as
that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11
held that themoney required to be
deposited by a mutual assessment insurance company with the statetreasurer was "a trust fund to be ratably distributed amongst
all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors' bill, upon
the hearing of which, and with all theparties interested in the fund before it, the court may make equitable distribution of the
fund, and appoint a receiver to carry that distribution into effect."12
Basic is thestatutory construction rulethat provisions of a statuteshould be construed in accordance with thepurposefor which
it was enacted.13
That is, the securities are held as a contingency fund to answer for theclaims against theinsurance company by
all its policy holders and their beneficiaries. This step is taken in the event that thecompany becomes insolvent or otherwise
unable to satisfy theclaims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others.
The other parties may have their own claims against theinsurance company under other insurance contracts it has entered into.
Respondent's Inchoate Right
The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the
company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no
attributeof property. At this time, it is nonexistent and may never exist.14
Hence, it would be premature to make the security
deposit answerable for CISCO's present obligation to Del MonteMotors.
Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time
which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under subsisting
policies issued by CISCO have been heard can respondent's share be determined.
Powers of the Commissioner
The Insurance Code has vested the Office of theInsurance Commission with both regulatory and adjudicatory authority over
insurance matters.15
The general regulatory authority of theinsurance commissioner is described in Section 414 of the Code as follows:
"Sec. 414. 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, and shall, notwithstandingany existing laws to the
contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section
two hundred thirty-two and to provide for thelicensing of persons selling such contracts, and to issue such reasonable
rules and regulations governing thesame.
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to
secure the enforcement of the provisions of this Code, subject to theapprovalof the Secretary of Finance. Except as
otherwise specified, decisions made by theCommissioner shall be appealable to the Secretary of Finance." (Emphasis
supplied)

Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to
persons or entities desiring to engage in insurance business in thePhilippines;16
(2) revoke or suspend these certificates of
authority upon finding grounds for therevocation or suspension;17
(3) impose upon insurance companies, their directors and/or
officers and/or agents appropriatepenalties -- fines, suspension or removal from office -- for failing to comply with the Code or
with any of thecommissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or
unsound manner.18
Included in the above regulatory responsibilities is theduty to hold the security deposits under Sections 19119
and 203 of the
Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of theInsurance Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the
policyholders of the company depositing the same, but shall as long as thecompany is solvent, permit the company to
collect the interest or dividends on thesecurities so deposited, and, from time to time, with his assent, to withdraw any
of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be
equal to the market value of such as may be withdrawn. In theevent of any company ceasing to do business in the
Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and
proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the
Philippines." (Emphasis supplied)
Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to
protect theinsuring public. The law specifically confers custody over thesecurities upon thecommissioner, with whom these
investments are required to be deposited. An implied trust20
is created by the law for the benefit of all claimants under subsisting
insurance contracts issued by the insurance company.21
As the officer vested with custody of the security deposit, theinsurance commissioner is in the best position to determine if and
when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or therelease of
the deposit, thecommissioner must be satisfied that the conditions contemplated by the law are met and all policy holders
protected.
Commissioner's Actions
Entitled to Great Respect
In this case, Commissioner Malinis refused to release thesecurity deposit of CISCO. Believing that the funds were exempt from
execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of thelaw carries
great weight and consideration,22
as he is the head of a specialized body tasked with the regulation of insurance matters and
primarily charged with the implementation of the Insurance Code.
The emergence of themultifarious needs of modern society necessitates theestablishment of diverse administrative agencies. In
addressing these needs, the administrative agencies charged with applyingand implementing particular statutes have accumulated
experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a statute
is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing
statuteor the Constitution and other laws.23
Clearly, then, the trial court erred in issuing theWrit of Garnishment against the security deposit of CISCO. It follows that
without theissuance of a valid order, theinsurance commissioner could not have been in contempt of court.24
WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
Footnotes
1
Rollo, pp. 20-50.

2
Id. at 70-71. Penned by Judge (now Court of Appeals Justice) Noel G. Tijam.
3
Id. at 54-69.
4
January 16, 2003 Order; rollo, pp. 70-71.
5
December 18, 2002 Resolution, pp. 15-16; rollo, pp. 68-69.
6
The case was deemed submitted for decision on February 8, 2005, upon receipt by this Court of petitioner's
Memorandum signed by Assistant Solicitor General Karl B. Miranda and Solicitor MarshaC. Recon. Respondent's
Memorandum, signed by Atty. Eduardo E. Francisco, was received by theCourt on November 26, 2004.
7
Petitioner's Memorandum, p. 11. Uppercasein theoriginal.
8
AFP MutualBenefit Association, Inc. v. NLRC, 334 Phil. 712, January 28, 1997, citing Insular Life Assurance Co.,
Ltd. v. NLRC, 179 SCRA 459, November 15, 1989.
9
ABS-CBN Broadcasting Corporation v. Commission on Elections, 380 Phil. 780, January 28, 2000; Gonzales v.
Chavez, 205 SCRA 816, February 4, 1992.
10
Maria Clara L. Campos, in her commentary on the Insurance Code of thePhilippines, traces the history of the present
Insurance Code as follows:
"The forerunner of this [Insurance] Code was the Insurance Act which took effect on July 1, 1915, and which
was copied almost verbatim from theCalifornia Insurance Act, with the exception of a few provisions which
were adopted from theNew York Law. x x x. The first Insurance Code took effect on December 18, 1974
and besides incorporating most of theprovisions of the Insurance Act with a few changes, it contained many
new provisions mostly regulatory in nature. After a number of thesenew provisions were rendered obsolete
by subsequent amendments, the Insurance Code of 1978 was promulgated by Presidential Decree No. 1460,
incorporating not only such amendments but also additional changes deemed necessary in order to keep pace
with the changing needs and demands of the insurance industry. However, the substantiveprovisions
governing thecontract of insurance itself remain for the most part as they were under the Insurance Act."
(Campos, Insurance, [1983], pp. 8-9.)
The Court has held that rulings and general principles on insurance recognized in the stateof California have
persuasive authority in the Philippines. (Ang Giok Chip v. Springfield Fire and MarineInsurance Co., 56
Phil. 375, December 31, 1931 and Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, September 28,
1925).
11
153 Cal. 183, March 9, 1908, per curiam (citing San Francisco Savings Union v. Long, 123 Cal. 107, December 20,
1898, per Temple, J.).
12
Id.
13
The United Harbor Pilots' Association of thePhilippines v. Association of International Shipping Lines, Inc., 440
Phil. 188, November 13, 2002.
14
See J.L.T. Agro, Inc. v. Balansag, 453 SCRA 211, March 11, 2005.
15
Go v. Office of the Ombudsman, 413 SCRA 608, October 17, 2003; Almendras Mining Corporation v. Office of the
Insurance Commission, 160 SCRA 656, April15, 1988.
16
Insurance Code, Secs. 186-187; see Almendras Mining Corporation v. Office of the Insurance Commission, supra.
17
Id., Secs. 241 and 247.

18
Id., Sec. 415.
19
"Sec. 191. No insurance company organized or existing under thegovernment or laws other than thoseof the
Philippines shall engage in business in the Philippines unless possessed of paid-up unimpaired capital or assets and
reserve not less than that herein required of domestic insurance companies, nor until it shall have deposited with the
Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines,
securities satisfactory to the Commissioner consisting of good securities of thePhilippines, including new issued of
stock of 'registered enterprises,' as this term is defined in Republic Act No. 5186, otherwise known as the Investment
Incentives Act, as amended, to the actual market value of not less than the minimum paid-up capital required of
domestic insurance companies: Provided, That at least fifty per centum of such securities shall consist of bonds or other
evidences of debt of the Government of thePhilippines, its political subdivisions and instrumentalities, or of
government-owned or controlled corporations and entities, including the Central Bank. x x x."
20
Articles 1440 and 1441 of the Civil Code provide thus:
"Art. 1440. A person who establishes a trust is called a trustor;one in whom confidence is reposed as regards
property for thebenefit of another person is known as the trustee;and theperson for whose benefit the trust
has been created is referred to as thebeneficiary.
"Art. 1441 Trusts are either express or implied. Express trusts arecreated by the intention of the trustor or of
the parties. Implied trusts come into being by operation of law."
21
Cesario P. Topiangco raises the issue of actual ownership and discusses the effects of placing security deposits in the
custody of the Insurance Commissioner as follows:
"Doubt has arisen as to whether thegovernment securities, particularly Central Bank Certificates of
Indebtedness, now in thepossession of insurance companies as part of their investment portfolio are really
owned by such companies. Placing these securities in thecustody of theInsurance Commissioner would
minimize, if not entirely, erase such doubt. Besides, an insurance company in theverge of insolvency would
find it difficult to disposeof such securities." (Topiangco, Commentaries and Jurisprudence on theInsurance
Code of the Philippines, [1992], p. 167).
22
The United Harbor Pilots' Association of thePhilippines v. Association of International Shipping Lines, Inc., supra
note 13 at 202.
23
Union Bank of the Philippines v. Securities and Exchange Commission, 411 Phil. 94, June 6, 2001; Nestle
Philippines, Inc. v. Court of Appeals, 203 SCRA 504, November 13, 1991; Asturias Sugar Central, Inc. v.
Commissioner of Customs, 140 Phil. 20, 1969.
24
Factoran, Jr. v. Court of Appeals, 378, Phil. 282, December 13, 1999.

SUPREME COURT
Manila
FIRST DIVISION
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.
Ponce Enrile, Cayetano,Reyes and Manalastas for petitioners.
Oscar Z. Benares for private respondent.
QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules ofCourt, with preliminaryinjunction
or temporaryrestraining order,to annul and setaside 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 instantcase arose from a letter-complaintofprivate respondentRamon M.Paterno, Jr. dated April 17, 1986,to
respondentCommissioner,alleging certain problems encountered byagents,supervisors,managers and p ublic
consumers ofthe Philippine American Life Insurance Company(Philamlife) as a resultof certain practices by said
company.
In a letter dated April 23, 1986, respondentCommissioner requested petitioner Rodrigo de los Reyes,in his capacity
as Philamlife's president,to commenton respondentPaterno's letter.
In a letter dated April 29, 1986 to respondentCommissioner,petitioner De los Reyes suggested thatprivate
respondent"submitsome sortofa 'bill of particulars'listing and citing actual cases, facts,dates,figures,provisions of
law, rules and regulations,and all other pertinentdata which are necessaryto enable him to prepare an intelligent
reply" (Rollo,p. 37). A copy of this letter was sentby the Insurance Commissioner to private respondentfor his
comments thereon.
On May 16, 1986, respondentCommissioner received a letter from private respondentmaintaining thathis letter-
complaintofApril 17, 1986 was sufficientin form and substance,and requested thata hearing thereon be conducte d.
Petitioner De los Reyes,in his letter to respondentCommissioner dated June 6,1986, reiterated his claim thatprivate
respondent's letter ofMay 16, 1986 did not supplythe information he needed to enable him to answer the letter-
complaint.
On July 14, a hearing on the letter-complaintwas held byrespondentCommissioner on the validity of the Contract of
Agency complained ofby private respondent.
In said hearing,private respondentwas required byrespondentCommissioner to specify the provisions of the agency
contract which he claimed to be illegal.

On August 4, private respondentsubmitted a letter of specification to respondentCommissioner dated July31, 1986,
reiterating his letter of April 17, 1986 and praying that the provisions on charges and fees stated in the Contract of
Agency executed between Philamlife and its agents,as well as the implementing provisions as published in the
agents'handbook,agencybulletins and circulars,be declared as null and void.He also asked thatthe amounts of
such charges and fees alreadydeducted and collected by Philamlife in connection therewith be reimbursed to the
agents,with interestat the prevailing rate reckoned from the date when they were deducted.
RespondentCommissioner furnished petitioner De los Reyes with a copy of private respondent's letter of July 31,
1986,and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8,1986,stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does notcontain any of the particular information
which Philamlife was seeking from him and which he promised to submit.
(2) That since the Commission's quasi-judicial power was being invoked with regard to the
complaint,private respondentmustfile a verified formal complaintbefore anyfurther proceedings.
In his letter dated September 9, 1986,private respondentasked for the resumption ofthe hearings on his complaint.
On October 1, private respondentexecuted an affidavit, verifying his letters of April 17, 1986,and July 31, 1986.
In a letter dated October 14, 1986,Manuel Ortega, Philamlife's Senior AssistantVice-Presidentand Executive
Assistantto the President,asked that respondentCommission firstrule on the questions ofthe jurisdiction ofthe
Insurance Commissioner over the subjectmatter of the letters-complaintand the legal standing ofprivate respondent.
On October 27, respondentCommissioner notified both parties ofthe hearing of the case on November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaintsufficientin form and contents has been filed;
(2) No summons has been issued nor
received by the respondentDe los Reyes,
and hence, no jurisdiction has been acquired
over his person;
(3) No answer has been filed,and hence,the
hearing scheduled on November 5,1986 in
the Subpoena/Notice,and wherein the
respondentis required to appear,is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over;
(1) the subjectmatter or nature of the action;and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986,respondentCommissioner denied the Motion to Quash. The dispositive portion
of said Order reads:
NOW, THEREFORE, finding the position of complainantthru counsel tenable and considering the
fact that the instantcase is an informal administrative litigation falling outside the operation ofthe

aforecited memorandum circular butcognizable by this Commission,the hearing officer, in open
session ruled as itis herebyruled 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 ofthe legality of the Contract of Agency falls within the
jurisdiction ofthe Insurance Commissioner.
Private respondentcontends thatthe Insurance Commissioner has jurisdiction to take cognizance of the complaintin
the exercise of its quasi-judicial powers.The Solicitor General,upholding the jurisdiction ofthe Insurance
Commissioner,claims thatunder Sections 414 and 415 of the Insurance Code,the Commissioner has authorityto
nullify the alleged illegal provisions ofthe Contract of Agency.
III
The general regulatoryauthority 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 benefitassociations and trusts for
charitable uses are faithfullyexecuted and to perform the duties imposed upon him bythis Code,. .
.
On the other hand,Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this Code,the Insurance
Commissioner is herebyauthorized,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 ofthis Code, or any order,instruction,regulation or ruling of the Insurance
Commissioner,or any commission ofirregularities,and/or conducting business in an unsafe and
unsound manner as maybe 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 thatthe Insurance Commissioner has the authority to regulate
the business ofinsurance,which is defined as follows:
(2) The term "doing an insurance business"or "transacting an insurance business,"within the
meaning ofthis 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 ofthis Code;(d) doing or proposing to do any business in
substance equivalentto 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 notincluded within the meaning ofan
insurance business,Section 2 of the Insurance Code cannotbe invoked to give jurisdiction over the same to the
Insurance Commissioner. Expressio unius estexclusio alterius.

With regard to private respondent's contention thatthe quasi-judicial power ofthe 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
pertinentpart, provides:
The Commissioner shall have the power to adjudicate claims and complaints involving any loss,
damage or liabilityfor which an insurer maybe answerable under any kind of policy or contract of
insurance,or for which such insurer maybe liable under a contract of suretyship,or for which a
reinsurer maybe used under any contract or reinsurance itmayhave entered into, or for which a
mutual benefitassociation maybe held liable under the membership certificates ithas issued to its
members,where the amountofany 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 notexceed in any single claim one hundred thousand pesos.
A reading of the said section shows thatthe quasi-judicial power ofthe Insurance Commissioner is limited bylaw "to
claims and complaints involving any loss,damage or liabilityfor which an insurer maybe answerable under anykind
of policy or contract of insurance,.. ." Hence,this power does not cover the relationship affecting the insurance
companyand its agents butis limited to adjudicating claims and complaints filed by the insured againstthe insurance
company.
While the subjectof Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance Code,the
provisions ofsaid Chapter speak onlyof the licensing requirements and limitations imposed on insurance agents and
brokers.
The Insurance Code does nothave provisions governing the relations between insurance companies and their
agents.It follows thatthe Insurance Commissioner cannot,in the exercise of its quasi-judicial powers,assume
jurisdiction over controversies between the insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989),and
InvestmentPlanning Corporation ofthe Philippines v.Social Security Commission,21 SCRA 904 (1962),that an
insurance companymayhave two classes ofagents who sell its insurance policies:(1) salaried employees who keep
definite hours and work under the control and supervision ofthe company;and (2) registered representatives,who
work on commission basis.
Under the first category, the relationship between the insurance companyand its agents is governed by the Contract
of Employmentand the provisions ofthe Labor Code,while under the second category, the same is governed by the
Contract of Agency and the provisions ofthe 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.
Cruz,Davide,Jr. and Kapunan,JJ., concur.
Bellosillo,J,. is on leave.

FIRST DIVISION
[G. R. No. 141658. March 18, 2005]
COMMISSIONER OF INTERNALREVENUE, petitioner, vs. THEPHILIPPINE AMERICAN ACCIDENT INSURANCE
COMPANY, INC., THEPHILIPPINEAMERICAN ASSURANCE COMPANY, INC., and THEPHILIPPINEAMERICAN
GENERAL INSURANCE CO., INC., respondents.
D E C I S I O N
CARPIO, J.:
The Case
Before theCourt is a petition for review[1] assailing theDecision[2] of 7 January 2000 of theCourt of Appeals in CA-G.R. SP
No. 36816. TheCourt of Appeals affirmed the Decision[3] of 5 January 1995 of the Court of Tax Appeals (“CTA”) in CTA
Cases Nos. 2514, 2515 and 2516. TheCTA ordered the Commissioner of Internal Revenue (“petitioner”) to refund a totalof
P29,575.02 to respondent companies (“respondents”).
Antecedent Facts
Respondents are domestic corporations licensed to transact insurance business in the country. From August 1971 to September
1972, respondents paid the Bureau of Internal Revenue under protest the3% tax imposed on lending investors by Section 195-
A[4] of Commonwealth Act No. 466 (“CA 466”), as amended by Republic Act No. 6110 (“RA 6110”) and other laws. CA
466 was theNational Internal Revenue Code (“NIRC”) applicable at thetime.
Respondents paid the following amounts: P7,985.25 from Philippine American (“PHILAM”) Accident Insurance Company;
P7,047.80 from PHILAM AssuranceCompany;and P14,541.97 from PHILAM General Insurance Company. These amounts
represented 3% of each company’s interest income from mortgage and other loans. Respondents also paid the taxes required
of insurance companies under CA 466.
On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under protest. When
respondents did not receive a response, each respondent filed on 26 April1973 a petition for review with the CTA. These
three petitions, which were later consolidated, argued that respondents werenot lending investors and as such were not subject
to the 3% lending investors’ tax under Section 195-A.
The CTA archived respondents’ case for several years while another case with a similar issue was pending before thehigher
courts. When respondents’ case was reinstated, the CTA ruled that respondents wereentitled to their refund.
The Ruling of the Court of Tax Appeals
The CTA held that respondents are not taxable as lending investors because theterm “lending investors”does not embrace
insurance companies. The CTA traced the history of the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec. 1464(x), Rev. Adm.
Code] The term money lenders was defined as including “all persons who make a practice of lending money for themselves or
others at interest.” [Sec. 1465(v), id.] Under this law, an insurance company was not considered a money lender and was not
taxable as such. To quote from an old BIR Ruling:
“Thelending of money at interest by insurance companies constitutes a necessary incident of their regular business. For this
reason, insurance companies are not liable to tax as money lenders or real estatebrokers for making or negotiating loans
secured by real property. (Ruling, February 28, 1920; BIR 135.2)” (The Internal Revenue Law, Annotated, 2nd
ed., 1929, by
B.L. Meer, page 143)
The same rule has been applied to banks.

“For making investments on salary loans, banks will not be required to pay themoney lender’s tax imposed by this subsection,
for the reason that money lending is considered a mere incident of thebanking business. [See Ruling No. 43, (October 8,
1926) 25 Off. Gaz. 1326)” (The Internal Revenue Law, Annotated, id.)
The term “money lenders” was later changed to “lending investors” but the definition of theterm remains the same. [Sec.
1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as finally amended
by Act No. 3963] The same law is embodied in the present National Internal Revenue Code (Com. Act No. 466) without
change, except in theamount of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National Internal Revenue Code.]
It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for a long time, and
thereafter the law is re-enacted without substantialchange, such administrative interpretation is deemed to have received
legislative approval. In short, the administrative interpretation becomes part of the law as it is presumed to carry out the
legislative purpose.[5]
The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already taxes the
insurance business. TheCTA pointed out that thelaw recognizes and even regulates this practice of lending money by
insurance companies.
The CTA observed that CA 466 also treated differently insurance companies from lending investors in regard to fixed taxes.
Under Section 182(A)(3)(gg), insurance companies were subject to thesame fixed tax as banks and finance companies. The
CTA reasoned that insurance companies were grouped with banks and finance companies because the latter’s lending activities
were also integral to their business. In contrast, lending investors were taxed at a different fixed tax under Section
182(A)(3)(dd) of CA 466. The CTA stated that “insurance companies xxx had never been required by respondent [CIR] to pay
the fixed tax imposed on lending investors xxx.”[6]
The dispositiveportion of the Decision of 5 January 1995 of the Court of Tax Appeals (“CTA Decision”) reads:
WHEREFORE, premises considered, petitioners PhilippineAmerican Accident Insurance Co., Philippine American Assurance
Co., and Philippine American General Insurance Co., Inc. are not taxable on their lending transactions independently of their
insurance business. Accordingly, respondent is hereby ordered to refund to petitioner[s] thesum of P7,985.25, P7,047.80 and
P14,541.97 in CTA Cases No. 2514, 2515 and 2516, respectively representing the fixed and percentage taxes when (sic) paid
by petitioners as lending investor from August 1971 to September 1972.
No pronouncement as to cost.
SO ORDERED.[7]
Dissatisfied, petitioner elevated thematter to the Court of Appeals.[8]
The Ruling of the Court of Appeals
The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January 2000 (“CA
Decision”), the Court of Appeals affirmed theruling of the CTA, thus:
WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING thedecision, dated January 5, 1995, of
the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516.
SO ORDERED.[9]
Petitioner appealed the CA Decision to this Court.
The Issues
Petitioner raises the sole issue:

WHETHER RESPONDENT INSURANCECOMPANIESARE SUBJECT TO THE3% PERCENTAGETAX AS LENDING
INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION TO SECTION 194(U),
ALL OF THENIRC.[10]
The Ruling of the Court
The petition lacks merit.
On the Additional Issue Raised by Petitioner
Section 182(A)(3)(dd) of CA 466 imposes an annual fixedtax on lending investors, depending on their location.[11] Thesole
question before the CTA was whether respondents were subject to the percentage tax on lending investors under Section 195-
A. Petitioner raised for the first time the issue of the fixed tax in the Petition for Review[12] petitioner filed before theCourt
of Appeals.
Ordinarily, a party cannot raise for thefirst time on appealan issue not raised in the trial court.[13] TheCourt of Appeals
should not have taken cognizance of the issue on respondents’ supposed liability under Section 182(A)(3)(dd). However, we
cannot entirely fault theCourt of Appeals or petitioner. Even if the percentage tax on lending investors was the sole issue
before it, the CTA ordered petitioner to refund to thePHILAM companies “thefixed and percentage taxes [t]hen paid by
petitioners as lending investor.”[14] Although the amounts for refund consisted only of what respondents paid as percentage
taxes, theCTA Decision also ordered the refund to respondents of thefixed tax on lending investors. Respondents in their
pleadings deny any liability under Section 182(A)(3)(dd), on the same ground that they are not lending investors.
The question of whether respondents should pay thefixed tax under Section 182(A)(3)(dd) revolves around thesame issue of
whether respondents are taxable as lending investors. In similar circumstances, the Court has held that an appellatecourt may
consider an unassigned error if it is closely related to an error that was properly assigned.[15] This rule properly applies to the
present case. Thus, we shall consider and rule on theissue of whether respondents are subject to the fixed tax under Section
182(A)(3)(dd).
Whether Insurance Companies are
Taxable as Lending Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that insurance
companies are subject to two fixed taxes and two percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another P500.00 under Section
182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance company is subject to the 3% tax of the total
premiums collected and another 3% on thegross receipts as a lending investor under Sections 255 and 195-A, respectively of
the same Code. xxx[16]
Petitioner also contends that therefund granted to respondents is in thenature of a tax exemption, and cannot be allowed
unless granted explicitly and categorically.
The rule that tax exemptions should be construed strictly against thetaxpayer presupposes that thetaxpayer is clearly subject
to the tax being levied against him. Unless a statuteimposes a tax clearly, expressly and unambiguously, what applies is the
equally well-settled rule that the imposition of a tax cannot be presumed.[17] Where there is doubt, tax laws must be construed
strictly against the government and in favor of the taxpayer.[18]This is because taxes are burdens on the taxpayer, and should
not be unduly imposed or presumed beyond what the statutes expressly and clearly import.[19]
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. – (A) On business xxx
xxx
(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified;
xxx
(dd) Lending investors –

1. In chartered cities and first class municipalities, five hundred pesos;
2. In second and third class municipalities, two hundred and fifty pesos;
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-fivepesos;
Provided, That lending investors who do business as such in more than one province shall pay atax of
five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending investors. – Dealers in securities and lending investors shall pay a
tax equivalent to three per centum on their gross income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd) provides for the
taxation of lending investors in different localities. Section 195-A refers to dealers in securities and lending investors. The
burden is thus on petitioner to show that insurance companies are lending investors for purposes of taxation.
In this case, petitioner does not disputethat respondents are in the insurance business. Petitioner merely alleges that the
definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner insists that because
of Section 194(u), the two principalactivities of theinsurance business, namely, underwriting and investment, are separately
taxable.[20]
Section 194(u) of CA 466 states:
(u) “Lending investor” includes all persons who make a practice of lending money for themselves or others at interest.
xxx
As can be seen, Section 194(u) does not tax thepractice of lending per se. It merely defines what lending investors are. The
question is whether the lending activities of insurance companies make them lending investors for purposes of taxation.
We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered lending investors
under CA 466, as amended.
Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance companies. TheInsurance
Code of 1978[21] is very clear on what constitutes an insurance company. It provides that an insurer or insurance company
“shall include all individuals, partnerships, associations or corporations xxx engaged as principals in the insurance business,
excepting mutual benefit associations.”[22] Morespecifically, respondents fall under thecategory of insurance corporations as
defined in Section 185 of the Insurance Code, thus:
SECTION 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss,
damage, or liability arising from any unknown or futureor contingent event, or to indemnify or to compensate any person or
persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with
contractual obligations or thepayment of debts of others shall be known as “insurance corporations.”
Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors cannot, for
a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or indemnity for loss. The
underwriting of risks is theprerogative of insurers, the great majority of which are incorporated insurance companies[23] like
respondents.
Granting of Mortgage and
other Loans are Investment
Practices that are Part of the
Insurance Business.

True, respondents granted mortgage and other kinds of loans. However, this was not done independently of respondents’
insurance business. Thegranting of certain loans is one of several means of investment allowed to insurance companies. No less
than theInsurance Code mandates and regulates this practice.[24]
Unlike thepractice of lending investors, thelending activities of insurance companies are circumscribed and strictly regulated by
the State. Insurance companies cannot freely lend to “themselves or others” as lending investors can,[25] nor can insurance
companies grant simply any kind of loan. Even prior to 1978, the Insurance Code prescribed strict rules for the granting of loans
by insurance companies.[26] These provisions on mortgage, collateral and policy loans were reiterated in theInsurance Code of
1978 and are still in force today.
Petitioner concedes that respondents’ investment practices are as much a part of theinsurance business as the task of
underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable under CA 466.
The CTA and the Court of Appeals found that the investment of premiums and other funds received by respondents – through the
granting of mortgage and other loans – was necessary to respondents’ business and hence, should not be taxed separately.
Insurance companies are required by law to possess and maintain substantiallegal reserves to meet their obligations to
policyholders.[27]This obviously cannot be accomplished through thecollection of premiums alone, as thelegal reserves and
capital and surplus insurance companies are obligated to maintain run into millions of pesos. As such, the creation of
“investment income” has long been held to be generally, if not necessarily, essentialto thebusiness of insurance.[28]
The creation of investment income in themanner sanctioned by thelaws on insurance is thus part of the business of insurance,
and the fruits of these investments are essentially income from the insurance business. This is particularly true if the invested
assets are held either as reserved funds to provide for policy obligations or as capital and surplus to providean extra margin of
safety which will be attractive to insurance buyers.[29]
The Court has also held that when a company is taxed on its main business, it is no longer taxable further for engaging in an
activity or work which is merely a part of, incidental to and is necessary to its main business.[30]Respondents already paid
percentage and fixed taxes on their insurance business. To require them to pay percentage and fixed taxes again for an activity
which is necessarily a part of thesame business, thelaw must expressly require such additional payment of tax. There is,
however, no provision of law requiring such additional payment of tax.
Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage and fixed taxes.
They merely tax lending investors, not lending activities. Respondents werenot transformed into lending investors by the mere
fact that they granted loans, as these investments were part of, incidental and necessary to their insurance business.
Different Tax Treatment of
Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies. The relevant
portions of Section 182 state:
Sec. 182. Fixed taxes. – (A) On business xxx
(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when
not otherwise specified;
xxx
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five
pesos; Provided, That lending investors who do business as such in more than one province
shall pay atax of five hundred pesos.

xxx
(gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and franchise grantees,
five hundred pesos.
xxx (Emphasis supplied.)
The separateprovisions on lending investors and insurance companies demonstrate an intention to treat these businesses
differently. If Congress intended insurance companies to be taxed as lending investors, there would be no need for Section
182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies were included with banks, finance
and investment companies also supportstheCTA’s conclusion that insurance companies had more in common with thelatter
enterprises than with lending investors. As theCTA pointed out, banks also regularly lend money at interest, but are not taxable
as lending investors.
We find no merit in petitioner’s contention that Congress intended to subject respondents to two percentage taxes and two fixed
taxes. Petitioner’s argument goes against the doctrine of strict interpretation of tax impositions.
Petitioner’s argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal Revenue v. Michel J.
LhuillierPawnshop, Inc.,[31] the Court ruled that thedifferent tax treatment accorded to pawnshops and lending investors in the
NIRC of 1977 and the NIRC of 1986 showed “theintent of Congress to deal with both subjects differently.” Thesame reasoning
applies squarely to the present case.
Even thecurrent tax law does not treat insurance companies as lending investors. Under Section 108(A)[32]of the NIRC of
1997, lending investors and non-life insurance companies, except for their crop insurances, are subject to value-added tax
(“VAT”). Life insurance companies are exempt from VAT, but are subject to percentage tax under Section 123 of the NIRC of
1997.
Indeed, thefact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies already implies the
latter’s exclusion from thecoverage of theseprovisions. When a statuteenumerates the things upon which it is to operate,
everything else by implication must be excluded from its operation and effect.[33]
Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not disputethat it issued a ruling in 1920 to the effect that the lending of money at interest was a necessary
incident of theinsurance business, and that insurance companies were thus not subject to thetax on money lenders. Petitioner
argues only that the1920 ruling does not apply to theinstant case because RA 6110 introduced thedefinition of lending investors
to CA 466 only in 1969.
The subject definition was actually introduced much earlier, at a time when lending investors were still referred to as money
lenders. Sections 45 and 46 of theInternal Revenue Law of 1914[34] (“1914 Tax Code”) state:
SECTION 45. Amount of Tax on Business. — Fixed taxes on business shall be collected as follows, theamount stated being for
the whole year, when not otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx
SECTION 46. Words and Phrases Defined. — In applyingthe provisions of the preceding section words and phrases
shall be taken in the sense and extension indicated below:
xxx
“Money lender” includes all persons who make a practice of lending money forthemselves orothers at interest. (Emphasis
supplied)
As can be seen, thedefinitions of “money lender” under the 1914 Tax Code and “lending investor” under CA 466 are identical.
The term “money lender” was merely changed to “lending investor” when Act No. 3963 amended the Revised Administrative
Code in 1932.[35] This same definition of lending investor has since appeared in Section 194(u) of CA 466 and later tax laws.

Notethat insurance companies were not included among the businesses subject to an annual fixed tax under the 1914 Tax
Code.[36] That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view that there was no
legislative intent to tax insurance companies as lending investors. If insurance companies were already taxed as lending
investors, there would have been no need for a separateprovision specifically requiring insurance companies to pay fixed taxes.
The Court Accords Great
Weight to theFactual Findings
of the CTA.
Dedicated exclusively to thestudy and consideration of tax problems, theCTA has necessarily developed an expertise in the
subject of taxation that this Court has recognized time and again. For this reason, the findings of fact of the CTA, particularly
when affirmed by the Court of Appeals, are generally conclusive on this Court absent grave abuse of discretion or palpable
error,[37] which are not present in this case.
WHEREFORE, we DENY theinstant petition and AFFIRM theDecision of 7 January 2000 of the Court of Appeals in CA-G.R.
SP No. 36816.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
[1] Under Rule 45 of the Rules of Civil Procedure.
[2] Rollo, pp. 20-30. Penned by AssociateJustice Ramon Mabutas, Jr. with Associate Justices Artemio G. Tuquero and
Mercedes Gozo Dadole concurring.
[3] Ibid., pp. 32-43. Penned by Associate Judge ManuelK. Gruba with Presiding Judge Ernesto D. Acosta and Associate Judge
Ramon O. De Veyra concurring.
[4] Section 195-A was added to CA 466 by RA 6110. It states:Sec. 195-A. Percentage tax on dealers in securities; lending
investors. – Dealers in securities and lending investors shall pay a tax equivalent to three per centum on their gross income.
[5] Rollo, pp. 34-35.
[6] Ibid., p. 39.
[7] Ibid., p. 42.
[8] Note that under Republic Act No. 9282, decisions of the CTA are now appealable to theSupreme Court via a verified petition
for review on certiorari.
[9] Rollo, p. 30.
[10] Ibid., p. 10.
[11] Sec. 182. Fixed taxes. – (A) On business xxx
xxx
(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when
not otherwise specified;

xxx
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-fivepesos;
Provided, That lending investors who do business as such in more than one province shall pay a tax of five
hundred pesos.
[12] CA Rollo, pp. 7-18.
[13] Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35 (2002).
[14] Rollo, p. 42.
[15] Garrido v. Court of Appeals, G.R. No. 101262, 14 September 1994, 236 SCRA 450. See also F.F. Mañacop Construction
Co., Inc. v. Court of Appeals, G.R. No. 122196, 15 January 1997, 266 SCRA 235.
[16] Rollo, p. 112.
[17] CIR v. CA, 338 Phil. 322 (1997).
[18] Lincoln Philippine Life Insurance Co., Inc. v. CA, 354 Phil. 896 (1998); CIR v. CA, supra.
[19] Ibid.
[20] Rollo, pp. 12-13.
[21] Presidential Decree No. 1460 (1978), as amended.
[22] Section 184, ibid.
[23] Maria Clara L. Campos, Insurance 7 (University of thePhilippines Law Center 1983); 43 Am Jur 2d, Insurance, §188.
[24] See Sections 198 to 203 of Presidential Decree No. 1460. Loans are not even the chief means of investment. According to
the Insurance Commission, loans accounted for only 16.61% of the investments made by the insurance industry in 2002.
Compare this with theindustry’s investment in bonds and government securities, which amounted to 45.75%
(http://www.ic.gov.ph/main.asp?pages=statper2002).
[25] In fact, pursuant to Insurance Circular Letter No. 064-60 (1960), reiterated in theInsurance Circular Letter of 20 May 1985,
no insurance company could grant a loan to any of its officers or directors without theprior approvalof theInsurance
Commissioner.
[26] Presidential Decree No. 612 (1974) provided:
Sec. 198. No insurance company shall loan any of its money or deposits to any person, corporation or association,
except upon first mortgage or deeds of trust of unencumbered, improved or unimproved real estate, including condominiums, in
cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of seventy per
centum of themarket value of such real estate;or upon the security of first mortgages or deeds of trust of actually cultivated,
improved and unencumbered agricultural lands in the Philippines when theamount of such loan is not in excess of forty per
centum of themarket value of such land; or upon thepurchase money mortgages or like securities received by it upon the sale or
exchange of real property acquired pursuant to sections two hundred and two hundred two;or upon bonds or other evidences of

debt of theGovernment of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other
evidences of debt of government-owned or controlled corporations and instrumentalities including theCentral Bank or upon
obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other
evidences of debt as are specified in section two hundred.
A life insurance company, however, may lend to any of its policyholders upon thesecurity of the value of its policy
such sum as may be determined pursuant to theprovisions of the policy.
Loans granted upon the security of real estatefor a period longer than five years shall be amortized in monthly,
quarterly, semi-annual or annual installments; Provided, That no such loans shall have a maturity in excess of twenty years.
The phrase“improved real estate” used above is hereby defined to mean land with permanent building or buildings
erected or being erected thereon. Except as otherwise approved by theCommissioner, in case the building or buildings on land do
not belong to the owner of the latter, no loan shall be granted on the security of thereal estate in question unless both the owner
of the building or buildings and theowner of the land sign thedeed of mortgage, and unless theowner of the land is the
Government of the Philippines or one of its political subdivisions, in which event the owner is not required to sign the deed of
mortgage.
Sec. 199. No loan by any insurance company on the security of real estateshall be made unless the titleto such
real estateshall have first been registered in accordance with theexisting Land Registration Act, or shall be a titulo real duly
registered, or have been previously registered under the provisions of theexisting Mortgage Law.
These provisions were carried over in the Insurance Code of 1978.
[27] Spouses Tibay v. CA, 326 Phil. 931 (1996). See also Sections 194, 210 to 214 of Presidential Decree No. 1460.
[28] Bowers v. Lawyers’ Mortg. Co., 285 U.S. 182 (1932).
[29] Justice JoseC. Vitug and Justice Ernesto D. Acosta, Tax Law and Jurisprudence, 2nd
ed., 256, citing Commissioner of
Internal Revenue v. Court of Tax Appeals, CA-G.R. SP No. 39511 to 39513, 30 September 1996. This CA decision was never
appealed to this Court.
[30] Standard-Vacuum Oil Co. v. Antigua, etc., et al., 96 Phil. 909 (1955).
[31] G.R. No. 150947, 15 July 2003, 406 SCRA 178.
[32] The relevant portion of Sec. 108(A) states:
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of services, including theuse or lease of properties.
The phrase“sale or exchange of services” means the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including thoseperformed or rendered by xxx lending investors;xxx services of banks,
non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; xxx. (Emphasis supplied)
[33] Applyingthemaxim expressio unius est exclusio alterius. See Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc., supra note 31.
[34] Act No. 2339 (1914).
[35] Act No. 3963 (1932) provides:
Sec. 2 Paragraph (v) of section fourteen hundred and sixty-five of theRevised Administrative Code is hereby amended
so as to read as follows:

“(v) ‘Lending investor’ includes all persons who make a practice of lending money for themselves or others at
interest.” xxx
[36] The receipts of insurance companies were instead subject to internal revenue taxes under Sec. 21(e) of the 1914 Tax Code.
[37] Supra note17.

FIRST DIVISION
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION
AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for review assails the Decision [1] dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision [2] 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
MutualUnderwriting 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 thecoverage. When White Gold failed to fully pay its accounts, Steamship Mutualrefused to renew the
coverage.
Steamship Mutualthereafter 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 Mutualviolated
Sections 186 [4] and 187 [5] of the Insurance Code, while Pioneer violated Sections' 299, [6] 300 [7] and 301 [8] in relation to
Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutualto secure a license
because it was not engaged in the insurance business. It explained that Steamship Mutualwas a Protection and Indemnity Club (P
& I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutualbecause
Steamship Mutualwas not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separatelicense
solely as agent/broker of Steamship Mutualwas already superfluous.
The Court of Appeals affirmed thedecision of the Insurance Commissioner. In its decision, the appellatecourt distinguished
between P & I Clubs vis--vis conventional insurance. Theappellate court also held that Pioneer merely acted as a collection agent
of Steamship Mutual.
In this petition, petitioner assigns thefollowing errors allegedly committed by the appellatecourt,
FIRST ASSIGNMENT OF ERROR
THECOURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
PHILIPPINES ON THEGROUND THAT IT COURSED . . . ITS TRANSACTIONSTHROUGH ITSAGENT AND/OR
BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGEIN INSURANCE BUSINESS IN
THEPHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THECOURT A QUO ERRED WHEN IT RULED THAT THERECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THECOURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITSAFFAIR ASAN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR
THECOURT A QUO ERRED IN NOT REVOKING THELICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THEOFFICERS AND DIRECTORS OF RESPONDENT PIONEER. [9]
Simply, thebasic 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 Mutualis a P & I Club. Steamship Mutualadmits 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 theInsurance
Commission.
Petitioner insists that Steamship Mutualas 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 thespecific purposeof 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 Mutualis 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 thecourt over Hyopsung.
Is Steamship Mutualengaged in theinsurance 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 proposingto make, as insurer, any insurance contract;
(b) making, or proposingto make, as surety, any contract of suretyship as avocation 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 constitutingthe doing of an
insurance business within the meaning of this Code;
(d) doing or proposingto 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 theexistence of an insurance
business. [12]
The test to determine if a contract is an insurance contract or not, depends on thenature of the promise, theact 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 99 [16] of theInsurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprisewhere themembers are both the insurer and insured. In it, the
members all contribute, by a systemof premiums or assessments, to thecreation 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 Mutualas a P & I Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutualis doing business in the country albeit without the requisite certificate of authority
mandated by Section 187 [20] of theInsurance Code. It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutualeven renewed its P & I Club cover until it was cancelled due to
non-payment of the calls. Thus, to continue doing business here, Steamship Mutualor through its agent Pioneer, must secure a
license from theInsurance 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 theinsurance business without a license or a certificate of authority fromthe Insurance Commission. [21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is theresident agent of Steamship Mutualas evidenced by thecertificate of registration [22] issued by the Insurance
Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority [23] issued by the
same agency. However, a Certification from the Commission states that Pioneer does not have a separatelicense 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 theInsurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in thesolicitation 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 thefirst 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 PARTIALLYGRANTED. TheDecision 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.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Endnotes:
[1] Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Candido V. Rivera, and
Sergio L. Pestao concurring.
[2] CA Rollo, pp. 43-51.

[3] Id. at 103.
[4] SEC. 186. 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 thebusiness of insurance in the Philippines, unless possessed of the capital and
assets required of an insurance corporation doing the same kind of business in thePhilippines and invested in the same manner;
nor unless the Commissioner shall have granted to him or them a certificate to theeffect that he or they have complied with all
the provisions of law which an insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be subject to theinsurance laws of the
Philippines and to thejurisdiction and supervision of theCommissioner in thesame manner as if an insurance corporation
authorized by thelaws of the Philippines to engage in thebusiness of insurance specified in thecertificate.
[5] SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it shall have obtained a
certificate of authority for that purposefrom theCommissioner upon application therefor and payment by thecompany
concerned of the fees hereinafter prescribed.
. . .
[6] SEC. 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 thesolicitation 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, . . .
[7] SEC. 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 thenegotiating 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.
[8] SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting,
negotiating or procuring themaking of any insurance contract or in placing risk or taking out insurance, on behalf of an insured
other than himself, shall be an insurance broker within theintent of this Code, and shall thereby become liable to all theduties,
requirements, liabilities and penalties to which an insurance broker is subject.
[9] Rollo, pp. 144-145.
[10] No. L-77369, 31 August 1988, 165 SCRA 258, 260.
[11] Rollo, p. 176.
[12] THEINSURANCE CODE OF THEPHILIPPINES, Section 2(2).
[13] 43 AM JUR. 2d Insurance Sec. 4 (1982).
[14] Rufus B. Rodriguez, TheInsurance Code of the Philippines Annotated 4 (4th
ed., 1999), citing BUIST M. ANDERSON,
Vance on Insurance 83 (3rd
ed., 1951).
[15] Eduardo F. Hernandez and Antero A. Peasales, Philippine Admiralty and Maritime Law 612 (1st
ed., 1987).
[16] SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities,
choses in action, evidences of debt, valuable papers, bottomry, and respondentiainterests and all other kinds of property and
interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or
transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting
shipment, or during any delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine builder's risks,
and all personal property floater risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including
liability for loss of or damage arising out of or in connection with theconstruction, repair, operation, maintenance or use of the
subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily
injury to any person arising out of the ownership, maintenance, or use of automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and
furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways.
(2) 'Marine protection and indemnity insurance, meaning insurance against, or against legal liability of theinsured for loss,
damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for
loss of or damage to the property of another person.
[17] Supra, note13 at Sec. 65.
[18] Howard Bennett, The Law of Marine Insurance 236 (1996).
[19] Supra, note15 at 733.
[20] Supra, note5.
[21] Supra, note12 at Sec. 187.
[22] CA Rollo, p. 154.
[23] Id. at 153.
[24] Id. at 112. Certification issued by the Insurance Commission which certified that Pioneer is not a registered broker for any
foreign corporation.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-109937 March 21, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, representedby CANDIDA G. DANS, and
the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana,Molo & Alegre for DBP Mortgage Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules ofCourt to reverse and set aside the
decision ofthe Courtof Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof.
We affirm the decision ofthe Court of Appeals with modification.
I
In May 1987, Juan B. Dans,together with his wife Candida,his son and daughter-in-law,applied for a loan of
P500,000.00 with the DevelopmentBank of the Philippines (DBP),Basilan Branch.As the principal mortgagor,Dans,
then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage
Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amountof P300,000.00,was approved by DBP on August 4, 1987 and released on August11,
1987.From the proceeds ofthe loan,DBP deducted the amountof P1,476.00 as paymentfor the MRI premium.On
August 15, 1987,Dans accomplished and submitted the "MRI Application for Insurance"and the "Health Statement
for DBP MRI Pool."
On August 20, 1987,the MRI premium ofDans,less the DBP service fee of 10 percent, was credited by DBP to the
savings accountof the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987,Dans died of cardiac arrest.The DBP, upon notice,relayed this information to the DBP MRI
Pool. On September 23,1987, the DBP MRI Pool notified DBP that Dans was noteligible for MRI coverage, being
over the acceptance age limitof 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans ofthe disapproval ofher late husband's MRI application.The
DBP offered to refund the premium ofP1,476.00 which the deceased had paid,butCandida Dans refused to accept
the same,demanding paymentofthe face value of the MRI or an amountequivalentto the loan.She, likewise,
refused to acceptan ex gratia settlementofP30,000.00,which the DBP later offered.
On February 10, 1989, respondentEstate,through Candida Dans as administratrix,filed a complaintwith the
Regional Trial Court,Branch I, Basilan,againstDBP and the insurance pool for "Collection of Sum of Money with
Damages."RespondentEstate alleged thatDans became insured bythe DBP MRI Pool when DBP, with full
knowledge ofDans'age at the time of application,required him to applyfor MRI, and later collected the insurance

premium thereon.RespondentEstate therefore prayed: (1) that the sum ofP139,500.00,which it paid under protest
for the loan, be reimbursed;(2) that the mortgage debtof the deceased be declared fullypaid;and (3) that damages
be awarded.
The DBP and the DBP MRI Pool separatelyfiled their answers,with the former asserting a cross -claim against the
latter.
At the pre-trial,DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondentEstate.
As a resultof these admissions,the trial court narrowed down the issues and,withoutopposition from the parties,
found the case ripe for summaryjudgment.Consequently,the trial court ordered the parties to submittheir respective
position papers and documentaryevidence,which may serve as basis for the judgment.
On March 10, 1990,the trial court rendered a decision in favor of respondentEstate and againstDBP.The DBP MRI
Pool, however, was absolved from liability,after the trial court found no privity of contract between it and the
deceased.The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting
the premium and the service fee, despite knowledge ofhis age ineligibility.The dispositive portion of the decision
read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity,
the Court finds judgmentfor the plaintiffand againstDefendantDBP,ordering the latter:
1. To return and reimburse plaintiffthe amountof P139,500.00 plus legal rate ofinterestas
amortization paymentpaid under protest;
2. To consider the mortgage loan ofP300,000.00 including all interestaccumulated or otherwise to
have been settled,satisfied or set-off by virtue of the insurance coverage ofthe late Juan B. Dans;
3. To pay plaintiff the amountof P10,000.00 as attorney's fees;
4. To pay plaintiff in the amountof P10,000.00 as costs of litigation and other expenses,and other
reliefjustand equitable.
The Counterclaims ofDefendants DBP and DBP MRI POOL are hereby dismissed.The Cross -
claim of DefendantDBP is likewise dismissed (Rollo,p.79)
The DBP appealed to the Court of Appeals.In a decision dated September 7,1992,the appellate courtaffirmed in
toto the decision ofthe trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20,
1993.
Hence,this recourse.
II
When Dans applied for MRI, he filled up and personallysigned a "Health Statementfor DBP MRI Pool"(Exh. "5 -
Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true,complete
and correct to the bestof my knowledge and beliefand form part of my application for insurance.It
is understood and agreed thatno insurance coverage shall be effected unless and until this
application is approved and the full premium is paid during mycontinued good health (Records,p.
40).
Under the aforementioned provisions,the MRI coverage shall take effect: (1) when the application shall be approved
by the insurance pool;and (2) when the full premium is paid during the continued good health ofthe applicant.These
two conditions,being joined conjunctively,mustconcur.

Undisputably,the power to approve MRI applications is lodged with the DBP MRI Pool.The pool, however, did not
approve the application ofDans.There is also no showing thatit accepted the sum of P1,476.00,which DBP credited
to its accountwith full knowledge that it was paymentfor Dan's premium.There was,as a result,no perfected
contract of insurance;hence,the DBP MRI Pool cannot be held liable on a contract that does notexist.
The liabilityof DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans,the borrower,to secure MRI coverage. Instead of
allowing Dans to look for his own insurance carrier or some other form of insurance policy,DBP compelled him to
apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August11,1987,DBP already
deducted from the proceeds thereofthe MRI premium.Four days latter, DBP made Dans fill up and sign his
application for MRI, as well as his health statement.The DBP later submitted both the application form and health
statementto the DBP MRI Pool at the DBP Main Building,Makati Metro Manila. As service fee, DBP deducted 10
percentof the premium collected by it from Dans.
In dealing with Dans,DBP was wearing two legal hats:the first as a lender,and the second as an insurance agent.
As an insurance agent,DBP made Dans go through the motion ofapplying for said insurance,therebyleading him
and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance oftheir
policy was forthcoming.Apparently, DBP had full knowledge thatDan's application was never going to be approved.
The maximum age for MRI acceptance is 60 years as clearly and specificallyprovided in Article 1 of the Group
Mortgage Redemption Insurance Policysigned in 1984 by all the insurance companies concerned (Exh."1 -Pool").
Under Article 1987 of the Civil Code of the Philippines,"the agentwho acts as such is notpers onallyliable to the
party with whom he contracts,unless he expresslybinds himselfor exceeds the limits ofhis authority without giving
such party sufficientnotice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-
Pool"). Knowing all the while that Dans was ineligible for MRI coverage because ofhis advanced age, DBP exceeded
the scope of its authority when it accepted Dan's application for MRI by collecting the insurance pre mium,and
deducting its agent's commission and service fee.
The liabilityof an agent who exceeds the scope of his authority depends upon whether the third person is aware of
the limits ofthe agent's powers.There is no showing thatDans knew ofthe limitation on DBP's authority to solicit
applications for MRI.
If the third person dealing with an agentis unaware ofthe limits ofthe authority conferred by the principal on the
agentand he (third person) has been deceived by the non-disclosure thereofbythe agent,then the latter is liable for
damages to him (V Tolentino,Commentaries and Jurisprudence on the Civil Code of the Philippines,p.422 [1992],
citing Sentencia [Cuba] of September 25,1907). The rule that the agent is liable when he acts without authority is
founded upon the supposition thatthere has been some wrong or omission on his parteither in misrepresenting,or in
affirming,or concealing the authority under which he assumes to act (Francisco,V., Agency 307 [1952], citing Hall v.
Lauderdale,46 N.Y. 70, 75). Inasmuch as the non-disclosure ofthe limits ofthe agency carries with it the implication
that a deception was perpetrated on the unsuspecting client,the provisions ofArticles 19, 20 and 21 of the Civil Code
of the Philippines come into play.
Article 19 provides:
Every person must,in the exercise of his rights and in the performance ofhis duties,act with justice
give everyone his due and observe honestyand good faith.
Every person who,contrary to law, willfullyor negligentlycauses damage to another,shall
indemnifythe latter for the same.

Any person,who willfullycauses loss or injuryto another in a manner that is contrary to morals,
good customs or public policyshall compensate the latter for the damage.
The DBP's liability, however, cannotbe for the entire value of the insurance policy.To assume thatwere it not for
DBP's concealmentofthe limits ofits authority, Dans would have secured an MRI from another insurance company,
and therefore would have been fully insured bythe time he died,is highly speculative.Considering his advanced age,
there is no absolute certainty that Dans could obtain an insurance coverage from another company.It mustalso be
noted that Dans died almostimmediately,i.e., on the nineteenth day after applying for the MRI, and on the twenty-
third day from the date of release ofhis loan.
One is entitled to an adequate compensation onlyfor such pecuniaryloss suffered by him as he has duly proved
(Civil Code of the Philippines,Art. 2199). Damages,to be recoverable,mustnotonly be capable of proof, but mustbe
actually proved with a reasonable degree ofcertainty (Refractories Corporation v. Intermediate Appellate Court, 176
SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co.,34 Phil.447 [1916]). Speculative damages are too
remote to be included in an accurate estimate ofdamages (Sun Life Assurance v. Rueda Hermanos,37 Phil.844
[1918]).
While Dans is not entitled to compensatorydamages,he is entitled to moral damages.No proofof pecuniary loss is
required in the assessmentofsaid kind of damages (Civil Code ofPhilippines,Art. 2216).The same maybe
recovered in acts referred to in Article 2219 of the Civil Code.
The assessmentofmoral damages is leftto the discretion ofthe court according to the circumstances ofeach case
(Civil Code of the Philippines,Art. 2216). Considering thatDBP had offered to pay P30,000.00 to respondentEstate
in ex gratia settlementofits claim and that DBP's non-disclosure ofthe limits ofits authority amounted to a deception
to its client,an award of moral damages in the amountofP50,000.00 would be reasonable.
The award of attorney's fees is also justand equitable under the circumstances (Civil Code of the Philippines,Article
2208 [11]).
WHEREFORE, the decision ofthe Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondentEstate of Juan B. Dans
the amountof P1,476.00 with legal interestfrom the date of the filing of the complaintuntil fully paid;and (2) to PAY
said Estate the amountofFifty Thousand Pesos (P50,000.00) as moral damages and the amountofTen Thousand
Pesos (P10,000.00) as attorney's fees.With costs againstpetitioner.
SO ORDERED.
Cruz,Davide,Jr., Bellosillo and Kapunan,JJ., concur.
EN BANC
[G.R. No. 137172. April 4, 2001]
UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.
R E S O L U T I O N
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision of the Court of Appeals, which
affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of thefive insurance policies on Respondent’s properties;(b) declaring the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of thetrial court’s declaration that three of the policies were in force from August 1991
to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of thetotal amount due the Respondent.

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