Jurisprudence: G.R. No. 132403 G.R. No. 132419 September 28, 2007

FIRST DIVISION



HI-CEMENT CORPORATION v. INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now, EQUITABLE-PCI BANK)

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G.R. No. 132403 - G.R. No. 132419     September 28, 2007




 D E C I S I O N



CORONA, J.:





          At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600 entitled Insular Bank of Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al.[1]



The antecedent facts follow.



Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker fuel.[2] Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement),[3] Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.



Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T. Henry a credit facility known as “Purchase of Short Term Receivables.” Through this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of its clients.  In other words, E.T. Henry and respondent were into “re-discounting” of checks.



For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.[4] 



From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent. However, in February 1981, 20 checks[5] of Hi-Cement (which were crossed and which bore the restriction “deposit to payee’s account only”) were dishonored. So were the checks of Riverside and Kanebo.[6]



          Respondent filed a complaint for sum of money[7]  in the then Court of First Instance of Rizal[8] against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager[9] and its treasurer [10] as signatories of the postdated crossed checks), Riverside and Kanebo.[11]



          In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to their value, exclusive of accrued and accruing interests, charges and penalties such as attorney’s fees and expenses of litigation, as follows:



1.  Riverside Mills Corporation                                     P        115,312.50

2.  Kanebo Cosmetics Philippines, Inc.                      5,811,750.00

3.  Hi-Cement Corporation                                     10,000,000.00



          

          Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to P1,661,266.51 and P4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Parañaque.[12]



          Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to issue the postdated crossed checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement assigning them to respondent only bore the conformity of its treasurer and (3) respondent was not a holder in due course as it should not have discounted them for being “crossed checks.”[13]

        

          In their answer (with counterclaim against respondent and cross-claims against Hi-Cement, Riverside and Kanebo),[14] E.T. Henry and the spouses Tan claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse economic conditions prevailing at the time respondent presented them for payment; (2) the extra-judicial sale of the mortgaged Sucat property was void due to gross inadequacy of the bid price[15] and (3) their loans were subjected to a usurious interest rate of 21% p.a. 



For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the re-discounting arrangement between respondent and E.T. Henry.



On June 30, 1989, the trial court rendered a decision which read:



WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this Court hereby renders judgment in favor of [respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], to wit:



1.      Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay [respondent] damages represented by the face value of the postdated checks as follows:



(a) Riverside Mills Corporation                          P     115,312.50

(b) Kanebo Cosmetics Philippines, Inc.         5,811,750.00

(c) Hi-Cement Corporation                      10,000,000.00



      plus interests, services, charges and penalties until fully paid;



2.      Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of P4,900,805.00 plus accrued interests, charges, penalties until fully paid;



3.      Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of P1,661,266.51 plus interests, charges, and penalties until fully paid;



4.      Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorney’s fees and expenses of litigation in the amount of P200,000.00 and pay the cost of this suit.[16]



SO ORDERED.[17]





          Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.



          In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not authorize their issuance; (2) respondent was not a holder in due course and (3) there was no basis for the lower court’s holding that it was solidarily liable for the face value of Riverside’s and Kanebo’s checks.[18]



          In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred in: (1) applying the doctrine of piercing the veil of the corporate entity to make the spouses Tan solidarily liable with E.T. Henry; (2) not ruling on their cross-claims and counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void.[19]

 



(A) G.R. 132403





As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.[20] The factual findings of the trial court, specially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.[21] This case falls within the exception.





Authority of Hi-Cement’s General Manager  and  Treasurer  to Issue the   Postdated   Crossed  Checks



Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent. 



We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.







Respondent Bank Not a Holder   In   Due    Course





          The Negotiable Instruments Law (NIL), specifically Section 191,[22] provides:



 “Holder” means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the bearer thereof.





 On the other hand, Section 52[23] states:



 A holder in due course is a holder who has taken the instrument under the following conditions: (a)  it is complete and regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for value and (d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.





          Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met.   



In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,[24] we held that the holder of crossed checks was not a holder in due course. There, the drawer (BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed. George King, however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon the latter’s presentment to the drawee bank, BCCF ordered a “stop payment.” Thereafter, SIHI filed a collection case against it. In ruling that SIHI was not a holder in due course, we explained:



In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank [and]; (c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. 



          Likewise, in Atrium Management Corporation v. CA,[25] where E.T. Henry, Hi-Cement and its treasurer[26] again engaged in a legal scuffle over four postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry was the payee of four Hi-Cement postdated checks which  it  endorsed  to  Atrium.  When  the  latter  presented  the crossed  checks  to  the  drawee  bank, Hi-Cement stopped  payment.[27] We held that Atrium was not a holder in due course:



In the instant case, the checks were crossed and specifically indorsed for deposit to payee’s account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.

        

          In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cement’s postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.



          Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction.[28] Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory, Inc.,[29] we ruled:





            It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith…and as such[,] the consensus of authority is to the effect that the holder of the check is not a holder in due course. (emphasis supplied)





The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative.



In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court,[30] SIHI re-discounted crossed checks and was declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that:



The three subject checks in the case at bar had been crossed…which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. [31]





Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA,[32] where we affirmed the CA ruling that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course.



          We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. In both, we ruled that it may recover from the party who indorsed/encashed the checks “if the latter has no valid excuse for refusing payment.” Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.





Solidary Liability of Hi-Cement for The Face Value of Riverside's and Kanebo's Checks





Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-Cement had nothing to do with the checks of these two corporations. However, although the language of the trial court decision's dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was for each corporation to be liable solidarily with E.T. Henry and/or  the spouses Tan for the respective values of their checks.



Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here. Articles 1207 and 1208 of the Civil Code provide:



Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the presentation. There is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. (emphasis supplied)



Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules governing the multiplicity of suits.





          At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks.



(B) G.R. No. 132419







Doctrine of Piercing the

Veil of Corporate Entity





          In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the “piercing the veil of corporate entity” doctrine to their case. They claim that both the trial and appellate courts failed to cite the reasons why the doctrine was relevant to them.



          We agree with petitioners E.T. Henry and the spouses Tan in this respect.



          If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reasons to the contrary appear. [33] It is only when the fiction or notion of legal entity is used to defeat public convenience, justify wrong, perpetuate fraud or defend crime that the law will shred the corporate legal veil and regard it as a mere association of persons.[34] This is referred to as the doctrine of piercing the veil of corporate entity.



          After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.



First, the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it agreed with respondent’s arguments but did not explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses Tan’s case. On the other hand, the CA held:



…It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its authorized signatories. The business of the corporation was conducted solely for the benefit of the spouses Tan who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited…[I]t is a settled law in this and other jurisdictions that when the corporation is a mere alter ego of a person, same being true when the corporation is controlled, and its affairs are so conducted to make it merely an instrumentality, agency or conduit of another.[35]





Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan defrauded respondent. It did not also state what act constituted  the  fraud.    Fraud  is  an  allegation  of  fact  that demands clear and convincing evidence.[36] It is never presumed.[37]



Second, the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.[38] For this ground to stand in this case, there must be proof that the spouses Tan: (1) had control or complete domination of E.T. Henry’s finances and that the latter had no separate existence with respect to the act complained of; (2) used such control to commit fraud or wrong and (3) the control was the proximate cause of the loss or injury complained of by respondent.[39] The records of this case do not show that these elements were present.





Inadequacy of the Bid Price to Annul Foreclosure Proceeding





With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that the “mere inadequacy of the price obtained at the [s]heriff’s sale, unless shocking to the conscience, (was) not sufficient to set aside the sale if there (was) no showing  that,  in  the  event   of  a  regular  sale,  a  better  price  (could)  be



obtained.”[40]



Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict observance of the procedure, we will continue to assume its regularity and strike down any attempt to vitiate it. In this case, E.T. Henry and the spouses Tan made no mention of any anomaly to support the nullification of the foreclosure sale but merely alleged a disparity in the bid price and the property’s fair market value.





Counterclaims and Cross-claims





          Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon their counterclaim against respondent or cross-claims against Hi-Cement,  Riverside  and  Kanebo.   They ask us now to hold these parties liable on the basis of said claims.  We decline to do so.

        

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties in the case at bar. Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or defended in the name of the real party in interest.[41] The term “defendant” may refer to the original defending party, the defendant in a counterclaim, the cross-defendant or the third (fourth, etc.) party defendant.[42] Hence, for this technical lapse, we are constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.



          Second, E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of an alleged void foreclosure proceeding on E.T. Henry's Sucat property due to an inadequate bid price. It is no longer necessary to delve into this matter in view of our finding that the mere inadequacy of the bid price on the property did not automatically render the foreclosure sale irregular or void.



          Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts’ ruling on E.T. Henry’s and the spouses Tan’s solidary liability with Riverside and Kanebo vis-a-vis their checks.[43] To be consistent, however, with our dictum on the separate personality of E.T. Henry and the spouses Tan, the solidarity liability arising from the checks of Riverside and Kanebo shall only be enforced against E.T. Henry.



          WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any liability.  Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America (later Philippine Commercial International Bank and now Equitable PCI-Bank) the following:



1.                 P10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests, charges and penalties until fully paid, and

2.                 the loans for P1,661,266.51 and P4,900,805 plus accrued interests, charges and penalties until fully paid.



          Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and Kanebo's liabilities for the checks, attorney's fees and costs of litigation.



          Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan.



SO ORDERED.

Jurisprudence: G.R. No. L-40207

FIRST DIVISION

G.R. No. L-40207 September 28, 1984

ROSA K. KALAW, petitioner,
vs.
HON. JUDGE BENJAMIN RELOVA, Presiding Judge of the CFI of Batangas, Branch VI, Lipa City, and GREGORIO K. KALAW, respondents.

Leandro H. Fernandez for petitioner.

Antonio Quintos and Jose M. Yacat for respondents.



MELENCIO-HERRERA, J.:

On September 1, 1971, private respondent GREGORIO K. KALAW, claiming to be the sole heir of his deceased sister, Natividad K. Kalaw, filed a petition before the Court of First Instance of Batangas, Branch VI, Lipa City, for the probate of her holographic Will executed on December 24, 1968.

The holographic Will reads in full as follows:

My Last will and Testament

In the name of God, Amen.

I Natividad K. Kalaw Filipino 63years of age, single, and a resident of Lipa City, being of sound and disposing mind and memory, do hereby declare thus to be my last will and testament.

1. It is my will that I'll be burried in the cemetery of the catholic church of Lipa City. In accordance with the rights of said Church, and that my executrix hereinafter named provide and erect at the expose of my state a suitable monument to perpetuate my memory.

xxx xxx xxx

The holographic Will, as first written, named ROSA K. Kalaw, a sister of the testatrix as her sole heir. Hence, on November 10, 1971, petitioner ROSA K. Kalaw opposed probate alleging, in substance, that the holographic Will contained alterations, corrections, and insertions without the proper authentication by the full signature of the testatrix as required by Article 814 of the Civil Code reading:

Art. 814. In case of any insertion, cancellation, erasure or alteration in a holographic will the testator must authenticate the same by his full signature.

ROSA's position was that the holographic Will, as first written, should be given effect and probated so that she could be the sole heir thereunder.

After trial, respondent Judge denied probate in an Order, dated September 3, 197 3, reading in part:

The document Exhibit "C" was submitted to the National Bureau of Investigation for examination. The NBI reported that the handwriting, the signature, the insertions and/or additions and the initial were made by one and the same person. Consequently, Exhibit "C" was the handwriting of the decedent, Natividad K. Kalaw. The only question is whether the win, Exhibit 'C', should be admitted to probate although the alterations and/or insertions or additions above-mentioned were not authenticated by the full signature of the testatrix pursuant to Art. 814 of the Civil Code. The petitioner contends that the oppositors are estopped to assert the provision of Art. 814 on the ground that they themselves agreed thru their counsel to submit the Document to the NBI FOR EXAMINATIONS. This is untenable. The parties did not agree, nor was it impliedly understood, that the oppositors would be in estoppel.

The Court finds, therefore, that the provision of Article 814 of the Civil Code is applicable to Exhibit "C". Finding the insertions, alterations and/or additions in Exhibit "C" not to be authenticated by the full signature of the testatrix Natividad K. Kalaw, the Court will deny the admission to probate of Exhibit "C".

WHEREFORE, the petition to probate Exhibit "C" as the holographic will of Natividad K. Kalaw is hereby denied.

SO ORDERED.

From that Order, GREGORIO moved for reconsideration arguing that since the alterations and/or insertions were the testatrix, the denial to probate of her holographic Will would be contrary to her right of testamentary disposition. Reconsideration was denied in an Order, dated November 2, 1973, on the ground that "Article 814 of the Civil Code being , clear and explicit, (it) requires no necessity for interpretation."

From that Order, dated September 3, 1973, denying probate, and the Order dated November 2, 1973 denying reconsideration, ROSA filed this Petition for Review on certiorari on the sole legal question of whether or not the original unaltered text after subsequent alterations and insertions were voided by the Trial Court for lack of authentication by the full signature of the testatrix, should be probated or not, with her as sole heir.

Ordinarily, when a number of erasures, corrections, and interlineations made by the testator in a holographic Will litem not been noted under his signature, ... the Will is not thereby invalidated as a whole, but at most only as respects the particular words erased, corrected or interlined.1 Manresa gave an Identical commentary when he said "la omision de la salvedad no anula el testamento, segun la regla de jurisprudencia establecida en la sentencia de 4 de Abril de 1895." 2

However, when as in this case, the holographic Will in dispute had only one substantial provision, which was altered by substituting the original heir with another, but which alteration did not carry the requisite of full authentication by the full signature of the testator, the effect must be that the entire Will is voided or revoked for the simple reason that nothing remains in the Will after that which could remain valid. To state that the Will as first written should be given efficacy is to disregard the seeming change of mind of the testatrix. But that change of mind can neither be given effect because she failed to authenticate it in the manner required by law by affixing her full signature,

The ruling in Velasco, supra, must be held confined to such insertions, cancellations, erasures or alterations in a holographic Will, which affect only the efficacy of the altered words themselves but not the essence and validity of the Will itself. As it is, with the erasures, cancellations and alterations made by the testatrix herein, her real intention cannot be determined with certitude. As Manresa had stated in his commentary on Article 688 of the Spanish Civil Code, whence Article 814 of the new Civil Code was derived:

... No infringe lo dispuesto en este articulo del Codigo (el 688) la sentencia que no declara la nulidad de un testamento olografo que contenga palabras tachadas, enmendadas o entre renglones no salvadas por el testador bajo su firnia segun previene el parrafo tercero del mismo, porque, en realidad, tal omision solo puede afectar a la validez o eficacia de tales palabras, y nunca al testamento mismo, ya por estar esa disposicion en parrafo aparte de aquel que determine las condiciones necesarias para la validez del testamento olografo, ya porque, de admitir lo contrario, se Ilegaria al absurdo de que pequefias enmiendas no salvadas, que en nada afectasen a la parte esencial y respectiva del testamento, vinieran a anular este, y ya porque el precepto contenido en dicho parrafo ha de entenderse en perfecta armonia y congruencia con el art. 26 de la ley del Notariado que declara nulas las adiciones apostillas entrerrenglonados, raspaduras y tachados en las escrituras matrices, siempre que no se salven en la forma prevenida, paro no el documento que las contenga, y con mayor motivo cuando las palabras enmendadas, tachadas, o entrerrenglonadas no tengan importancia ni susciten duda alguna acerca del pensamiento del testador, o constituyan meros accidentes de ortografia o de purez escrituraria, sin trascendencia alguna(l).

Mas para que sea aplicable la doctrina de excepcion contenida en este ultimo fallo, es preciso que las tachaduras, enmiendas o entrerrenglonados sin salvar saan de pala bras que no afecter4 alteren ni uarien de modo substancial la express voluntad del testador manifiesta en el documento. Asi lo advierte la sentencia de 29 de Noviembre de 1916, que declara nulo un testamento olografo por no estar salvada por el testador la enmienda del guarismo ultimo del año en que fue extendido 3 (Emphasis ours).

WHEREFORE, this Petition is hereby dismissed and the Decision of respondent Judge, dated September 3, 1973, is hereby affirmed in toto. No costs.

SO ORDERED.

Plana, Gutierrez, Jr. and De la Fuente, JJ., concur.

Relova, J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur. Rosa, having appealed to this Court on a sole question of law, is bound by the trial court's factual finding that the peculiar alterations in the holographic will crossing out Rosa's name and instead inserting her brother Gregorio's name as sole heir and "sole executrix" were made by the testatrix in her own handwriting. (I find it peculiar that the testatrix who was obviously an educated person would unthinkingly make such crude alterations instead of consulting her lawyer and writing an entirely new holographic wig in order to avoid any doubts as to her change of heir. It should be noted that the first alteration crossing out "sister Rosa K. Kalaw" and inserting "brother Gregorio Kalaw" as sole heir is not even initialed by the testatrix. Only the second alteration crossing out "sister Rosa K. Kalaw" and inserting "brother Gregorio Kalaw" as "sole executrix" is initialed.) Probate of the radically altered will replacing Gregorio for Rosa as sole heir is properly denied, since the same was not duly authenticated by the full signature of the executrix as mandatorily required by Article 814 of the Civil Code. The original unaltered will naming Rosa as sole heir cannot, however, be given effect in view of the trial court's factual finding that the testatrix had by her own handwriting substituted Gregorio for Rosa, so that there is no longer any will naming Rosa as sole heir. The net result is that the testatrix left no valid will and both Rosa and Gregorio as her next of kill succeed to her intestate estate.

Separate Opinions

TEEHANKEE, J., concurring:

I concur. Rosa, having appealed to this Court on a sole question of law, is bound by the trial court's factual finding that the peculiar alterations in the holographic will crossing out Rosa's name and instead inserting her brother Gregorio's name as sole heir and "sole executrix" were made by the testatrix in her own handwriting. (I find it peculiar that the testatrix who was obviously an educated person would unthinkingly make such crude alterations instead of consulting her lawyer and writing an entirely new holographic wig in order to avoid any doubts as to her change of heir. It should be noted that the first alteration crossing out "sister Rosa K. Kalaw" and inserting "brother Gregorio Kalaw" as sole heir is not even initialed by the testatrix. Only the second alteration crossing out "sister Rosa K. Kalaw" and inserting "brother Gregorio Kalaw" as "sole executrix" is initialed.) Probate of the radically altered will replacing Gregorio for Rosa as sole heir is properly denied, since the same was not duly authenticated by the full signature of the executrix as mandatorily required by Article 814 of the Civil Code. The original unaltered will naming Rosa as sole heir cannot, however, be given effect in view of the trial court's factual finding that the testatrix had by her own handwriting substituted Gregorio for Rosa, so that there is no longer any will naming Rosa as sole heir. The net result is that the testatrix left no valid will and both Rosa and Gregorio as her next of kill succeed to her intestate estate.

Jurisprudence: G.R. No. 131621

FIRST DIVISION

G.R. No. 131621  September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

D E C I S I O N

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following:  (a) the 30 January 1997 decision[1] of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991[2] of the Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the complaint until fully paid, P8,000 as attorney’s fees, and the costs of the suit; and (b) its resolution of 19 November 1997,[3] denying LOADSTAR’s motion for reconsideration of said decision.

The facts are undisputed.

On 19 November 1984, LOADSTAR received on board its M/V “Cherokee” (hereafter, the vessel) the following goods for shipment:

a)  705 bales of lawanit hardwood;

b)  27 boxes and crates of tilewood assemblies and others; and

c)  49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including “TOTAL LOSS BY TOTAL LOSS OF THE VESSEL.” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million.  On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island.  As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same.  As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees.  It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MIC’s claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper’s goods and claimed that the sinking of its vessel was due to force majeure.  PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured.  In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.

In dismissing LOADSTAR’s appeal, the appellate court made the following observations:

1)  LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that fateful voyage.  The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained control over its crew.[4]

2)  As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the rights and liabilities of the parties.

3)  The vessel was not seaworthy because it was undermanned on the day of the voyage.  If it had been seaworthy, it could have withstood the “natural and inevitable action of the sea” on 20 November 1984, when the condition of the sea was moderate.  The vessel sank, not because of force majeure, but because it was not seaworthy.  LOADSTAR’S allegation that the sinking was probably due to the “convergence of the winds,” as stated by a PAGASA expert, was not duly proven at the trial.  The “limited liability” rule, therefore, is not applicable considering that, in this case, there was an actual finding of negligence on the part of the carrier.[5]

4)  Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind only the shipper/consignee and the carrier.  When MIC paid the shipper for the goods insured, it was subrogated to the latter’s rights as against the carrier, LOADSTAR.[6]

5)  There was a clear breach of the contract of carriage when the shipper’s goods never reached their destination.  LOADSTAR’s defense of “diligence of a good father of a family” in the training and selection of its crew is unavailing because this is not a proper or complete defense in culpa contractual.

6)  “Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by reason of some fact which legally exempts him from liability.”  Transportation of the merchandise at the risk and venture of the shipper means that the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless otherwise proved.[7]

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V “Cherokee” a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?

Regarding the first issue, LOADSTAR submits that the vessel was a  private carrier because it was not issued a certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only “one shipper, one consignee for a special cargo.”

In refutation, MIC argues that the issue as to the classification of the M/V “Cherokee” was not timely raised below; hence, it is barred by estoppel.  While it is true that the vessel had on board only the cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its regular business.  Moreover, the bills of lading in this case made no mention of any charter party but only a statement that the vessel was a “general cargo carrier.”  Neither was there any “special arrangement” between LOADSTAR and the shipper regarding the shipment of the cargo.  The singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been negligent, and the burden of proving otherwise devolved upon MIC.[8]

LOADSTAR also maintains that the vessel was seaworthy.  Before the fateful voyage on 19 November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage.  Its crew at the time was experienced, licensed and unquestionably competent.  With all these precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel’s seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure.  It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the next day when the vessel sank due to strong waves.  MIC’s witness, Gracelia Tapel, fully established the existence of two typhoons, “WELFRING” and “YOLING,” inside the Philippine area of responsibility.  In fact, on 20 November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island.  Tapel also testified that the convergence of winds brought about by these two typhoons strengthened wind velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in this case, is valid.  Since the cargo was being shipped at “owner’s risk,” LOADSTAR was not liable for any loss or damage to the same.  Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Court’s ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc.,[9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10]

Finally, LOADSTAR avers that MIC’s claim had already prescribed, the case having been instituted beyond the period stated in the bills of lading for instituting the same – suits based upon claims arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual of the right of action.  The vessel sank on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due to force majeure, because the same concurred with LOADSTAR’s fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed waived.

Thirdly, the “limited liability” theory is not applicable in the case at bar because LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy vessel.  Authorizing the voyage notwithstanding its knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier.  It is not necessary that the carrier be issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc.,[11] where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of the Civil Code.  Any stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if the strict policy governing common carriers is upheld.  Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party.  LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals[12] and National Steel Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the factual settings are different.  The records do not disclose that the M/V “Cherokee,” on the date in question, undertook to carry a special cargo or was chartered to a special person only.  There was no charter party.  The bills of lading failed to show any special arrangement, but only a general provision to the effect that the M/V “Cherokee” was a “general cargo carrier.”[14] Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article 1732 of the Civil Code.  In the case of De Guzman v. Court of Appeals,[15] the Court juxtaposed the statutory definition of “common carriers” with the peculiar circumstances of that case, viz.:

The Civil Code defines “common carriers” in the following terms:

“Article 1732.  Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.”

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a sideline”’.  Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.  Neither does Article 1732 distinguish between a carrier offering its services to the “general public,” i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population.  We think that Article 1733 deliberately refrained from making such distinctions.

x x x

It appears to the Court that private respondent is properly characterized as a common carrier even though he merely “back-hauled” goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondent’s principal occupation was not the carriage of goods for others.  There is no dispute that private respondent charged his customers a fee for hauling their goods; that that fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier.  This is palpable error.  A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers.  That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise.  To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements.  The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier.  The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations.

Moving on to the second assigned error, we find that the M/V “Cherokee” was not seaworthy when it embarked on its voyage on 19 November 1984.  The vessel was not even sufficiently manned at the time.  “For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew.  The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.”[16]

Neither do we agree with LOADSTAR’s argument that the “limited liability” theory should be applied in this case.  The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent.[17] LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon.  In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the area where it sank was determined to be moderate.  Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind the “limited liability” doctrine to escape responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of this Court’s pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc.[19] It was ruled in these two cases that after paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the latter.  Since the right of the assured in case of loss or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and restrictions.  We do not agree.  In the first place, the cases relied on by LOADSTAR involved a limitation on the carrier’s liability to an amount fixed in the bill of lading which the parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750).  On the other hand, the stipulation in the case at bar effectively reduces the common carrier’s liability for the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at “owner’s risk.”  Such stipulation is obviously null and void for being contrary to public policy.[20] It has been said:

Three kinds of stipulations have often been made in a bill of lading.  The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence.  The second is one providing for an unqualified limitation of such liability to an agreed valuation.  And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight.  According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable.[21]

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription.  MIC’s cause of action had not yet prescribed at the time it was concerned.  Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) – which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit – may be applied suppletorily to the case at bar.  This one-year prescriptive period also applies to the insurer of the good.[22] In this case, the period for filing the action for recovery has not yet elapsed.  Moreover, a stipulation reducing the one-year period is null and void;[23] it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED.  Costs against petitioner.

SO ORDERED.

Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

[1]  Rollo, 58.

[2]  Ibid., 58-59.

[3]  Id., 72.

[4]  Citing Planter’s Products, Inc. v. Court of Appeals, 226 SCRA 476 [1993].

[5]  Citing Aboitiz Shipping Corp. v. General Accident Fire and Life Assurance Corp., Ltd., 217 SCRA 359 [1993].

[6] Citing Fireman’s Fund Insurance Co. v. Jamila & Co., Inc., 70 SCRA 323 [1976].

[7]  Rollo, 18.

[8]  Citing National Steel Corporation v. Court of Appeals, 283 SCRA 45 [1997].

[9]  70 SCRA 122 [1976].

[10] 184 SCRA 682 [1990].

[11] 23 SCRA 24 [1968].

[12]  274 SCRA 642 [1997].

[13]  Supra note 8.

[14]  “A general ship carrying goods for hire, whether employed in internal, in coasting, or in foreign commerce is a common carrier.”  (Baer, Senior & Co.’s Successors v. La Compania Maritima, 6 Phil. 215, 217-218, quoting Liverpool Steamship Co. v. Phoenix Ins. Co., 129 U.S. 397, 437), cited in 3 TEODORICO C. MARTIN, PHILIPPINE COMMERCIAL LAWS 118 (Rev. Ed. 1989).

[15]  168 SCRA 612, 617-619 [1988].

[16]  Trans-Asia Shipping Lines, Inc. v. Court of Appeals, 254 SCRA 260, 272-273 [1996], citing Chan Keep v. Chan Gioco, 14 Phil. 5.

[17] See JOSE C. VITUG, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 311-313 (3rd ed. 1997) (hereinafter VITUG). Also, Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd., 217 SCRA 359 [1993]; American Home Assurance, Co. v. CA, 208 SCRA 343 [1992], citing National Development Co. v. Court of Appeals, 164 SCRA 593 [1988]; Heirs of Amparo de los Santos v. Court of Appeals, 186 SCRA 649 [1990].

[18]  70 SCRA 122 [1976].

[19]  184 SCRA 682 [1990].

[20]  The stipulations on the limitations on the common carrier’s liability, subject matter of Articles 1749-1750 and Articles 1744-1745 of the New Civil Code are not to be confused with each other.  (See VITUG 244)

[21] 3 MARTIN, 96-97, citing H.E. Heacock Co. v. Macondray & Co., Inc., 42 Phil. 205. See Arts. 1744 and 1745 of the New Civil Code.

[22] VITUG, 220-222, 224, 256 and 334, citing Filipino Merchants Insurance Co., Inc. v. Alejandro, 145 SCRA 42 (1986); see also 3 MARTIN 302, 307 and Sec. 3. (6) of the Carriage of Goods by Sea Act, which provides, inter alia.

Sec. 3. (6)               xxx.

In any event the carrier and the ship shall be discharged from all liability in respect of the loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered…

[23]  VITUG, 334, citing Elser, Inc. v. Court of Appeals, 96 Phil. 264.

Insurance Case Digest: Gercio v. Sun Life Assurance Co. of Canada (1925)

G.R. No. 23703           September 28, 1925

Lessons Applicable: 

• Blood relationship (Insurance)
• Revocable Designation (Insurance)

FACTS:

• January 29, 1910: Sun Life Assurance Co. of Canada issued a 20-year endowment insurance policy on the life of Hilario Gercio
• insurance company agreed to insure the life of Gercio for the sum of P2,000, to be paid him on February 1, 1930, or if the insured should die before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the insured
• policy did not include any provision reserving to the insured the right to change the beneficiary
• End of 1919: she was convicted of the crime of adultery
• September 4, 1920: a decree of divorce was issued 
• March 4, 1922: Gercio formally notified the Sun Life that he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy
• Sun Life refused
• Gercio filed a petition for mandamus to compel Sun Life 
• Trial Court: favored Gercio

ISSUE: W/N Gercio has the right to change the beneficiary of the policy

HELD: NO. Dismissed.

• The wife has an insurable interest in the life of her husband. 
• The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. So when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a subsisting interest in the policy
• applies to a policy to which there are attached the incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance policy. 
• If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the policy. 
• But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's consent, the insured cannot make such change. 
• Accordingly, it is held that a life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of the beneficiary and beyond the control of the husband.
• effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that the decree of divorce shall dissolve the community property as soon as such decree becomes final
• absence of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy
• Neither the husband, nor the wife, nor both together had power to destroy the vested interest of the children in the policy.

Separate Opinion:

• Johnson, Concurring Opinion: 
• I agree with the majority of the court, that the judgment of the lower court should be revoked, but for a different reason. In my judgment, the action is premature and should have been dismissed.

Jurisprudence: G.R. No. 23703

EN BANC

G.R. No. 23703           September 28, 1925

HILARIO GERCIO, plaintiff-appellee,
vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.

Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.
Vicente Romualdez, Feria and La O and P. J. Sevilla for appellee.

MALCOLM, J.:

The question of first impression in the law of life insurance to be here decided is whether the insured — the husband — has the power to change the beneficiary — the former wife — and to name instead his actual wife, where the insured and the beneficiary have been divorced and where the policy of insurance does not expressly reserve to the insured the right to change the beneficiary. Although the authorities have been exhausted, no legal situation exactly like the one before us has been encountered.

Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the insurer, and Andrea Zialcita, the beneficiary, are the defendants. The complaint is in the nature of mandamus. Its purpose is to compel the defendant Sun Life Assurance Co. of Canada to change the beneficiary in the policy issued by the defendant company on the life of the plaintiff Hilario Gercio, with one Andrea Zialcita as beneficiary.

A default judgment was taken in the lower court against the defendant Andrea Zialcita. The other defendant, the Sun Life Assurance Co. of Canada, first demurred to the complaint and when the demurrer was overruled, filed an answer in the nature of a general denial. The case was then submitted for decision on an agreed statement of facts. The judgment of the trial court was in favor of the plaintiff without costs, and ordered the defendant company to eliminate from the insurance policy the name of Andrea Zialcita as beneficiary and to substitute therefor such name as the plaintiff might furnish to the defendant for that purpose.

The Sun Life Assurance Co. of Canada has appealed and has assigned three errors alleged to have been committed by the lower court. The appellee has countered with a motion which asks the court to dismiss the appeal of the defendant Sun Life Assurance Co. of Canada, with costs.

As the motion presented by the appellee and the first two errors assigned by the appellant are preliminary in nature, we will pass upon the first. Appellee argues that the "substantial defendant" was Andrea Zialcita, and that since she was adjudged in default, the Sun Life Assurance Co. of Canada has no interest in the appeal. It will be noticed, however, that the complaint prays for affirmative relief against the insurance company. It will be noticed further that it is stipulated that the insurance company has persistently refused to change the beneficiary as desired by the plaintiff. As the rights of Andrea Zialcita in the policy are rights which are enforceable by her only against the insurance company, the defendant insurance company will only be fully protected if the question at issue is conclusively determined. Accordingly, we have decided not to accede to the motion of the appellee and not to order the dismissal of the appeal of the appellant.

This brings us to the main issue. Before, however, discussing its legal aspects, it is advisable to have before us the essential facts. As they are stipulated, this part of the decision can easily be accomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No. 161481 on the life of Hilario Gercio. The policy was what is known as a twenty-year endowment policy. By its terms, the insurance company agreed to insure the life of Hilario Gercio for the sum of P/2,000, to be paid him on February 1, 1930, or if the insured should die before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the insured. The policy also contained a schedule of reserves, amounts in cash, paid-up policies, and renewed insurance, guaranteed. The policy did not include any provision reserving to the insured the right to change the beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end of the year 1919, she was convicted of the crime of adultery. On September 4, 1920, a decree of divorce was issued in civil case no. 17955, which had the effect of completely dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the insurance company has refused and still refuses to do.

With all of these introductory matters disposed of and with the legal question to the forefront, it becomes our first duty to determine what law should be applied to the facts. In this connection, it should be remembered that the insurance policy was taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and that the effort to change the beneficiary was made in 1922. Should the provisions of the Code of Commerce and the Civil Code in force in 1910, or the provisions of the Insurance Act now in force, or the general principles of law, guide the court in its decision?

On the supposition, first, that the Code of Commerce is applicable, yet there can be found in it no provision either permitting or prohibiting the insured to change the beneficiary.

On the supposition, next, that the Civil Code regulates insurance contracts, it would be most difficult, if indeed it is practicable, to test a life insurance policy by its provisions. Should the insurance contract, whereby the husband names the wife as the beneficiary, be denominated a donation inter vivos, a donation causa mortis, a contract in favor of a third person, or an aleatory contract? The subject is further complicated by the fact that if an insurance contract should be considered a donation, a husband may then never insure his life in favor of his wife and vice versa, inasmuch as article 1334 prohibits all donations between spouses during marriage. It would seem, therefore, that this court was right when in the case of Del Val vs. Del Val ([1915]), 29 Phil., 534), it declined to consider the proceeds of the insurance policy as a donation or gift, saying "the contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contracts or to the destination of life-insurance proceeds. . . ." Some satisfaction is gathered from the perplexities of the Louisiana Supreme Court, a civil law jurisdiction, where the jurists have disagreed as to the classification of the insurance contract, but have agreed in their conclusions as will hereafter see. (Re Succession of Leone Desforges [1914], 52 L.R.A. [N.S.], 689; Lambert vs Penn Mutual Life Insurance Company of Philadelphia and L'Hote & Co. [1898], 50 La. Ann., 1027.)

On the further supposition that the Insurance Act applies, it will be found that in this Law, there is likewise no provision either permitting or prohibiting the insured to change the beneficiary.

We must perforce conclude that whether the case be considered as of 1910, or 1914, or 1922, and whether the case be considered in the light of the Code of Commerce, the Civil Code, or the Insurance Act, the deficiencies in the law will have to be supplemented by the general principles prevailing on the subject. To that end, we have gathered the rules which follow from the best considered American authorities. In adopting these rules, we do so with the purpose of having the Philippine Law of Insurance conform as nearly as possible to the modern Law of Insurance as found in the United States proper.

The wife has an insurable interest in the life of her husband. The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. So when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a subsisting interest in the policy. And this applies to a policy to which there are attached the incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the policy. But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's consent, the insured cannot make such change. Accordingly, it is held that a life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of the beneficiary and beyond the control of the husband.

As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that the decree of divorce shall dissolve the community property as soon as such decree becomes final. Unlike the statutes of a few jurisdictions, there is no provision in the Philippine Law permitting the beneficiary in a policy for the benefit of the wife of the husband to be changed after a divorce. It must follow, therefore, in the absence of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy.

These are some of the pertinent principles of the Law of Insurance. To reinforce them, we would, even at the expense of clogging the decision with unnecessary citation of authority, bring to notice certain decisions which seem to us to have controlling influence.

To begin with, it is said that our Insurance Act is mostly taken from the statute of California. It should prove of interest, therefore, to know the stand taken by the Supreme Court of that State. A California decision oft cited in the Cyclopedias is Yore vs. Booth ([1895]), 110 Cal., 238; 52 Am. St. Rep., 81), in which we find the following:

. . . It seems to be the settled doctrine, with but slight dissent in the courts of this country, that a person who procures a policy upon his own life, payable to a designated beneficiary, although he pays the premiums himself, and keeps the policy in his exclusive possession, has no power to change the beneficiary, unless the policy itself, or the charter of the insurance company, so provides. In policy, although he has parted with nothing, and is simply the object of another's bounty, has acquired a vested and irrevocable interest in the policy, which he may keep alive for his own benefit by paying the premiums or assessments if the person who effected the insurance fails or refuses to do so.

As carrying great weight, there should also be taken into account two decisions coming from the Supreme Court of the United States. The first of these decisions, in point of time, is Connecticut Mutual Life Insurance Company vs Schaefer ([1877]), 94 U.S., 457). There, Mr. Justice Bradley, delivering the opinion of the court, in part said:

This was an action on a policy of the court, in part said: July 25, 1868, on the joint lives of George F. and Francisca Schaefer, then husband and wife, payable to the survivor on the death of either. In January, 1870, they were divorced, and alimony was decreed and paid to the wife, and there was never any issue of the marriage. They both subsequently married again, after which, in February, 1871, George F. Schaefer died. This action was brought by Francisca, the survivor.

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The other point, relating to the alleged cessation of insurable interest by reason of the divorce of the parties, is entitled to more serious consideration, although we have very little difficulty in disposing of it.

It will be proper, in the first place, to ascertain what is an insurable interest. It is generally agreed that mere wager policies, that is, policies in which the insured party has no interest in its loss or destruction, are void, as against public policy. . . . But precisely what interest is necessary, in order to take a policy out of the category of mere wager, has been the subject of much discussion. In marine and fire insurance the difficulty is not so great, because there insurance is considered as strictly an indemnity. But in life insurance the loss can seldom be measured by pecuniary values. Still, an interest of some sort in the insured life must exist. A man cannot take out insurance on the life of a total stranger, nor on that of one who is not so connected with him as to make the continuance of the life a matter of some real interest to him.

It is well settled that a man has an insurable interest in his own life and in that of his wife and children; a woman in the life of her husband; and the creditor in the life of his debtor. Indeed it may be said generally that any reasonable expectation of pecuniary benefit or advantage from the continued life of another creates an insurable interest in such life. And there is no doubt that a man may effect an insurance on his own life for the benefit of a relative or fried; or two or more persons, on their joint lives, for the benefit of the survivor or survivors. The old tontines were based substantially on this principle, and their validity has never been called in question.

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The policy in question might, in our opinion, be sustained as a joint insurance, without reference to any other interest, or to the question whether the cessation of interest avoids a policy good at its inception. We do not hesitate to say, however, that a policy taken out in good faith and valid at its inception, is not avoided by the cessation of the insurable interest, unless such be the necessary effect of the provisions of the policy itself. . . .

. . . .In our judgment of life policy, originally valid, does not cease to be so by the cessation of the assured party's interest in the life insured.

Another controlling decision of the United States Supreme Court is that of the Central National Bank of Washington City vs. Hume ([1888], 128 U.S., 134). Therein, Mr. Chief Justice Fuller, as the organ of the court, announced the following doctrines:

We think it cannot be doubted that in the instance of contracts of insurance with a wife or children, or both, upon their insurable interest in the life of the husband or father, the latter, while they are living, can exercise no power of disposition over the same without their consent, nor has he any interest therein of which he can avail himself; nor upon his death have his personal representatives or his creditors any interest in the proceeds of such contracts, which belong to the beneficiaries to whom they are payable.

It is indeed the general rule that a policy, and the money to become due under it, belong, the moment it is issued, to the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in the person procuring the insurance, by any act of his, by deed or by will, to transfer to any other person the interest of the person named.

A jurisdiction which found itself in somewhat the same situation as the Philippines, because of having to reconcile the civil law with the more modern principles of insurance, is Louisiana. In a case coming before the Federal Courts, In re Dreuil & Co. ([1915]), 221 Fed., 796), the facts were that an endowment insurance policy provided for payment of the amount thereof at the expiration of twenty years to the insured, or his executors, administrators, or assigns, with the proviso that, if the insured die within such period, payment was to be made to his wife if she survive him. It was held that the wife has a vested interest in the policy, of which she cannot be deprived without her consent. Foster, District Judge, announced:

In so far as the law of Louisiana is concerned, it may also be considered settled that where a policy is of the semitontine variety, as in this case, the beneficiary has a vested right in the policy, of which she cannot be deprived without her consent. (Lambert vs Penn Mutual Life Ins. Co., 50 La. Ann., 1027; 24 South., 16.) (See in same connection a leading decision of the Louisiana Supreme Court, Re Succession of Leonce Desforges, [1914], 52 L.R.A. [N.S.], 689.)

Some question has arisen as to the power of the insured to destroy the vested interest of the beneficiary in the policy. That point is well covered in the case of Entwistle vs. Travelers Insurance Company ([1902], 202 Pa. St., 141). To quote:

. . . The interest of the wife was wholly contingent upon her surviving her husband, and she could convey no greater interest in the policy than she herself had. The interest of the children of the insured, which was created for them by the contract when the policy was issued; vested in them at the same time that the interest of the wife became vested in her. Both interests were contingent. If the wife die before the insured, she will take nothing under the policy. If the insured should die before the wife, then the children take nothing under the policy. We see no reason to discriminate between the wife and the children. They are all payees, under the policy, and together constitute the assured.

The contingency which will determine whether the wife, or the children as a class will take the proceeds, has not as yet happened; all the beneficiaries are living, and nothing has occurred by which the rights of the parties are in any way changed. The provision that the policy may be converted into cash at the option of the holder does not change the relative rights of the parties. We agree entirely with the suggestion that "holder" or "holders", as used in this connection, means those who in law are the owners of the policy, and are entitled to the rights and benefits which may accrue under it; in other words, all the beneficiaries; in the present case, not only the wife, by the children of the insured. If for any reason, prudence required the conversion of the policy into cash, a guardian would have no special difficulty in reasonable protecting the interest of his wards. But however that may be, it is manifest that the option can only be exercised by those having the full legal interest in the policy, or by their assignee. Neither the husband, nor the wife, nor both together had power to destroy the vested interest of the children in the policy.

The case most nearly on all fours with the one at bar is that of Wallace vs Mutual Benefit Life Insurance Co. ([1906], 97 Minn., 27; 3 L.R.A. [N.S.], 478). The opinion there delivered also invokes added interest when it is noted that it was written by Mr. Justice Elliott, the author of a text on insurance, later a member of this court. In the Minnesota case cited, one Wallace effected a "twenty-year endowment" policy of insurance on his life, payable in the event of his death within twenty years to Emma G. Wallace, his wife, but, if he lived, to himself at the end of twenty years. If Wallace died before the death of his wife, within the twenty years, the policy was payable to the personal representatives of the insured. During the pendency of divorce proceedings, the parties signed a contract by which Wallace agreed that, if a divorce was granted to Mrs. Wallace, the court might award her certain specified property as alimony, and Mrs. Wallace agreed to relinquish all claim to any property arising out of the relation of husband and wife. The divorce was granted. An action was brought by Wallace to compel Mrs. Wallace to relinquish her interest in the insurance policy. Mr. Justice Elliott said:

As soon as the policy was issued Mrs. Wallace acquired a vested interest therein, of which she could not be deprived without her consent, except under the terms of the contract with the insurance company. No right to change the beneficiary was reserved. Her interest in the policy was her individual property, subject to be divested only by her death, the lapse of time, or by the failure of the insured to pay the premiums. She could keep the policy alive by paying the premiums, if the insured did not do so. It was contingent upon these events, but it was free from the control of her husband. He had no interest in her property in this policy, contingent or otherwise. Her interest was free from any claim on the part of the insured or his creditors. He could deprive her of her interest absolutely in but one way, by living more than twenty years. We are unable to see how the plaintiff's interest in the policy was primary or superior to that of the husband. Both interests were contingent, but they were entirely separate and distinct, the one from the other. The wife's interest was not affected by the decree of court which dissolved the marriage contract between the parties. It remains her separate property, after the divorce as before. . .

. . . . The fact that she was his wife at the time the policy was issued may have been, and undoubtedly was, the reason why she was named as beneficiary in the event of his death. But her property interest in the policy after it was issued did not in any reasonable sense arise out of the marriage relation.

Somewhat the same question came before the Supreme Court of Kansas in the leading case of Filley vs. Illinois Life Insurance Company ([1914]), 91 Kansas, 220; L.R.A. [1915 D], 130). It was held, following consideration extending to two motions for rehearing, as follows:

The benefit accruing from a policy of life insurance upon the life of a married man, payable upon his death to his wife, naming her, is payable to the surviving beneficiary named, although she may have years thereafter secured a divorce from her husband, and he was thereafter again married to one who sustained the relation of wife to him at the time of his death.

The rights of a beneficiary in an ordinary life insurance policy become vested upon the issuance of the policy, and can thereafter, during the life of the beneficiary, be defeated only as provided by the terms of the policy.

If space permitted, the following corroborative authority could also be taken into account: Joyce, The Law of Insurance, second edition, vol. 2, pp. 1649 et seq.; 37 Corpus Juris, pp. 394 et seq.; 14 R.C.L., pp. 1376 et seq.;Green vs. Green ([1912], 147 Ky., 608; 39 L.R.A. [N.S.], 370); Washington Life Insurance Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs. Miller ([1907]), 137 Ill., App., 278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8 L.R.A. [N.S.], 923; Union Central Life Ins. Co. vs. Buxer ([1900], 62 Ohio St., 385; 49 L.R.A., 737); Griffith vs. New York Life Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep., 96); Preston vs. Conn. Mut. L. Ins. Co. of Hartford([1902]); 95 Md., 101); Snyder vs. Supreme Ruler of Fraternal Mystic Circle ([1909], 122 Tenn. 248; 45 L.R.A. [N.S.], 209); Lloyd vs. Royal Union Mut. L. Ins. Co. ([1917], 245 Fed., 162); Phoenix Mut. L. Ins. Co. vs. Dunham([1878], 46 Conn., 79; 33 Am. Rep., 14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep., 129);Supreme Council American Legion of Honor vs. Smith and Smith ([1889], 45 N.J. Eq., 466); Overhiser vs. Overhiser([1900], 63 Ohio St., 77; 81 Am. St. Rep., 612; 50 L.R.A., 552); Condon vs. New York Life Insurance Co. ([1918], 183 Iowa, 658); with which compare Foster vs. Gile ([1880], 50 Wis., 603) and Hatch vs. Hatch ([1904], 35 Tex. Civ. App., 373).

On the admitted facts and the authorities supporting the nearly universally accepted principles of insurance, we are irresistibly led to the conclusion that the question at issue must be answered in the negative.

The judgment appealed from will be reversed and the complaint ordered dismissed as to the appellant, without special pronouncement as to the costs in either instance. So ordered.

Street, Villamor, Ostrand, Johns, and Villa-Real, JJ., concur.
Avanceña, C.J., concurs in the result.
Romualdez, J., took no part.

Separate Opinions

JOHNSON, J., concurring in the result.

I agree with the majority of the court, that the judgment of the lower court should be revoked, but for a different reason. In my judgment, the question presented by the plaintiff is purely an academic one. The purpose of the petition is to have declared the rights of certain persons in an insurance policy which is not yet due and payable. It may never become due and payable. The premiums may not be paid, thereby rendering the contract of insurance of non effect, and many other things may occur, before the policy becomes due, which would render it non effective. The plaintiff and the other parties who are claiming an interest in said policy should wait until there is something due them under the same. For the courts to declare now who are the persons entitled to receive the amounts due, if they ever become due and payable, is impossible, for the reason that nothing may ever become payable under the contract of insurance, and for many reasons such persons may never have a right to receive anything when the policy does become due and payable. In my judgment, the action is premature and should have been dismissed.