THIRD DIVISION 

ASIAN TERMINALS, INC.,Petitioner,

    

          - versus -  

  DAEHAN FIRE AND MARINE INSURANCE CO., LTD.,

Respondent. 

G.R. No. 171194 Present: CARPIO, J.,*

CORONA,   Chairperson,VELASCO, JR.,NACHURA, andPERALTA, JJ. Promulgated:    February 4, 2010 

 x------------------------------------------------------------------------------------x  

DECISION 

NACHURA, J.:                            

 

 

 

          This is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) September 14, 2005 Decision[1] and December 20, 2005 Resolution[2] in CA-G.R. CV No. 83647. The assailed Decision reversed and set aside the Regional Trial Court (RTC)[3] August 4, 2004 Decision[4] in Civil Case No. 01-101309, while the assailed resolution denied petitioner Asian Terminals, Inc.’s motion for reconsideration.           The case stemmed from the following facts:            On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six (26) boxes of printed aluminum sheets on board the vessel Heung-A Dragon owned by Dongnama Shipping Co., Ltd. (Dongnama).[5]The shipment was covered by Bill of

Lading No. DNALHMBUMN010010[6] and consigned to Access International, with address at No. 9 Parada St., San Juan, Metro Manila. Doosan insured the subject shipment with respondent Daehan Fire and Marine Insurance Co., Ltd. under an “all-risk” marine cargo insurance policy,[7] payable to its settling agent in the Philippines, the Smith Bell & Co., Inc. (Smith Bell).           On July 12, 2000, the vessel arrived in Manila and the containerized van was discharged and unloaded in apparent good condition, as no survey and exceptions were noted in the Equipment Interchange Receipt (EIR) issued by petitioner. [8] The container van was stored in the Container Yard of the Port.  On July 18, 2000, Access International requested[9] from petitioner and the licensed Customs Broker, Victoria Reyes Lazo (V. Reyes Lazo), a joint survey of the shipment at the place of storage in the Container Yard, but no such inspection was conducted.           On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released, the shipment and delivered it to Access International’s warehouse in Binondo, Manila.[10] While the shipment was at Access International’s warehouse, the latter, together with its surveyor, Lloyd’s Agency, conducted an inspection and noted that only twelve (12) boxes were accounted for, while fourteen (14) boxes were missing.[11]  Access International thus filed a claim against petitioner and V. Reyes Lazo for the missing shipment amounting to $34,993.28.[12]  For failure to collect its claim, Access International sought indemnification from respondent in the amount of $45,742.81.[13] On November 8, 2000, respondent paid the amount of the claim and Access International accordingly executed a Subrogation Receipt in favor of the former.[14]

           On July 10, 2001, respondent, represented by Smith Bell, instituted the present case against Dongnama, Uni-ship, Inc. (Uni-ship), petitioner, and V. Reyes Lazo before the RTC.[15] Respondent alleged that the losses, shortages and short deliveries sustained by the shipment were caused by the joint fault and negligence of Dongnama, petitioner and V. Reyes Lazo. 

Dongnama and Uni-ship filed a Motion to Dismiss[16] on the grounds that Daehan lacked legal capacity to sue and that the complaint stated no cause of action. The trial court, however, denied the motion in an Order dated August 31, 2001.[17]

 

Thereafter, Dongnama and Uni-ship filed their Answer with Counterclaim and Cross-Claim Ad Cautelam denying any liability for the damages/losses sustained by the shipment, pointing out that it was on a “Full Container Load,” “Said to Contain,” and “Shipper’s Load and Count” bases, under which they had no means of verifying the contents of the containers. They also alleged that the container van was properly discharged from the vessel with seals intact and no exceptions noted. Moreover, they claimed that the losses occurred while the subject shipment was in the custody, possession or control of the shipper, its trucker, the arrastre operator, or their representatives, or due to the consignee’s own negligence. They further questioned the absence of notice of loss within the three (3)-day period provided under the Carriage of Goods by Sea Act. Finally, they averred that their liability, if there be any, should only be limited to US$500.00 per package or customary freight unit. [18]

 For its part, petitioner denied liability, claiming that it exercised due

diligence in handling and storing the subject container van.  It, likewise, assailed the timeliness of the complaint, having been filed beyond the fifteen (15)-day period under its Contract for Cargo Handling Services with the Philippine Ports Authority (PPA).  If at all, petitioner added, its liability should only be limited to P5,000.00.[19]

 In her Answer, V. Reyes Lazo questioned respondent’s capacity to sue in

Philippine courts. She accused respondent of engaging in a fishing expedition since the latter could not determine with clarity the party at fault.[20]

 On December 2, 2002, in their Joint Motion to Dismiss, [21] respondent, on

one hand, and Dongnama and Uni-ship, on the other, prayed that the complaint be dismissed against the latter, alleging that they could not be held liable based on the EIR.  The motion was granted on December 9, 2002.[22] Consequently, the case proceeded as against petitioner and V. Reyes Lazo.

 As no amicable settlement was reached during the pretrial, trial on the merits

ensued. On August 4, 2004, the RTC dismissed the complaint for insufficiency of

evidence.[23]  It found the complaint fatally flawed, having been signed by a person who had no authority from complainant (respondent herein) corporation to act for

and on behalf of the latter.[24]  The RTC, likewise, held that respondent failed to prove that the loss/damage of the subject cargoes was due to the fault or negligence of petitioner or V. Reyes Lazo. It added that the cargoes were damaged when they were already in Access International’s possession, considering that an inspection was conducted in the latter’s warehouse.[25]

 On appeal, the CA reversed and set aside the RTC decision. The dispositive

portion of the CA decision reads: 

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed Decision dated August 4, 2004 of the Regional Trial Court of Manila, Branch 21 in Civil Case No. 01-101309 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered ordering the defendants-appellees Asian Terminals, Inc. and V. Reyes Lazo to pay, jointly and severally, the plaintiff-appellant Daehan Fire & Marine Insurance Co., Ltd. the sums ofP2,295,374.20 with interest at the legal rate (6% per annum) from the date of the filing of the complaint and P229,537.42 by way of attorney’s fees.

 No pronouncement as to costs. SO ORDERED.[26]

     

          Applying the principle of substantial compliance, the CA recognized the validity of respondent’s complaint after the submission, albeit late, of the board resolution, indicating the authority of the signatory to represent the corporation.[27]  Pursuant to the Management Contract between petitioner and the PPA, the former may not disclaim responsibility for the shortage of the subject cargoes while the container van remained in its custody for seven (7) days, despite the withdrawal of the subject shipment by the broker’s representative without any complaint. Applying E. Razon, Inc. v. Court of Appeals,[28]the CA refused to impose the P5,000.00 limitation, considering that petitioner was aware of the value of the subject goods shown in the pertinent shipping documents.[29] The CA added that petitioner could not disclaim any liability, having refused or ignored Access International’s request for a joint survey at the time when the goods were still in

the possession and custody of the former.[30] Lastly, V. Reyes Lazo was also made liable jointly and severally with petitioner in negligently withdrawing the container van from the premises of the pier, notwithstanding Access International’s request for a joint survey.[31]

           Aggrieved, petitioner comes before us in this petition for review on certiorari, raising the following issues:

             1.  WHETHER OR NOT PETITIONER ATI IS LIABLE FOR THE LOSS TO THE SUBJECT SHIPMENT NOTWITHSTANDING THE ACKNOWLEDGMENT BY THE CONSIGNEE’S BROKER/REPRESENTATIVE IN THE EQUIPMENT INTERCHANGE RECEIPT THAT THE SHIPMENT WAS RECEIVED IN GOOD ORDER AND WITHOUT EXCEPTION.             2. WHAT IS THE EXTENT OF PETITIONER ATI’S LIABILITY, IF ANY?[32]

Simply put, we are tasked to determine the propriety of making petitioner, as arrastre operator, liable for the loss of the subject shipment, and if so, the extent of its liability.

 Petitioner denies liability for the loss of the subject shipment, considering

that the consignee’s representative signified receipt of the goods in good order without exception. This being the case, respondent, as subrogee, is bound by such acknowledgment.  As to the extent of its liability, if there be any, petitioner insists that it be limited to P5,000.00 per package, as provided for in its Management Contract with the PPA.[33]

 We do not agree with petitioner. Respondent, as insurer, was subrogated to the rights of the consignee,

pursuant to the subrogation receipt executed by the latter in favor of the former.  The relationship, therefore, between the consignee and the arrastre operator must be examined.  This relationship is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman.[34] In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman.  Being the custodian of the goods

discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession.[35]

 The loss of 14 out of 26 boxes of printed aluminum sheets is undisputed. It

is, likewise, settled that Dongnama (the shipping company) and Uni-ship were absolved from liability because respondent realized that they had no liability based on the EIR issued by Dongnama. This resulted in the withdrawal of the complaint against them. What remained was the complaint against petitioner as the arrastre operator and V. Reyes Lazo as the customs broker. Records show that the subject shipment was discharged from the vessel and placed under the custody of petitioner for a period of seven (7) days. Thereafter, the same was withdrawn from the container yard by the customs broker, then delivered to the consignee.  It was after such delivery that the loss of 14 boxes was discovered.  Hence, the complaint against both the arrastre operator and the customs broker.

       In a claim for loss filed by the consignee (or the insurer), the burden of proof

to show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence or to that of its employees.[36]  To prove the exercise of diligence in handling the subject cargoes, petitioner must do more than merely show the possibility that some other party could be responsible for the loss or the damage.  It must prove that it exercised due care in the handling thereof.[37] Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because the customs broker’s representative received the subject shipment in good order and condition without exception. The appellate court’s conclusion on this matter is instructive:

 ATI may not disclaim responsibility for the shortage/pilferage of fourteen (14) boxes of printed aluminum sheet while the container van remained in its custody for seven (7) days (at the Container Yard) simply because the alleged representative of the customs broker had withdrawn the shipment from its premises and signed the EIR without any complaint. The signature of the person/broker representative merely signifies that said person thereby frees the ATI from any liability for loss or damage to the cargo so withdrawn while the same was in the custody of such representative to whom the cargo was released. It does not foreclose any remedy or right of the consignee to prove that any loss or

damage to the subject shipment occurred while the same was under the custody, control and possession of the arrastre operator.[38]

            Clearly, petitioner cannot be excused from culpability simply because another person could be responsible for the loss. This is especially true in the instant case because, while the subject shipment was in petitioner’s custody, Access International requested[39] that a joint survey be conducted at the place of storage. And as correctly observed by the CA: 

            There is no dispute that it was the customs broker who in behalf of the consignee took delivery of the subject shipment from the arrastre operator. However, the trial court apparently disregarded documentary evidence showing that the consignee made a written request on both the appellees ATI and V. Reyes Lazo for a joint survey of the container van on July 18, 2000 while the same was still in the possession, control and custody of the arrastre operator at the Container Yard of the pier.  Both ATI and Lazo merely denied being aware of the letters (Exhibits “M” and “N”). The fact remains that the consignee complained of short-delivery and while inspection of the cargo was made only at its warehouse after delivery by the customs broker, the arrastre ATI together with said broker both refused or ignored the written request for a joint survey at the premises of the arrastre.  Instead of complying with the consignee’s demand, the broker withdrew and the arrastre released the shipment the very next day, July 19, 2000 without even acting upon the consignee’s request for a joint survey.[40]

  Moreover, it was shown in the Survey Report prepared by Access

International’s surveyor that petitioner was remiss in its obligations to handle the goods with due care and to ensure that they reach the proper party in good order as to quality and quantity. Specifically, the Survey Report states:

    DELIVERY On July 19, 2000, V. Reyes-Lazo (Licensed Customs Broker) effected delivery of the 1 x 20’ Van Container from the Container Yard of said

port to the Consignee’s designated warehouse at No. 622 Asuncion Street, Binondo, Manila. Prior to withdrawal from the said port, the Broker’s representative noticed that the padlock secured to the doors of the Van Container was forcibly pulled-out resulting to its breakage.  He then immediately informed the Arrastre Contractors (ATI) and requested that Van Container be opened and inventory of its contents be made as he suspected the contents might have been pilfered. However, his request was denied averring that stripping of “FCL Van Containers” are not allowed inside the Customs Zone.  As all efforts exerted proved futile, he instead bought new padlock and secured same to the Van. He then informed the Consignee about the incident upon delivery of the Container at the Consignee’s designated warehouse, who immediately requested for survey.[41]

                         Considering that both petitioner and V. Reyes Lazo were negligent in the

performance of their duties in the handling, storage and delivery of the subject shipment to the consignee, resulting in the loss of 14 boxes of printed aluminum sheets, both shall be solidarily liable for such loss.

 As to the extent of petitioner’s liability, we cannot sustain its contention that

it be limited to P5,000.00 per package.  Petitioner’s responsibility and liability for losses and damages are set forth in Section 7.01 of the Management Contract drawn between the PPA and the Marina Port Services, Inc., petitioner’s predecessor-in-interest, to wit:

 CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES

             Section 7.01. Responsibility and Liability for Losses and Damages; Exceptions. – The CONTRACTOR shall, at its own expense, handle all merchandise in all work undertaken by it, hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the shipping company, consignees,  consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00)

each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods.  This amount of Five Thousand Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time.  The CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the weight nor for any loss, injury or damage to the said cargo before or while the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or other causes beyond the CONTRACTOR’S control or capacity to prevent or remedy; PROVIDED that a formal claim together with the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of non-delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly authorized representative or any interested party, said certification shall be deemed to have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED, finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to the consignee. 

x x x x The CONTRACTOR shall be solely responsible for any and all

injury or damage that may arise on account of the negligence or carelessness of the CONTRACTOR, its agent or employees in the performance of the undertaking under the Contract. Further, the CONTRACTOR hereby agrees to hold free the AUTHORITY, at all times, from any claim that may be instituted by its employee by reason of the provisions of the Labor Code, as amended.[42]  

 As clearly stated above, such limitation does not apply if the value of the cargo shipment is communicated to the arrastre operator before the discharge of the cargoes.

It is undisputed that Access International, upon arrival of the shipment, declared the same for taxation purposes, as well as for the assessment of arrastre charges and other fees.  For the purpose, the invoice, packing list and other shipping documents were presented to the Bureau of Customs as well as to petitioner for the proper assessment of the arrastre charges and other fees.  Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods before their arrival, to overcome the limitation on the liability of the arrastre operator.[43] Then, the arrastre operator, by reason of the payment to it of a commensurate charge based on the higher declared value of the merchandise, could and should take extraordinary care of the special or valuable cargo. [44] What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges only on a basis much lower than the true value of the goods.[45]

           What is essential is knowledge beforehand of the extent of the risk to be undertaken by the arrastre operator, as determined by the value of the property committed to its care. This defines its responsibility for loss of or damage to such cargo and ascertains the compensation commensurate to such risk assumed. Having been duly informed of the actual invoice value of the merchandise under its custody and having received payment of arrastre charges based thereon, petitioner cannot therefore insist on a limitation of its liability under the contract to less than the value of each lost cargo.[46]

                                      The stipulation requiring the consignee to inform the arrastre operator and to give advance notice of the actual invoice value of the goods to be put in its custody is adopted for the purpose of determining its liability, that it may obtain compensation commensurate to the risk it assumes, not for the purpose of determining the degree of care or diligence it must exercise as a depositary or warehouseman.[47]

           WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit. The Court of Appeals September 14, 2005 Decision and December 20, 2005 Resolution in CA-G.R. CV No. 83647 are AFFIRMED.         

SO ORDERED.

[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 Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).  Subsequently, White Gold was issued a Certificate of Entry and Acceptance.[3] Pioneer also issued receipts evidencing payments for the coverage.  When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter’s unpaid balance.  White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186[4] and 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 Mutual to secure a license because it was not engaged in the insurance business.  It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).  Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business.  Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner.  In its decision, the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance.  The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.[9]

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

The parties admit that Steamship Mutual is a P & I Club.  Steamship Mutual admits it does not have a license to do business in the Philippines although Pioneer is its resident agent.  This relationship is reflected in the certifications issued by the Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business.  To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals[10] as “an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties.”  It stresses that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.

Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines.  It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning.[11] Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance business” or “transacting an insurance business”.  These are:

(a)   making or proposing to make, as insurer, any insurance contract;

(b)   making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

(c)   doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

(d)   doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

.  .  .

The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.[12]

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact

nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite.  It is not by what it is called.[13]

Basically, an insurance contract is a contract of indemnity.  In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.[14]

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure.[15] Section 99[16] of the Insurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured.  In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest.[17] Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs.[18]

A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members.” [19] By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187[20] of the Insurance Code.  It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf.  We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls.  Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is necessary.  Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission.[21]

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of 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 separate license to be an agent/broker of Steamship Mutual.[24]

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.  Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. . .

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers.  Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED.  The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively.  The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers, is DENIED.  Costs against respondents.

SO ORDERED.

REPUBLIC OF THE PHILIPPINES,        G.R. No. 158085

Represented by the COMMISSIONER

OF INTERNAL REVENUE,                       Present:

                                                  Petitioner,

                                                                                                  Panganiban, J.,

                                                                                         Chairman,

                                                                                 Sandoval-Gutierrez

                - versus -                                                 Corona,

                                                                                  Carpio Morales, and

                                                                                 Garcia, JJ

                                                                            

                                                                            

SUNLIFE ASSURANCE                                Promulgated:

COMPANY OF CANADA,                           

                         Respondent.                             October 14, 2005

 

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

 

 

DECISION 

 

PANGANIBAN, J.:

 

 

aving satisfactorily proven to the Court of Tax

Appeals, to the Court of Appeals and to this

Court that it is a bona fide cooperative,

respondent is entitled to exemption from the

payment of taxes on life insurance premiums and

documentary stamps.  Not being governed by the

Cooperative Code of the Philippines, it is not required to

be registered with the Cooperative Development

Authority in order to avail itself of the tax exemptions. 

Significantly, neither the Tax Code nor the Insurance

Code mandates this administrative registration.

H

 

The Case

 

Before us is a Petition for Review[1] under Rule 45 of

the Rules of Court, seeking to nullify the January 23,

2003 Decision[2] and the April 21, 2003 Resolution[3] of

the Court of Appeals (CA) in CA-GR SP No. 69125.  The

dispositive portion of the Decision reads as follows:

 

“WHEREFORE, the petition for review is hereby DENIED.”[4]

 

 

 

The Facts

 

The antecedents, as narrated by the CA, are as

follows:

“Sun Life is a mutual life insurance company organized and existing under the laws of Canada.  It is registered and authorized by the Securities and Exchange Commission and the Insurance Commission to engage in business in the Philippines as a mutual life insurance company with principal office at Paseo de Roxas, Legaspi Village, Makati City.

 

“On October 20, 1997, Sun Life filed with the [Commissioner of Internal Revenue] (CIR) its insurance premium tax return for the third quarter of 1997 and paid the premium tax in the amount of P31,485,834.51.  For the period covering August 21 to December 18, 1997, petitioner filed with the CIR its [documentary stamp tax (DST)] declaration returns and paid the total amount ofP30,000,000.00.

 

“On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST.  This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd.  Sun Life surmised that[,] being a mutual life insurance company, it was likewise exempt from the payment of premium tax and DST.  Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods.

 

“For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the CTA a petition for review on August 23, 1999.  In its petition, it prayed for the issuance of a tax credit certificate in the amount of P61,485,834.51 representing P31,485,834.51 of erroneously paid premium tax for the third quarter of 1997 and P30,000[,000].00 of DST on policies of insurance from August 21 to December 18, 1997.  Sun Life stood firm on its contention that it is a mutual life insurance company vested with all the characteristic features and elements of a cooperative company or association as defined in [S]ection 121 of the Tax Code.  Primarily, the management and affairs of Sun Life were conducted by its members; secondly, it is operated with money collected from its members; and, lastly, it has for its purpose the mutual protection of its members and not for profit or gain.

 

“In its answer, the CIR, then respondent, raised as special and affirmative defenses the following:

 

‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to administrative routinary investigation/examination by respondent’s (CIR’s) Bureau.

 

‘8.  Petitioner must prove that it falls under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and be entitled to the refund sought.

 

‘9.  Claims for tax refund/credit are construed strictly against the claimants thereof as they are in the nature of exemption from payment of tax.

 

‘10.  In an action for tax credit/refund, the burden is upon the taxpayer to establish its right thereto, and failure to sustain this burden is fatal to said claim x x x.

 

‘11.  It is incumbent upon petitioner to show that it has complied with the provisions of Section 204[,] in relation to Section 229, both in the 1997 Tax Code.’

 

“On November 12, 2002, the CTA found in favor of Sun Life.  Quoting largely from its earlier findings in Insular Life Assurance Company, Ltd. v. [CIR], which it found to be on all fours with the present action, the CTA ruled:

 

‘The [CA] has already spoken.  It ruled that a mutual life insurance company is a purely cooperative company[;] thus, exempted from the payment of premium and documentary stamp taxes.  Petitioner Sun Life is without doubt a mutual life insurance company. x x x.

 

            ‘           x x x                 x x x                 x x x

 

‘Being similarly situated with Insular, Petitioner at bar is entitled to the same interpretation given by this Court in the earlier

cases of The Insular Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and 5601) and by the [CA] in the case entitled [CIR] vs. The Insular Life Assurance Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998.  Petitioner Sun Life as a mutual life insurance company is[,] therefore[,] a cooperative company or association and is exempted from the payment of premium tax and [DST] on policies of insurance pursuant to Section 121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the Tax Code.’

 

“Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or associations under [S]ections 121 and 199 of the Tax Code.  For its failure to register, it could not avail of the exemptions prayed for.  Moreover, the CIR alleged that Sun Life failed to prove that ownership of the company was vested in its members who are entitled to vote and elect the Board of Trustees among [them].  The CIR further claimed that change in the 1997 Tax Code subjecting mutual life insurance companies to the regular corporate income tax rate reflected the legislature’s recognition that these companies must be earning profits.

 

“Notwithstanding these arguments, the CTA denied the CIR’s motion for reconsideration.

 

“Thwarted anew but nonetheless undaunted, the CIR comes to this court via this petition on the sole ground that:

 

‘The Tax Court erred in granting the refund[,] because respondent does not fall under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and DST and be entitled to the refund.’

 

“The CIR repleads the arguments it raised with the CTA and proposes further that the [CA] decision in [CIR] v. Insular Life Assurance Company, Ltd. is not controlling and cannot constitute res

judicata in the present action.  At best, the pronouncements are merely persuasive as the decisions of the Supreme Court alone have a universal and mandatory effect.”[5]

  

 

Ruling of the Court of Appeals

 

          In upholding the CTA, the CA reasoned that

respondent was a purely cooperative corporation duly

licensed to engage in mutual life insurance business in

the Philippines.  Thus, respondent was deemed exempt

from premium and documentary stamp taxes, because its

affairs are managed and conducted by its members with

money collected from among themselves, solely for their

own protection, and not for profit.  Its members or

policyholders constituted both insurer and insured who

contribute, by a system of premiums or assessments, to

the creation of a fund from which all losses and liabilities

were paid.  The dividends it distributed to them were not

profits, but returns of amounts that had been

overcharged them for insurance.

 

          For having satisfactorily shown with substantial

evidence that it had erroneously paid and seasonably

filed its claim for premium and documentary stamp

taxes, respondent was entitled to a refund, the CA ruled.

 

          Hence, this Petition.[6]

 

 

 

The Issues 

 

          Petitioner raises the following issues for our

consideration:

 

“I.

 

“Whether or not respondent is a purely cooperative company or association under Section 121 of the National Internal Revenue Code and a fraternal or beneficiary society, order or cooperative company on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit under Section 199 of the National Internal Revenue Code.

 

“II.

 

“Whether or not registration with the Cooperative Development Authority is a sine qua non requirement to be entitled to tax exemption.

 

“III.

 

“Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax.”[7]

  

          We shall tackle the issues seriatim.

 

The Court’s Ruling

 

          The Petition has no merit.

 

First Issue:

Whether Respondent Is a Cooperative

 

          The Tax Code defines a cooperative as an

association “conducted by the members thereof with the

money collected from among themselves and solely for

their own protection and not for profit.”[8]  Without a

doubt, respondent is a cooperative engaged in a mutual

life insurance business.

 

          First, it is managed by its members.  Both the CA

and the CTA found that the management and affairs of

respondent were conducted by its member-policyholders.[9]

 

          A stock insurance company doing business in the

Philippines may “alter its organization and transform

itself into a mutual insurance company.”[10]  Respondent

has been mutualized or converted from a stock life

insurance company to a nonstock mutual life insurance

corporation[11] pursuant to Section 266 of the Insurance

Code of 1978.[12]  On the basis of its bylaws, its

ownership has been vested in its member-policyholders

who are each entitled to one vote;[13] and who, in turn,

elect from among themselves the members of its board

of trustees.[14]  Being the governing body of a nonstock

corporation, the board exercises corporate powers, lays

down all corporate business policies, and assumes

responsibility for the efficiency of management.[15]

 

          Second, it is operated with money collected from

its members.  Since respondent is composed entirely of

members who are also its policyholders, all premiums

collected obviously come only from them.[16]

 

          The member-policyholders constitute “both insurer

and insured”[17] who “contribute, by a system of

premiums or assessments, to the creation of a fund from

which all losses and liabilities are paid.”[18]  The

premiums[19] pooled into this fund are earmarked for the

payment of their indemnity and benefit claims.

 

          Third, it is licensed for the mutual protection of its

members, not for the profit of anyone.

 

          As early as October 30, 1947, the director of

commerce had already issued a license to respondent -- a

corporation organized and existing under the laws of

Canada -- to engage in business in the Philippines.[20] 

Pursuant to Section 225 of Canada’s Insurance

Companies Act, the Canadian minister of state (for

finance and privatization) also declared in its Amending

Letters Patent that respondent would be a mutual

company effective June 1, 1992.[21]  In the Philippines,

the insurance commissioner also granted it annual

Certificates of Authority to transact life insurance

business, the most relevant of which were dated July 1,

1997 and July 1, 1998.[22]

 

          A mutual life insurance company is conducted for

the benefit of its member-policyholders,[23] who pay into

its capital by way of premiums.  To that extent, they are

responsible for the payment of all its losses.[24]  “The cash

paid in for premiums and the premium notes constitute

their assets x x x.”[25]  In the event that the company

itself fails before the terms of the policies expire, the

member-policyholders do not acquire the status of

creditors.[26]  Rather, they simply become debtors for

whatever premiums that they have originally agreed to

pay the company, if they have not yet paid those

amounts in full, for “[m]utual companies x x x depend

solely upon x x x premiums.”[27]  Only when the premiums

will have accumulated to a sum larger than that required

to pay for company losses will the member-policyholders

be entitled to a “pro rata division thereof as profits.”[28]

 

          Contributing to its capital, the member-

policyholders of a mutual company are obviously also its

owners.[29]  Sustaining a dual relationship inter se, they

not only contribute to the payment of its losses, but are

also entitled to a proportionate share[30] and participate

alike[31] in its profits and surplus.

 

          Where the insurance is taken at cost, it is

important that the rates of premium charged by a mutual

company be larger than might reasonably be expected to

carry the insurance, in order to constitute a margin of

safety.  The table of mortality used will show an

admittedly higher death rate than will probably prevail;

the assumed interest rate on the investments of the

company is made lower than is expected to be realized;

and the provision for contingencies and expenses, made

greater than would ordinarily be necessary.[32]  This

course of action is taken, because a mutual company has

no capital stock and relies solely upon its premiums to

meet unexpected losses, contingencies and expenses.

 

          Certainly, many factors are considered in

calculating the insurance premium.  Since they vary with

the kind of insurance taken and with the group of

policyholders insured, any excess in the amount

anticipated by a mutual company to cover the cost of

providing for the insurance over its actual realized cost

will also vary.  If a member-policyholder receives an

excess payment, then the apportionment must have been

based upon a calculation of the actual cost of insurance

that the company has provided for that particular

member-policyholder.  Accordingly, in apportioning

divisible surpluses, any mutual company uses a

contribution method that aims to distribute those

surpluses among its member-policyholders, in the same

proportion as they have contributed to the surpluses by

their payments.[33]

 

          Sharing in the common fund, any member-

policyholder may choose to withdraw dividends in cash

or to apply them in order to reduce a subsequent

premium, purchase additional insurance, or accelerate

the payment period.  Although the premium made at the

beginning of a year is more than necessary to provide for

the cost of carrying the insurance, the member-

policyholder will nevertheless receive the benefit of the

overcharge by way of dividends, at the end of the year

when the cost is actually ascertained.  “The declaration

of a dividend upon a policy reduces pro tanto the cost of

insurance to the holder of the policy.  That is its purpose

and effect.”[34]

 

          A stipulated insurance premium “cannot be

increased, but may be lessened annually by so much as

the experience of the preceding year has determined it

to have been greater than the cost of carrying the

insurance x x x.”[35]  The difference between that

premium and the cost of carrying the risk of loss

constitutes the so-called “dividend” which, however, “is

not in any real sense a dividend.”[36]  It is a technical

term that is well understood in the insurance business to

be widely different from that to which it is ordinarily

attached.

 

          The so-called “dividend” that is received by

member-policyholders is not a portion of profits set aside

for distribution to the stockholders in proportion to their

subscription to the capital stock of a corporation.[37]  One, a mutual company has no capital stock 

to which subscription is necessary; there are no

stockholders to speak of, but only members.  And, two,

the amount they receive does not partake of the nature

of a profit or income.  The quasi-appearance of profit will

not change its character.  It remains an overpayment, a

benefit to which the member-policyholder is equitably

entitled.[38]

 

          Verily, a mutual life insurance corporation is a

cooperative that promotes the welfare of its own

members.  It does not operate for profit, but for the

mutual benefit of its member-policyholders.  They

receive their insurance at cost, while reasonably and

properly guarding and maintaining the stability and

solvency of the company.[39]  “The economic benefits

filter to the cooperative members. Either equally or

proportionally, they are distributed among members in

correlation with the resources of the association

utilized.”[40]

 

          It does not follow that because respondent is

registered as a nonstock corporation and thus exists for

a purpose other than profit, the company can no longer

make any profits.[41]  Earning profits is merely its

secondary, not primary, purpose.  In fact, it may not

lawfully engage in any business activity for profit, for to

do so would change or contradict its nature[42] as a non-

profit entity.[43]  It may, however, invest its corporate

funds in order to earn additional income for paying its

operating expenses and meeting benefit claims.  Any

excess profit it obtains as an incident to its operations

can only be used, whenever necessary or proper, for the

furtherance of the purpose for which it was organized.[44]

 

Second Issue:

Whether CDA Registration Is Necessary

 

 

          Under the Tax Code although respondent is a

cooperative, registration with the Cooperative

Development Authority (CDA)[45] is not necessary in order

for it to be exempt from the payment of both percentage

taxes on insurance premiums, under Section 121; and

documentary stamp taxes on policies of insurance or

annuities it grants, under Section 199.

          First, the Tax Code does not require registration

with the CDA.  No tax provision requires a mutual life

insurance company to register with that agency in order

to enjoy exemption from both percentage and

documentary stamp taxes.

 

          A provision of Section 8 of Revenue Memorandum

Circular (RMC) No. 48-91 requires the submission of the

Certificate of Registration with the CDA,[46] before the

issuance of a tax exemption certificate. That provision

cannot prevail over the clear absence of an equivalent

requirement under the Tax Code.  One, as we will

explain below, the Circular does not apply to respondent,

but only to cooperatives that need to be registered under

the Cooperative Code.  Two, it is a mere issuance

directing all internal revenue officers to publicize a new

tax legislation.  Although the Circular does not derogate

from their authority to implement the law, it cannot add

a registration requirement,[47] when there is none under

the law to begin with.

 

          Second, the provisions of the Cooperative Code of

the Philippines[48] do not apply.  Let us trace the Code’s

development in our history.

 

          As early as 1917, a cooperative company or

association was already defined as one “conducted by

the members thereof with money collected from among

themselves and solely for their own protection and not

profit.”[49]  In 1990, it was further defined by the

Cooperative Code as a “duly registered association of

persons, with a common bond of interest, who have

voluntarily joined together to achieve a lawful common

social or economic end, making equitable contributions

to the capital required and accepting a fair share of the

risks and benefits of the undertaking in accordance with

universally accepted cooperative principles.”[50]

 

          The Cooperative Code was actually an offshoot of

the old law on cooperatives.  In 1973, Presidential

Decree (PD) No. 175 was 

signed into law by then President Ferdinand E. Marcos

in order to strengthen the cooperative movement.[51]  The

promotion of cooperative development was one of the

major programs of the “New Society” under his

administration.  It sought to improve the country’s trade

and commerce by enhancing agricultural production,

cottage industries, community development, and

agrarian reform through cooperatives.[52]

 

          The whole cooperative system, with its vertical

and horizontal linkages -- from the market cooperative of

agricultural products to cooperative rural banks,

consumer cooperatives and cooperative insurance -- was

envisioned to offer considerable economic opportunities

to people who joined cooperatives.[53]  As an effective

instrument in redistributing income and wealth,[54] cooperatives were promoted primarily to support the

agrarian reform program of the government.[55]

 

          Notably, the cooperative under PD 175 referred

only to an organization composed primarily of small

producers and consumers who voluntarily joined to form

a business enterprise that they themselves owned,

controlled, and patronized.[56]  The Bureau of

Cooperatives Development -- under the Department of

Local Government and Community Development (later

Ministry of Agriculture)[57] -- had the authority to

register, regulate and supervise only the following

cooperatives: (1) barrio associations involved in the

issuance of certificates of land transfer; (2) local or

primary cooperatives composed of natural persons

and/or barrio associations; (3) federations composed of

cooperatives that may or may not perform business

activities; and (4) unions of cooperatives that did not

perform any business activities.[58]  Respondent does not

fall under any of the above-mentioned types of

cooperatives required to be registered under PD 175.

 

          When the Cooperative Code was enacted years

later, all cooperatives that were registered under PD 175

and previous laws were also deemed registered with the

CDA.[59]  Since respondent was not required to be

registered under the old law on cooperatives, it followed

that it was not required to be registered even under the

new law.

 

          Furthermore, only cooperatives to be formed or

organized under the Cooperative Code needed

registration with the CDA.[60]  Respondent already

existed before the passage of the new law on

cooperatives.  It was not even required to organize under

the Cooperative Code, not only because it performed a

different set of functions, but also because it did not

operate to serve the same objectives under the new law

-- particularly on productivity, marketing and credit

extension.[61]

 

          The insurance against losses of the members of a

cooperative referred to in Article 6(7) of the Cooperative

Code is not the same as the life insurance provided by

respondent to member-policyholders.  The former is a

function of a service cooperative,[62] the latter is not. 

Cooperative insurance under the Code is limited in scope

and local in character.  It is not the same as mutual life

insurance.

 

          We have already determined that respondent is a

cooperative.  The distinguishing feature of a cooperative

enterprise[63] is the mutuality of cooperation among its

member-policyholders united for that purpose.[64]  So

long as respondent meets this essential feature, it does

not even have to use[65] and carry the name of a

cooperative to operate its mutual life insurance

business.  Gratia argumenti that registration is

mandatory, it cannot deprive respondent of its tax

exemption privilege merely because it failed to register. 

The nature of its operations is clear; its purpose well-

defined. Exemption when granted cannot prevail over

administrative convenience.

 

          Third, not even the Insurance Code requires

registration with the CDA.  The provisions of this Code

primarily govern insurance contracts; only if a particular

matter in question is not specifically provided for shall

the provisions of the Civil Code on contracts and special

laws govern.[66]

 

          True, the provisions of the Insurance Code relative

to the organization and operation of an insurance

company also apply to cooperative insurance entities

organized under the Cooperative Code.[67]  The latter

law, however, does not apply to respondent, which

already existed as a cooperative company engaged in

mutual life insurance prior to the laws passage of that

law.  The statutes prevailing at the time of its

organization and mutualization were the Insurance Code

and the Corporation Code, which imposed no

registration requirement with the CDA.

 

Third Issue:

Whether Respondent Is Exempted

from Premium Taxes and DST

 

 

          Having determined that respondent is a

cooperative that does not have to be registered with the

CDA, we hold that it is entitled to exemption from both

premium taxes and documentary stamp taxes (DST).

          The Tax Code is clear.  On the one hand, Section

121 of the Code exempts cooperative companies from

the 5 percent percentage tax on insurance premiums. 

On the other hand, Section 199 also exempts from the

DST, policies of insurance or annuities made or granted

by cooperative companies.  Being a cooperative,

respondent is thus exempt from both types of taxes.

 

          It is worthy to note that while RA 8424 amending

the Tax Code has deleted the income tax of 10 percent

imposed upon the gross investment income of mutual life

insurance companies -- domestic[68] and foreign[69] -- the

provisions of Section 121 and 199 remain unchanged.[70] 

 

          Having been seasonably filed and amply

substantiated, the claim for exemption in the amount

of P61,485,834.51, representing percentage taxes on

insurance premiums and documentary stamp taxes on

policies of insurance or annuities that were paid by

respondent in 1997, is in order.  Thus, the grant of a tax

credit certificate to respondent as ordered by the

appellate court was correct.

 

WHEREFORE, the Petition is hereby DENIED, and

the assailed Decision and Resolution are AFFIRMED. 

No pronouncement as to costs.

 

          SO ORDERED. 

G.R. No. 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 of Court, with preliminary injunction or temporary restraining order, to annul and set aside the Order dated November 6, 1986 of the Insurance Commissioner and the entire proceedings taken in I.C. Special Case No. 1-86.

We grant the petition.

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April 17, 1986, to respondent Commissioner, alleging certain problems encountered by agents, supervisors, managers and public consumers of the Philippine American Life Insurance Company (Philamlife) as a result of certain practices by said company.

In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter.

In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that private respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts, dates, figures, provisions of law, rules and regulations, and all other pertinent data which are

necessary to enable him to prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance Commissioner to private respondent for his comments thereon.

On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that his letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a hearing thereon be conducted.

Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his claim that private respondent's letter of May 16, 1986 did not supply the information he needed to enable him to answer the letter-complaint.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of the Contract of Agency complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the provisions of the agency contract which he claimed to be illegal.

On August 4, private respondent submitted a letter of specification to respondent Commissioner dated July 31, 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, agency bulletins and circulars, be declared as null and void. He also asked that the amounts of such charges and fees already deducted and collected by Philamlife in connection therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from the date when they were deducted.

Respondent Commissioner 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 not contain 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 respondent must file a verified formal complaint before any further proceedings.

In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings on his complaint.

On October 1, private respondent executed 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 Assistant Vice-President and Executive Assistant to the President, asked that respondent Commission first rule on the questions of the jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and the legal standing of private respondent.

On October 27, respondent Commissioner notified both parties of the 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 complaint sufficient in form and contents has been filed;

(2) No summons has been issued nor received by the respondent De 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 respondent is required to appear, is premature and lacks legal basis.

II. The Insurance Commission has no jurisdiction over;

(1) the subject matter or nature of the action; and

(2) over the parties involved (Rollo, p. 102).

In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The dispositive portion of said Order reads:

NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the fact that the instant case is an informal administrative litigation falling outside the operation of the aforecited memorandum circular but cognizable by this Commission, the hearing officer, in open session ruled as it is hereby ruled to deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).

Hence, this petition.

II

The main issue to be resolved is whether or not the resolution of the legality of the Contract of Agency falls within the jurisdiction of the Insurance Commissioner.

Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of the Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the Commissioner has authority to nullify the alleged illegal provisions of the Contract of Agency.

III

The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code, to wit:

The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, . . .

On the other hand, Section 415 provides:

In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, instruction, regulation or ruling of the Insurance Commissioner, or any commission of irregularities, and/or conducting business in an unsafe and unsound manner as may be determined by the the Insurance Commissioner, the following:

(a) fines not in excess of five hundred pesos a day; and

(b) suspension, or after due hearing, removal of directors and/or officers and/or agents.

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to regulate the business of insurance, which is defined as follows:

(2) The term "doing an insurance business" or "transacting an insurance business," within the meaning of this Code, shall include(a) making or proposing to make, as insurer, any insurance contract;(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).

Since the contract of agency entered into between Philamlife and its agents is not included within the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.

With regard to private respondent's contention that the quasi-judicial power of the Insurance Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in the negative. Section 416 of the Code in pertinent part, provides:

The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be used under any contract or reinsurance it may have entered into, or for which a mutual benefit association may be held liable under the membership certificates it has issued to its members, where the amount of any such loss, damage or liability, excluding interest, costs and attorney's fees, being claimed or sued upon any kind of insurance, bond,

reinsurance contract, or membership certificate does not exceed in any single claim one hundred thousand pesos.

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

While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance Code, the provisions of said Chapter speak only of the licensing requirements and limitations imposed on insurance agents and brokers.

The Insurance Code does not have provisions governing the relations between insurance companies and their agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-judicial powers, assume jurisdiction over controversies between the insurance companies and their agents.

We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989), andInvestment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA 904 (1962), that an insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees who keep definite hours and work under the control and supervision of the company; and (2) registered representatives, who work on commission basis.

Under the first category, the relationship between the insurance company and its agents is governed by the Contract of Employment and the provisions of the Labor Code, while under the second category, the same is governed by the Contract of Agency and the provisions of the Civil Code on the Agency. Disputes involving the latter are cognizable by the regular courts.

WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance Commission is SET ASIDE.

SO ORDERED.

G.R. No. 110668 February 6, 1997

SMITH, BELL & CO., INC., petitioner, vs.COURT OF APPEALS and JOSEPH BENGZON CHUA, 1 respondents.

 

PANGANIBAN, J.:

The main issue raised in this case is whether a local claim or settling agent is personally and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal.

This is a petition for review on certiorari of the Decision of respondent Court 2 promulgated on January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court 4 which disposed as follows: 5

Wherefore, the Court renders judgment condemning the defendants (petitioner and First Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent) the amount of US$7,359.78. plus 24% interest thereon annually until the claim is fully paid, 10% as and for attorney's fees, and the cost.

The Facts

The facts are undisputed by the parties, 6 and are narrated by respondent Court, quoting the trial court, as follows: 7

The undisputed facts of the case have been succintly (sic) summarized by the lower court(,) as follows:

. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S. "GOLDEN WEALTH" for the Port on (sic) Manila. On July 27, 1982, this shipment was insured by the defendant First Insurance Co. for US$19,500.00 "against all risks" at port of departure under Marine Policy No. 1000M82070033219, with the note "Claim, if any, payable in U.S. currency at Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the lower left side of the policy as "Claim Agent."

The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned carrying vessel and landed at port on September 2, 1982. thereafter, the entire cargo was discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by plaintiff's broker on said date to the plaintiffs premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. "E") showed that of the 1,250 bags of the imported material, 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of the corresponding value of the losses, in the sum of US$7,357.78.00. (sic) After purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 (Exh."G-2") that its principal offered only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts contained in the shipping agent's reply to the claimant of only US$90.48 with that of Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the "redress" offer. contending that the discrepancy was a result of loss from vessel to arrastre to consignees' warehouse\which losses were still within the "all risk" insurance cover. No settlement of the claim having been made, the plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).

Denying any liability, defendant-appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as SUCH agent, it is not personally liable under the policy in which it has not even taken part of. It then alleged that plaintiff-appellee has no cause of action against it.

Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default.

After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported, by reliable report and assessment of professional cargo surveyor. As regards defendant-appellant, the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal, the insurance firm. . . .

The Issue

"Whether or not a local settling or claim agent of a disclosed principal — a foreign insurance company — can be held jointly and severally liable with said principal under the latter's marine cargo insurance policy, given that the agent is not a party to the insurance contract" 8 — is the sole issue-raised by petitioner.

Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not brought against the real party-in-interest. 9

On the other hand, respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case, respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was "authorized to settle claims against its principal. Its defense that its authority excluded personal liability must be proven satisfactorily. There is a complete dearth of evidence supportive of appellant's non-responsibility as resident agent." The ruling continued with the statement that "the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal." 11

Likewise, private respondent disputed the applicability of the cases of E Macias & Co. vs. Warner, Barnes & Co.12 and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its appeal. According to private respondent, these two cases impleaded only the "insurance agent" and did not include the principal. While both the foreign principal — which was declared in default by the trial court — and petitioner, as claim agent, were found to be solidarily liable in this case, petitioner still had "recourse" against its foreign principal. Also, being a contract of adhesion, an insurance agreement must be strictly construed against the insurer. 14

The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence

Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be held personally and/or solidarily liable for the obligations of its disclosed principal merely because

there is allegedly a need for a speedy settlement of the claim of private respondent. In the leading case of Salonga vs. Warner, Barnes & Co.,Ltd. this Court ruled in this wise: 15

We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility (sic), for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out:

"An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority is prima facie coextensive with the business intrusted to him. . . ."

"An adjuster does not discharge functions of a quasi-judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment." (45 C.J.S., 1338- 1340.)

It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal. (Emphasis supplied).

The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of time has not eroded its value or merit. It still applies with equal force and vigor.

Private respondent's contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit.

Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with its principal.

Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied.16 The only "involvement" of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can be no obligation or liability, and thus no Cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who execute them. The subject cargo

insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in the contract which mentions the personal liability of petitioner.

Second Reason: Absence of Solidarity Liability

May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim, in the first place. More importantly, such ,position would have absolutely no legal basis.

The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. We quote:

Sec. 190. The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company, that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent, on whom any notice provided by law or by any insurance policy, proof summons and other legal processes may be served in all actions or other legal proceedings against such company, and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. Any such foreign company shall, as further condition precedent to the transaction of insurance business in the Philippines, make and file with the Commissioner an agreement or stipulation, executed by the proper authorities of said company in form and substance as follows:

The (name of company) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines, that if at any time such company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company.

Whenever such service of notice, proof of loss, summons or other legal process shall be made upon the Commissioner he must, within ten days thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal process to the company at its home or principal office. The sending of such copy of the Commissioner shall be necessary part of the service of the notice, proof of loss, or other legal process. (Emphasis supplied).

Further, we note that in the case cited by respondent Court, petitioner was found to be a resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to order the service of summons upon First Insurance Co., Ltd. which would not have been necessary if petitioner was its resident agent. Indeed, from our reading of the records of this case, we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co., Ltd.

Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-in-interest are, thus:

Sec. 2. Parties in interest. — Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the, plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants.

The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff" nor is said respondent "necessary to a complete determination or settlement of the questions involved" in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 20

Resort to Equity Misplaced

Finally, respondent Court also contends that "the interest of justice is better served by holding the settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice outside legality," is availed of only in the absence of, and never against, statutory law or judicial pronouncements. 21 Upon the other hand the liability of agents is clearly provided for by our laws and existing jurisprudence.

WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE.

No costs.

SO ORDERED.

GREGORIO V. TONGKO,                                 Petitioner,

 

 

 

 

-         versus  -

 

 

 

 

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

                                 Respondents.

 

 G.R. No. 167622 

    Present:

 

        CORONA, C.J.,

        CARPIO,

        CARPIO MORALES,

        VELASCO, JR.,

        NACHURA,

        LEONARDO-DE CASTRO,

        BRION,

        PERALTA,

        BERSAMIN,

        DEL CASTILLO,

        ABAD,

        VILLARAMA, JR.,

        PEREZ, and

        MENDOZA, JJ.

       

     Promulgated:

 

     June 29, 2010

x-----------------------------------------------------------------------------------------x

R E S O L U T I O N

BRION, J.:

 

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

 

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

 

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

 

It   is  understood and agreed that  the Agent  is  an  independent contractor   and   nothing   contained   herein   shall   be   construed   or interpreted   as   creating   an  employer-employee   relationship  between the Company and the Agent.

 

x  x  x  x

 

a)  The  Agent   shall   canvass   for  applications   for   Life   Insurance, Annuities, Group policies and other products offered by the Company, and collect,   in exchange for provisional receipts issued by the Agent, money due to or become due to the Company in respect of applications 

or  policies  obtained  by  or   through   the  Agent  or   from policyholders allotted   by   the   Company   to   the   Agent   for   servicing,   subject   to subsequent   confirmation  of   receipt  of  payment  by   the  Company  as evidenced by an Official Receipt issued by the Company directly to the policyholder.

 

x  x  x  x

 

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving written notice   to   the   Agent  within   fifteen   (15)   days   from   the   time   of   the discovery   of   the   breach.  No  waiver,   extinguishment,   abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous failure to exercise its right under any provision of this Agreement.

 

Either   of   the   parties   hereto   may   likewise   terminate   his Agreement  at  any  time without  cause,  by  giving   to   the  other  party fifteen (15) days notice in writing.[2]

 

 

Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard of knowledge and competency in the sale of Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the new business, required by his Production Club membership.[3]

 

The second phase started in 1983 when Tongko was named Unit Manager in   Manulife’s   Sales   Agency   Organization.  In   1990,   he   became   a   Branch Manager.  Six years later (or in 1996), Tongko became a Regional Sales Manager.[4]

 

Tongko’s gross earnings consisted of commissions, persistency income, and management   overrides.  Since the beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross business income and deducted his business expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on Tongko’s earnings.[5]

 

In   2001,  Manulife   instituted  manpower   development   programs   at   the regional   sales   management   level.  Respondent   Renato   Vergel   de   Dios   wrote Tongko  a   letter  dated  November  6,  2001  on   concerns   that  were  brought  up during   the  October   18,   2001  Metro  North   Sales  Managers  Meeting.  De  Dios wrote:

 

The first   step  to   transforming  Manulife   into a  big   league player  has been very clear – to increase the number of agents to at least 1,000 strong  for  a  start.  This  may seem diametrically  opposed to   the way Manulife was run when you first joined the organization. Since then, however, substantial changes have taken place in the organization, as these  have  been   influenced  by  developments  both   from within  and without the company.

 

x  x  x  x

 

The   issues   around   agent   recruiting   are   central   to   the   intended objectives hence the need for a Senior Managers’ meeting earlier last month   when   Kevin   O’Connor,   SVP-Agency,   took   to   the   floor   to determine from our senior agency leaders what more could be done to bolster   manpower   development.   At   earlier   meetings,   Kevin   had presented   information where  evidently,  your  Region  was   the   lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.

 

While   discussions,   in   general,   were   positive   other   than   for   certain comments from your end which were perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-on-one), it was not clear that we were proceeding in the same direction.

 

Kevin held subsequent series of meetings with you as a result, one of which   I   joined  briefly.   In   those   subsequent  meetings   you   reiterated certain  views,   the validity  of  which  we challenged and subsequently found as having no basis.

 

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused as to the directions the   company  was   taking.   For   this   reason,   I   sought   a  meeting  with everyone in your management team, including you, to clear the air, so to speak.

 

This note is intended to confirm the items that were discussed at the said  Metro  North  Region’s   Sales  Managers  meeting  held  at   the  7/F Conference room last 18 October.

 

x  x  x  x

 

Issue # 2: “Some Managers are unhappy with their earnings and would want to revert to the position of agents.”

 

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table before the rest of your Region’s Sales Managers to verify its validity. As you must have noted, no   Sales   Manager   came   forward   on   their   own   to   confirm   your 

statement and it took you to name Malou Samson as a source of the same, an allegation that Malou herself denied at our meeting and in your very presence.

 

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency development objectives!

 

Issue # 3: “Sales Managers are doing what the company asks them to do but, in the process, they earn less.”

 

x  x  x  x

 

All the above notwithstanding, we had your own records checked and we found that you made a  lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will  make more money  in the Year 2001 compared to Year 2000. Obviously, your above statement about making “less money” did not refer to you but the way you argued this point had us almost believing that you were spouting the gospel of truth when you were not. x  x  x

 

x  x  x  x

 

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction that we have been discussing   these   past   few  weeks, i.e., Manulife’s   goal   to   become   a major agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency growth.

 

x  x  x  x

 

I cannot afford to see a major region fail to deliver on its developmental goals  next  year and so,  we are making the following changes  in the interim:

 

1.      You will hire at your expense a competent assistant who can unload  you  of  much  of   the   routine  tasks  which  can  be  easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you feel “may not be your cup of tea.”

 

You   have   stated,   if   not   implied,   that   your  work   as   Regional Manager  may be  too   taxing   for  you and  for  your  health.  The above could solve this problem.

 

x  x  x  x

 

2.      Effective   immediately,   Kevin   and   the   rest   of   the   Agency Operations   will   deal   with   the   North   Star   Branch   (NSB)   in autonomous fashion. x  x  x

 

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro North. I  will  hold you solely responsible for meeting the objectives of these remaining groups.

           

x  x  x  x

 

The above changes can end at   this  point  and they need not go any further. This, however, is entirely dependent upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.[6]

 

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s services:

 

It  would   appear,   however,   that   despite   the   series   of  meetings   and communications, both one-on-one meetings between yourself and SVP Kevin O’Connor, some of them with me, as well as group meetings with your Sales Managers, all these efforts have failed in helping you align your directions with Management’s avowed agency growth policy.

 

x  x  x  x

 

On account   thereof,  Management   is  exercising   its  prerogative under Section 14 of your Agents Contract as we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.[7]

 

Tongko responded by filing an illegal dismissal complaint with the National Labor   Relations  Commission   (NLRC)   Arbitration  Branch.  He   essentially   alleged – despite the clear terms of the letter terminating his Agency Agreement – that he was Manulife’s employee before he was illegally dismissed.[8]

 

Thus, the threshold issue is the existence of an employment relationship.  A finding that none exists renders  the question of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the need to determine the validity of the termination of the relationship.

          A.  Tongko’s Case for Employment Relationship

 

          Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00, regardless of production levels attained and exclusive of commissions and bonuses.  He also claimed that as Regional Sales Manager, he was   given   a   travel   and   entertainment   allowance   of P36,000.00   per   year   in addition   to   his   overriding   commissions;   he   was   tasked   with   numerous administrative   functions  and supervisory  authority  over  Manulife’s  employees, aside   from merely   selling  policies   and   recruiting  agents   for  Manulife;   and  he recommended and recruited insurance agents subject to vetting and approval by Manulife.  He further alleges that he was assigned a definite place in the Manulife offices  when  he  was   not   in   the  field   –   at   the   3rd Floor, Manulife Center,   108 Tordesillas corner Gallardo Sts., SalcedoVillage, Makati City – for which he never paid   any   rental.  Manulife   provided   the   office   equipment   he   used,   including tables, chairs, computers and printers (and even office stationery), and paid for the  electricity,  water  and  telephone  bills.  As  Regional  Sales  Manager,  Tongko additionally asserts that he was required to follow at least three codes of conduct.[9]

 

          B.  Manulife’s Case – Agency Relationship with Tongko

 

          Manulife   argues   that   Tongko   had   no   fixed   wage   or   salary.  Under   the Agreement, Tongko was paid commissions of varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained through   an   agent.  As   sales   manager,   Tongko   was   paid   overriding   sales commission   derived   from   sales   made   by   agents   under   his unit/structure/branch/region.  Manulife   also   points   out   that it   deducted   and 

withheld a 10% tax from all commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as such—i.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a business is entitled.

 

          Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.[10]

The Conflicting Rulings of the Lower Tribunals   

 

The labor arbiter decreed that no employer-employee relationship existed between the parties.  However, the NLRC reversed the labor arbiter’s decision on appeal;   it   found   the   existence   of   an   employer-employee   relationship   and concluded   that   Tongko   had   been   illegally   dismissed.  In   the   petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision that no employer-employee relationship existed between Tongko and Manulife.

 

Our Decision of November 7, 2008

 

In our Decision of November 7, 2008, we reversed the CA ruling and found that   an   employment   relationship   existed  between   Tongko   and  Manulife.  We concluded that Tongko is Manulife’s employee for the following reasons:

 

1. Our ruling in the first Insular[11] case did not foreclose the possibility of an insurance agent  becoming an employee of  an  insurance company;   if  evidence exists showing that the company promulgated rules or regulations that effectively controlled or restricted an insurance agent’s choice of methods or the methods 

themselves   in   selling   insurance,   an  employer-employee   relationship  would  be present.   The   determination   of   the   existence   of   an   employer-employee relationship is thus on a case-to-case basis depending on the evidence on record.

 

2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the following indicators:

 

2.1              Tongko   undertook   to   comply   with   Manulife’s   rules, regulations  and  other   requirements, i.e.,   the  different   codes  of   conduct such   as   the   Agent   Code   of   Conduct,   the  Manulife   Financial   Code   of Conduct, and the Financial Code of Conduct Agreement;

 

2.2             The   various   affidavits   of   Manulife’s   insurance   agents   and managers,  who occupied  similar  positions  as  Tongko,   showed  that   they performed   administrative   duties   that   established   employment   with Manulife;[12] and

 2.3             Tongko was tasked to recruit some agents in addition to his 

other   administrative   functions.   De  Dios’   letter   harped   on   the   direction Manulife intended to take, viz., greater agency recruitment as the primary means to sell more policies; Tongko’s alleged failure to follow this directive led to the termination of his employment with Manulife.

 

 

 

The Motion for Reconsideration     

 

Manulife  disagreed  with  our  Decision   and  filed   the  present  motion   for reconsideration on the following GROUNDS:

 

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining the review only to the issue of “control” and utterly disregarding all the other issues that had been joined in this case; (b) mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that on “control”; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material evidence, especially [Tongko’s] declaration in his   income   tax   returns   that   he   was   a   “business   person”   or   “self-employed”; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.

 

2. The November 7[, 2008] Decision contravenes settled rules in contract   law and agency,  distorts  not  only   the   legal   relationships  of agencies to sell but also distributorship and franchising, and ignores the constitutional and policy context of contract law vis-à-vis labor law.

 

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test other than the “control” test,   reverses   well-settled   doctrines   of   law   on   employer-employee relationships,  and grossly  misapplies   the  “control   test,”  by  selecting, without basis, a few items of evidence to the exclusion of more material evidence to support its conclusion that there is “control.”

 

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the Civil Code, beyond the powers   granted   to   this   Court   under   Article   VIII,   Section   1   of   the Constitution   and   contravenes   through   judicial   legislation,   the constitutional prohibition against impairment of contracts under Article III, Section 10 of the Constitution.

 

5. For all  the above reasons, the November 7[,  2008] Decision made unsustainable and reversible errors, which should be corrected, 

in   concluding   that   Respondent   Manulife   and   Petitioner   had   an employer-employee   relationship,   that   Respondent  Manulife   illegally dismissed   Petitioner,   and   for   consequently   ordering   Respondent Manulife   to   pay   Petitioner   backwages,   separation   pay,   nominal damages and attorney’s fees.[13]

THE COURT’S RULING

A.               The Insurance and the Civil Codes;

the Parties’ Intent and Established

Industry Practices

 

We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set in the insurance industry so that the Insurance Code primarily governs.  Chapter IV, Title 1 of this Code is wholly devoted to “Insurance Agents and Brokers” and specifically  defines the agents and brokers relationship with the insurance company and how they are governed by the Code and regulated by the Insurance Commission. 

 

The Insurance Code, of course, does not wholly regulate the “agency” that it speaks of, as agency is a civil law matter governed by the Civil Code.  Thus, at the very least, three sets of laws – namely, the Insurance Code, the Labor Code and the Civil Code – have to be considered in looking at the present case.  Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship for purposes of selling the insurance the company offers.  To forget these other laws is to take a myopic view of the present case and to add to the uncertainties that   now   exist   in   considering   the   legal   relationship   between   the   insurance company and its “agents.”  

 

The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship. The Labor Code concept of “control” has to be compared and distinguished with the “control” that must necessarily exist in a principal-agent relationship.  The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially  in cases where the company-representative relationship in the insurance industry is an agency.

 

 

a.  The         laws on insurance and agency   

 

The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance business, who can act   for   and   in   behalf   of   an   insurer,   and   how   these   parties   shall   conduct themselves in the insurance business.  Section 186 of the Insurance Code provides that “No   person,   partnership,   or   association   of   persons   shall   transact   any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines.” Sections 299 and 300   of   the   Insurance   Code   on   Insurance   Agents   and   Brokers,   among   other provisions, provide:

 

            Section 299.   No   insurance   company   doing   business   in   the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.

 

No person shall  act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation   from   any   insurance   company   doing   business   in   the Philippines or any agent thereof, without first procuring a license so to act   from   the   Commissioner  x  x  x  The   Commissioner   shall   satisfy himself as to the competence and trustworthiness of the applicant and shall  have the right  to refuse to  issue or renew and to suspend or revoke any such license in his discretion.

 

            Section   300.     Any   person  who   for   compensation   solicits   or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

 

 

The application for an insurance agent’s license requires a written examination, and the applicant  must  be  of  good moral  character  and must  not  have been convicted   of   a   crime   involving  moral   turpitude.[14] The   insurance   agent   who collects   premiums   from   an   insured   person   for   remittance   to   the   insurance company   does   so   in   a   fiduciary   capacity,   and   an   insurance   company  which delivers an insurance policy or contract to an authorized agent is deemed to have authorized the agent to receive payment on the company’s behalf.[15]  Section 361 

further prohibits the offer, negotiation, or collection of any amount other than that specified in the policy and this covers any rebate from the premium or any special favor or advantage in the dividends or benefit accruing from the policy.

 

Thus,   under   the   Insurance   Code,   the   agent   must,   as   a   matter   of qualification, be licensed and must also act within the parameters of the authority granted under the license and under the contract with the principal.  Other than the need for a license, the agent is limited in the way he offers and negotiates for the sale of the company’s insurance products, in his collection activities, and in the   delivery   of   the   insurance   contract   or   policy.  Rules   regarding   the   desired results (e.g., the required volume to continue to qualify as a company agent, rules to check on the parameters on the authority  given to the agent,  and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control  specific to an insurance agency and should not and cannot be read as elements  of  control   that  attend an employment   relationship  governed  by   the Labor Code.

         

On the other hand, the Civil Code defines an agent as a “person [who] binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.”[16]  While this is a very broad   definition   that   on   its   face   may   even   encompass   an   employment relationship,   the distinctions  between agency  and employment  are  sufficiently established by law and jurisprudence. 

 

Generally, the determinative element is the control exercised over the one rendering service.  The employer controls the employee both in the results and in the  means   and  manner   of   achieving   this   result.  The   principal   in   an   agency relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned task based on the parameters outlined in the pertinent laws. 

 

Under the general law on agency as applied to insurance, an agency must be  express   in   light  of   the  need   for  a   license  and   for   the  designation  by   the insurance company.  In the present case, the Agreement fully serves as grant of authority   to   Tongko   as   Manulife’s   insurance   agent.[17]  This   agreement   is supplemented by the company’s agency practices and usages, duly accepted by the agent in carrying out the agency.[18]  By authority of the Insurance Code, an insurance agency is for compensation,[19] a matter the Civil Code Rules on Agency presumes   in   the   absence   of   proof   to   the   contrary.[20]  Other   than   the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for the execution of the agency.[21]  By implication at least under Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same assigned tasks,[22] based necessarily on the specific instructions and directives given to them.   

 

With particular relevance to the present case is the provision that “In the execution of the agency, the agent shall act in accordance with the instructions of the principal.”[23]  This provision is pertinent for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary.  A related article is Article 1891   of   the   Civil   Code  which   binds   the   agent   to   render   an   account   of   his transactions to the principal. 

 

B. The Cited Case

 

The   Decision   of   November   7,   2008   refers   to   the first Insular and Grepalife cases   to   establish   that   the   company   rules   and regulations   that   an  agent  has   to   comply  with  are   indicative  of   an  employer-employee relationship.[24]  The Dissenting Opinions of Justice Presbitero Velasco, Jr.   and   Justice  Conchita  Carpio  Morales  also   cite Insular   Life  Assurance  Co.   v. National Labor Relations Commission(second Insular case)[25] to support the view that   Tongko   is   Manulife’s   employee.  On   the   other   hand,   Manulife   cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor 

Relations Commission (AFPMBAI case)[26] to support its allegation that Tongko was not its employee. 

 

A caveat has been given above with respect to the use of the rulings in the cited   cases  because  none  of   them  is  on  all   fours  with   the  present   case;   the uniqueness of the factual  situation of the present case prevents  it  from being directly  and readily  cast   in the mold of  the cited cases.  These cited cases are themselves different from one another; this difference underscores the need to read and quote them in the context of their own factual situations.

 

The   present   case   at   first   glance   appears   aligned   with   the   facts   in the Carungcong,   the Grepalife,   and   the second   Insular   Life cases.  A   critical difference,   however,   exists   as these cited cases dealt with the proper legal characterization of a subsequent management contract that superseded the original agency contract between the insurance company and its agent.  Carungcong dealt  with   a   subsequent  Agreement  making   Carungcong   a New   Business   Manager   that   clearly   superseded   the   Agreement   designating Carungcong   as   an   agent   empowered   to   solicit   applications   for insurance.  TheGrepalife   case,   on   the  other  hand,  dealt  with   the  proper   legal characterization of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents.  Thus, after analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that the company practically dictated the manner by which the Ruiz brothers were to carry out their jobs.  Finally, the second Insular Life case dealt with the implications of de los Reyes’ appointment as acting unit manager which, like   the   subsequent   contracts   in   the Carungcong and   the Grepalife cases,  was clearly   defined   under   a   subsequent   contract.  In all these cited cases, a determination of the presence of the Labor Code element of control was made on the basis of the stipulations of the subsequent contracts.

 

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract  or  document extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code 

context   similar   to   the   original   contract   in the   first   Insular   Life case and   the contract  in the AFPMBAI case.  And while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in the records of the case.  Any such contract or agreement, had there been any, could have at the very least   provided   the   bases   for   properly   ascertaining   the   juridical   relationship established between the parties.         

 

These   critical   differences,   particularly   between   the   present   case and the Grepalife and the second Insular Life cases, should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases.

 

C. Analysis of the Evidence

 

          c.1.  The Agreement

 

The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties’ relations until the Agreement’s termination in 2001.  This   Agreement   stood   for  more   than   two   decades   and, based on the records of the case, was never modified or novated.  It assumes primacy because it directly dealt with the nature of the parties’ relationship up to the very end; moreover,   both  parties  never  disputed   its   authenticity  or   the  accuracy  of   its terms.

 

By the Agreement’s express terms, Tongko served as an “insurance agent” for   Manulife,   not   as   an   employee.  To   be   sure,   the   Agreement’s   legal characterization   of   the   nature   of   the   relationship   cannot   be   conclusive   and binding on the courts; as the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law that is for the courts to determine.  At the same time, though, the characterization the parties gave   to   their   relationship   in   the  Agreement   cannot   simply   be  brushed   aside 

because it embodies their intent at the time they entered the Agreement, and they were governed by this understanding throughout their relationship.  At the very   least,   the   provision   on   the   absence   of   employer-employee   relationship between   the   parties   can   be   an   aid   in   considering   the   Agreement   and   its implementation, and in appreciating the other evidence on record.

 

The parties’ legal characterization of their intent, although not conclusive, is critical in this case because this intent is not illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes.  From this perspective, the  provisions  of   the   Insurance  Code  cannot  be  disregarded  as   this  Code   (as heretofore   already   noted)   expressly   envisions   a   principal-agent   relationship between the insurance company and the insurance agent in the sale of insurance to the public.  For this reason, we can take judicial notice that as a matter of Insurance Code-based business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance.  The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides,   which   likewise   is   in   accordance   with   the   production-based   sales commissions the Insurance Code provides.

 

Significantly,   evidence   shows   that   Tongko’s   role   as   an   insurance   agent never changed during his relationship with Manulife.  If changes occurred at all, the changes did not appear to be in the nature of their core relationship.  Tongko essentially   remained  an  agent,  but  moved  up   in   this   role   through  Manulife’s recognition that he could use other agents approved by Manulife, but operating under  his  guidance and  in whose commissions he had a share.  For  want of  a better term, Tongko perhaps could be labeled as a “lead agent” who guided under his  wing   other  Manulife   agents   similarly   tasked  with   the   selling   of  Manulife insurance.

 

Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes of crediting   him  with   his   share   in   the   commissions   the   agents   under   his  wing generated. As an agent who was recruiting and guiding other insurance agents, Tongko   likewise  moved   up   in   terms   of   the   reimbursement   of   expenses   he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code.  Thus, Tongko received greater reimbursements for his expenses and was even allowed to use Manulife facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents approved and certified as such by Manulife with the Insurance Commission.

 

That Tongko assumed a leadership role but nevertheless wholly remained an   agent   is   the   inevitable   conclusion   that   results   from   the   reading   of   the Agreement (the only agreement on record in this case) and his continuing role thereunder as sales agent,  from the perspective of the Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales Manager.  To be sure, this interpretation could have been contradicted if other agreements   had   been   submitted   as   evidence   of   the   relationship   between Manulife and Tongko on the latter’s expanded undertakings.  In the absence of any such evidence, however, this reading – based on the available evidence and the applicable  insurance and civil   law provisions – must stand, subject only to objective  and  evidentiary   Labor  Code   tests  on   the  existence  of  an  employer-employee relationship. 

 

 In   applying   such   Labor   Code   tests,   however,   the   enforcement   of   the Agreement during the course of the parties’ relationship should be noted. From 1977   until   the   termination   of   the   Agreement,   Tongko’s   occupation   was   to sell Manulife’s insurance policies and products.  Both parties acquiesced with the terms and conditions of the Agreement.  Tongko, for his part,  accepted all  the benefits flowing from the Agreement, particularly the generous commissions. 

 

Evidence indicates that Tongko consistently clung to the view that he was an   independent  agent   selling  Manulife   insurance  products   since  he   invariably declared   himself   a   business   or   self-employed   person   in   his   income   tax returns.  This consistency with, and action made pursuant to the Agreement were pieces of evidence that were never mentioned nor considered in our Decision of November 7, 2008.  Had they been considered, they could, at the very least,   serve   as   Tongko’s   admissions   against   his   interest.  Strictly   speaking, Tongko’s tax returns cannot but be legally significant because he certified under oath   the   amount   he   earned   as   gross   business   income,   claimed   business deductions, leading to his net taxable income.  This should be evidence of the first order that cannot be brushed aside by a mere denial.  Even on a layman’s view that   is  devoid  of   legal   considerations,   the  extent  of  his  annual   income alone renders his claimed employment status doubtful.[27]

Hand in hand with the concept of admission against interest in considering the   tax   returns,   the   concept  of  estoppel  –  a   legal   and  equitable   concept[28] – necessarily must come into play. Tongko’s previous admissions in several years of tax returns as an independent agent, as against his belated claim that he was all along  an  employee,   are   too  diametrically  opposed   to  be   simply  dismissed  or ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was forced   to   declare   himself   a   business   or   self-employed   person   by   Manulife’s persistent refusal to recognize him as  its employee.[29]  Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since no evidence in fact exists on this point in the records of the case.   In fact, what the evidence shows is Tongko’s full conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn.

 

          Another interesting point the dissent raised with respect to the Agreement is   its   conclusion   that   the   Agreement   negated   any   employment   relationship between Tongko and Manulife   so   that   the  commissions  he earned as  a   sales agent   should   not   be   considered   in   the   determination  of   the   backwages   and separation pay that should be given to him. This part of the dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual roles in his relationship with Manulife;  he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an employee in his capacity as a 

manager.  Thus, the dissent concluded that Tongko’s backwages should only be with respect to his role as Manulife’s manager.

 

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for the legal, factual and practical reasons discussed in this Resolution.  In  brief,   the factual reason is  grounded  on   the   lack  of  evidentiary support  of   the conclusion that  Manulife  exercised control  over  Tongko  in   the sense understood in the Labor Code.  The legal reason, partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and was thus its employee.  The practical reason, on the other hand, is the havoc that  the dissent’s  unwarranted conclusion would cause the  insurance  industry that,   by   the   law’s   own   design,   operated   along   the   lines   of   principal-agent relationship in the sale of insurance.    

 

                   c.2. Other Evidence of Alleged Control

         

A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised means-and-manner control, even to a   limited  extent,  over  Tongko  during  his  ascent   in  Manulife’s   sales   ladder.  In 1983, Tongko was appointed unit manager.  Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant.  This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager   in  1996.  The  best  evidence  of   control  –   the  agreement  or  directive relating to Tongko’s duties and responsibilities – was never introduced as part of the   records  of   the   case. The   reality   is,   prior   to   de   Dios’   letter,   Manulife   had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under his wing.  As discussed below, the alleged directives   covered   by   de   Dios’   letter,   heretofore   quoted   in   full,   were   policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own selling activities.  This is the reality that the parties’ presented evidence consistently tells us. 

  

           What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in the sale of insurance.  The mere presentation of codes or of rules and regulations, however, is not per se indicative of labor law control as the law and jurisprudence teach us. 

 

As already recited above, the Insurance Code imposes obligations on both the   insurance  company  and   its  agents   in   the  performance  of   their   respective obligations under the Code, particularly on licenses and their renewals,  on the representations to be made to potential customers, the collection of premiums, on the delivery  of   insurance policies,  on  the matter  of  compensation,  and on measures to ensure ethical business practice in the industry. 

 

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

 

From   jurisprudence,   an   important   lesson   that   the first   Insular   Life case teaches  us   is   that  a  commitment  to abide by the rules  and regulations  of  an insurance company does not ipso facto make the insurance agent an employee. Neither   do   guidelines   somehow   restrictive   of   the   insurance   agent’s   conduct necessarily indicate “control” as this term is defined in jurisprudence.  Guidelines indicative of labor law “control,” as the first Insular Life case tells us, should not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding

or restricting the party hired to the use of these means.  In fact, results-wise, the principal  can  impose production quotas and can determine how many agents, with   specific   territories,   ought   to   be   employed   to   achieve   the   company’s objectives. These are management policy decisions that the labor law element of control cannot reach.  Our ruling in these respects in the first Insular Life case was practically   reiterated  in Carungcong.  Thus,  as  will  be shown more  fully  below, Manulife’s  codes  of  conduct,[30] all  of  which do not   intrude  into   the  insurance agents’ means and manner of conducting their sales and only control them as to the desired  results  and  Insurance Code norms,  cannot  be used as  basis   for  a finding   that   the   labor   law   concept   of   control   existed  between  Manulife   and Tongko.

         

          The   dissent   considers   the   imposition   of   administrative   and  managerial functions on Tongko as indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became Manulife’s employee. It drew this conclusion from what the other Manulife managers disclosed in their  affidavits (i.e.,  their enumerated administrative and managerial functions) and after comparing these statements with the managers  in  Grepalife.     The dissent compared the control exercised by Manulife over its managers in the present case with the control the managers in the Grepalife case exercised over their employees by presenting the following matrix:[31]

                                               

Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors

 

-   to   render   or   recommend   prospective agents   to   be   licensed,   trained   and contracted   to   sell  Manulife   products   and who will be part of my Unit

 

- train understudies for the position of district manager

 

-   to   coordinate   activities   of   the   agents under [the managers’] Unit in [the agents’] daily, weekly and monthly selling activities, making   sure   that   their   respective   sales targets are met;

 

- properly account, record and document the company’s   funds,   spot-check   and   audit   the work of the zone supervisors, x x x follow up the submission of  weekly   remittance  reports of the debit agents and zone supervisors

 

-  to conduct periodic training sessions for [the] agents to further enhance their sales skill; and

 

-   to   assist   [the]   agents   with   their   sales activities   by   way   of   joint   fieldwork, consultations   and   one-on-one   evaluation and analysis of particular accounts

 

- direct and supervise the sales activities of the debit agents under him, x x x undertake and discharge   the   functions   of   absentee   debit agents, spot-check the record of debit agents, and insure proper documentation of sales and collections of debit agents.

 

Aside   from   these   affidavits   however,   no   other   evidence   exists   regarding   the effects   of   Tongko’s   additional   roles   in   Manulife’s   sales   operations   on   the contractual relationship between them.

 

To the dissent, Tongko’s  administrative functions as recruiter,   trainer,  or supervisor of other sales agents constituted a substantive alteration of Manulife’s authority over Tongko and the performance of his end of the relationship with Manulife. We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his additional role as Branch Manager did not lessen his main and dominant role as insurance agent; this role continued to dominate the   relations   between   Tongko   and  Manulife   even   after   Tongko   assumed   his leadership   role   among   agents.  This   conclusion   cannot   be   denied   because   it proceeds   from   the   undisputed   fact   that   Tongko   and  Manulife   never   altered their July   1,   1977 Agreement, a   distinction   the   present   case   has   with   the contractual changes made in the second Insular Life case. Tongko’s results-based commissions,  too, attest to the primacy he gave to his role as  insurance sales agent.

 

The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between:

 

                    the Manulife   managers’ role  is to coordinate activities of the agents under   the   managers’   Unit   in   the   agents’   daily,   weekly,   and   monthly   selling activities, making sure that their respective sales targets are met.

 

                    the District Manager’s   duty in Grepalife  is to properly   account, record, and document the company's funds, spot-check and audit the work of the zone   supervisors,   conserve   the   company's   business   in   the   district   through “reinstatements,” follow up the submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in good condition, train understudies for the position of district managers, and maintain his quota of sales (the failure of which is a ground for termination).

 

                    the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales activities of the debit agents under him, conserve company property   through   “reinstatements,”   undertake   and   discharge   the   functions   of absentee debit agents, spot-check the records of debit agents, and insure proper documentation of sales and collections by the debit agents.

 

These job contents are worlds apart in terms of “control.”  In Grepalife, the details of how to do the job are specified and pre-determined; in the present case, the operative words  are  the  “sales   target,”   the  methodology  being   left undefined except   to   the   extent   of   being   “coordinative.”  To   be   sure,   a   “coordinative” standard   for   a  manager   cannot   be   indicative   of   control;   the   standard   only essentially  describes what  a Branch Manager  is  –  the person  in  the  lead who orchestrates activities within the group. To “coordinate,”  and thereby to lead and to orchestrate,   is  not so much a matter of  control  by Manulife;   it   is  simply  a statement of a branch manager’s role  in relation with his agents from the point of view of Manulife whose business Tongko’s sales group carries.

 

A disturbing note,  with respect to the presented affidavits  and Tongko’s alleged   administrative   functions,   is   the   selective   citation   of   the   portions supportive   of   an   employment   relationship   and   the   consequent   omission   of 

portions leading to the contrary conclusion.  For example, the following portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008, while the other portions suggesting labor law control were highlighted. Specifically, the following portions of the affidavits were not brought out:[32]

 

1.a.  I have no fixed wages or salary since my services are compensated by way of commissions based on the computed premiums paid in full on the policies obtained thereat;

 

1.b.   I  have  no  fixed  working  hours  and  employ  my  own method   in soliticing insurance at a time and place I see fit;

 

1.c.  I have my own assistant and messenger who handle my daily work load;

 

1.d.  I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;

 

                                                             x  x  x  x 

 

6.  I have my own staff that handles the day to day operations of my office;

 

7.  My staff are my own employees and received salaries from me;

 

                                                 x  x  x  x

 

9.  My  commission  and   incentives  are  all   reported   to   the  Bureau  of Internal   Revenue   (BIR)   as   income   by   a   self-employed   individual   or professional with a ten (10) percent creditable withholding tax.  I also remit monthly for professionals.

 

These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko. 

 

Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of his role as manager in guiding the sales agents.  Strictly viewed, de Dios’ directives are merely operational guidelines on how Tongko could  align  his  operations  with  Manulife’s   re-directed  goal  of being a “big league player.”  The method is to expand coverage through the use of more   agents.  This   requirement   for   the   recruitment   of  more   agents   is   not   a means-and-method control as it relates, more than anything else, and is directly relevant,   to Manulife’s  objective of expanded business operations through the use   of   a   bigger   sales   force   whose   members   are   all   on   a   principal-agent relationship.  An important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions through his overrides.  This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch Manager used by the parties is really a misnomer  given   that  what   is   involved   is  not  a   specific   regular  branch  of   the company   but   a   corps   of   non-employed   agents,   defined   in   terms   of   covered territory,   through  which   the   company   sells   insurance.  Still   another   point   to consider   is   that   Tongko  was   not   even   setting   policies   in   the  way   a   regular company manager does; company aims and objectives were simply relayed to him  with   suggestions   on   how   these   objectives   can   be   reached   through   the expansion of a non-employee sales force.

 

Interestingly,   a   large   part   of   de  Dios’   letter   focused  on   income,  which Manulife demonstrated, in Tongko’s case, to be unaffected by the new goal and direction   the   company   had   set.  Income   in   insurance   agency,   of   course,   is dependent on results,  not on the means and manner of selling – a matter for Tongko and his agents to determine and an area into which Manulife had not waded.  Undeniably, de Dios’ letter contained a directive to secure a competent assistant  at  Tongko’s  own expense.  While   couched   in   terms  of  a  directive,   it cannot strictly be understood as an intrusion into Tongko’s method of operating and supervising the group of agents within his delineated territory.  More than anything   else,   the   “directive”  was   a   signal   to   Tongko   that   his   results   were unsatisfactory,  and was  a  suggestion on how Tongko’s  perceived weakness   in delivering results could be remedied.  It was a solution, with an eye on results, for a consistently underperforming group; its obvious intent was to save Tongko from the result that he then failed to grasp – that he could lose even his own status as an agent, as he in fact eventually did.

 

The   present   case   must   be   distinguished   from   the second   Insular   Life case that   showed   the  hallmarks  of   an  employer-employee   relationship   in   the management system established.  These were:  exclusivity  of  service,  control  of assignments  and   removal  of   agents  under   the  private   respondent’s  unit,   and furnishing of company facilities and materials as well as capital described as Unit Development Fund. All these are obviously absent in the present case.  If there is a commonality in these cases, it is in the collection of premiums which is a basic authority that can be delegated to agents under the Insurance Code. 

 

As previously discussed, what simply happened in Tongko’s case was the grant of an expanded sales agency role that recognized him as leader amongst agents in an area that Manulife defined. Whether this consequently resulted in the establishment of an employment relationship can be answered by concrete evidence that corresponds to the following questions:

 

        as lead agent, what were Tongko’s specific functions and the terms of his additional engagement;

        was he paid additional compensation as a so-called Area Sales Manager, apart   from   the   commissions   he   received   from   the   insurance   sales   he generated;

        what can be Manulife’s basis to terminate his status as lead agent;

        can Manulife terminate his role as lead agent separately from his agency contract; and

        to what extent does Manulife control the means and methods of Tongko’s role as lead agent? 

 

The  answers   to   these  questions  may,   to   some  extent,   be  deduced   from  the evidence at hand, as partly discussed above.  But strictly speaking, the questions cannot   definitively   and   concretely   be   answered   through   the   evidence   on record.  The concrete evidence required to settle these questions is simply not there, since only the Agreement and the anecdotal affidavits have been marked and submitted as evidence.

 

Given   this   anemic   state   of   the   evidence,   particularly   on   the   requisite confluence of the factors determinative of the existence of employer-employee relationship, the Court cannot conclusively find that the relationship exists in the present   case,   even   if   such   relationship   only   refers   to   Tongko’s   additional functions.  While a rough deduction can be made, the answer will  not be fully supported by the substantial evidence needed. 

 

Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulife’s control over Tongko’s contractual duties points to the absence of any employer-employee relationship between Tongko and Manulife.  In the context of the established evidence, Tongko remained an agent   all   along;   although  his   subsequent  duties  made  him a   lead  agent  with leadership role, he was nevertheless only an agent whose basic contract yields no evidence of means-and-manner control.

 

This conclusion renders unnecessary any further discussion of the question of   whether   an   agent   may   simultaneously   assume   conflicting   dual personalities.  But to set the record straight, the concept of a single person having the dual role of agent and employee while doing the same task is a novel one in our   jurisprudence,   which   must   be   viewed   with   caution   especially   when   it is devoid of any jurisprudential support or precedent.  The quoted portions in Justice   Carpio-Morales’   dissent,[33] borrowed   from   both   the Grepalife and the second Insular Life cases, to support the duality approach of the Decision of November  7,  2008,  are   regrettably   far   removed   from  their   context  – i.e.,   the cases’ factual situations, the issues they decided and the totality of the rulings in these cases – and cannot yield the conclusions that the dissenting opinions drew. 

 

The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment  as   zone   supervisor   and  district  manager  made   them employees of Grepalife.  Indeed, because of the presence of the element of control in their contract of engagements, they were considered Grepalife’s employees.  This did not mean, however, that they were simultaneously considered agents as well as employees ofGrepalife; the Court’s ruling never implied that this situation existed insofar   as   the   Ruiz   brothers   were   concerned.  The   Court’s   statement   –   the Insurance   Code  may   govern   the   licensing   requirements   and   other   particular duties of insurance agents, but it does not bar the application of the Labor Code with regard to labor standards and labor relations – simply means that when an insurance company has exercised control over its agents so as to make them their employees, the relationship between the parties, which was otherwise one for agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor Code.  The reason for this  is simple – the contract of agency has been transformed into an employer-employee relationship.

 

The second   Insular   Life   case, on   the   other   hand,   involved   the   issue   of whether   the  labor  bodies  have  jurisdiction over  an  illegal   termination dispute involving   parties  who  had   two   contracts   –   first,   an   original   contract   (agency contract),   which   was   undoubtedly   one   for   agency,   and   another   subsequent contract that in turn designated the agent acting unit manager (a management contract).  Both the Insular Life and the labor arbiter were one in the position that 

both were agency contracts.  The Court disagreed with this conclusion and held that   insofar   as   the  management   contract   is   concerned,   the   labor   arbiter  has jurisdiction.  It is in this light that we remanded the case to the labor arbiter for further proceedings.  We never said in this case though that the insurance agent had effectively assumed dual personalities for the simple reason that the agency contract   has   been   effectively   superseded   by   the  management   contract.  The management contract provided that if the appointment was terminated for any reason other than for cause, the acting unit manager would be reverted to agent status and assigned to any unit. 

          

          The   dissent   pointed   out,   as   an   argument   to   support   its   employment relationship conclusion, that any doubt in the existence of an employer-employee relationship   should  be   resolved   in   favor   of   the   existence  of   the   relationship.[34]  This   observation,   apparently   drawn   from  Article   4   of   the   Labor   Code,   is misplaced, as Article 4 applies only when a doubt exists in the “implementation and application” of the Labor Code and its implementing rules; it does not apply where  no  doubt   exists   as   in   a   situation  where   the   claimant   clearly   failed   to substantiate his claim of employment relationship by the quantum of evidence the Labor Code requires. 

         

On the dissent’s last point regarding the lack of jurisprudential value of our November   7,   2008  Decision,   suffice   it   to   state   that,   as   discussed   above,   the Decision was not supported by the evidence adduced and was not in accordance with   controlling   jurisprudence.   It   should,   therefore,   be   reconsidered   and abandoned, but not in the manner the dissent suggests as the dissenting opinions are as factually and as legally erroneous as the Decision under reconsideration.   

 

In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’  letter, as a ground for termination of Tongko’s agency, is a matter that the labor tribunals cannot rule upon in the absence of an employer-employee   relationship.  Jurisdiction   over   the  matter   belongs   to   the courts applying the laws of insurance, agency and contracts.   

 

WHEREFORE,   considering   the   foregoing   discussion,   we REVERSE our Decision of November 7, 2008, GRANT Manulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition.  No costs.

      

SO ORDERED.

 G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner, vs.THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.

 

NOCON, J.:

These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals reads, as follows:

WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of their insured vehicle; while said appellants are ordered to pay appellee FCP Credit Corporation all the unpaid installments that were due and payable before the date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just insurance claim of appellants by way of example and correction for public good, and attorney's fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred therefor by appellants, and the costs of suit both in the lower court and in this appeal. 2

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5

On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel mortgage as shown by the Deed of Assignment. 6

At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao to make a police report regarding said incident, as shown by the certification issued by the Quezon City police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9

On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which states, to wit:

AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his permission.Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or regulation in that behalf. 11

On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the promissory note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused.

On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an amended third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the trial court rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from July 2, 1983 until fully paid;

2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint filed against Third-Party Defendant. 13

Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which reversed said decision.

After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari.

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding that private respondents did not violate the insurance contract because the authorized driver clause is not applicable to the "Theft" clause of said Contract.

For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor from his admitted obligations under the promissory note particularly the payment of interest, litigation expenses and attorney's fees.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. 14

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its decision:

. . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction — often seized upon by insurance companies in resisting claims from their assureds — between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case. The loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay the former the installments due on the promissory note on account of the loss of the automobile. The chattel mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments due and payable before the automobile was carnapped, as erronously held by the Court of Appeals.

However, this does not mean that private respondents are bound to pay the interest, litigation expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated to each other, despite the fact that at first glance there is no relationship whatsoever between the parties thereto.

Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated therein in accordance with the schedule provided for. To secure said promissory note, private respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were able to secure an insurance policy from petitioner Perla, and the same was made specifically payable to petitioner FCP. 16

The insurance policy was therefore meant to be an additional security to the principal contract, that is, to insure that the promissory note will still be paid in case the automobile is lost through accident or theft. The Chattel Mortgage Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM

DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the contract of indemnity was procured to insure the return of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP since they will be required to pay the latter the unpaid balance of its obligation under the promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be disturbed on appeal. 19

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs.

SO ORDERED.

 

 [G.R. No. 106436, December 08, 1994] 

VIRGILIO D. IMSON, PETITIONER, VS. HON. COURT OF APPEALS, HOLIDAY HILLS STOCK AND BREEDING FARM CORPORATION, FNCB FINANCE CORPORATION, RESPONDENTS. 

D E C I S I O N 

PUNO, J.:

The case at bench arose from a vehicular collision on December 11, 1983, involving petitioner’s Toyota

Corolla and a Hino diesel truck registered under the names of private respondents FNCB Finance Corporation

and Holiday Hills Stock and Breeding Farm Corporation. The collision seriously injured petitioner and totally

wrecked his car.

On January 6, 1984, petitioner filed with the RTC Baguio City[1] a Complaint for Damages.[2] Sued were private

respondents as registered owners of the truck; truck driver Felix B. Calip, Jr.; the beneficial owners of the

truck, Gorgonio Co Adarme, Felisa T. Co (also known as Felisa Tan), and Cirilia Chua Siok Bieng; and the

truck insurer, Western Guaranty Corporation.

The Complaint prayed that defendants be ordered to pay, jointly and severally, two hundred seventy

thousand pesos (P270,000.00) as compensatory damages, fifty thousand pesos (P50,000.00) each as moral

and exemplary damages, and attorney’s fees, litigation expenses, and cost of suit.[3]

Defendants driver and beneficial owners failed to answer and were declared in default.[4] On May 29, 1987,

however, petitioner and defendant insurer, entered into a compromise agreement which provided, inter alia:

“1.     Defendant Western Guaranty Corporation (Western Guaranty for short) admits that its total liability

under the laws and the insurance contract sued upon is P70,000.00;

“2.     In full settlement of its liability under the laws and the said insurance contract, defendant Western

Guaranty shall pay plaintiff (herein petitioner) the amount of P70,000.00 upon the signing of this

compromise agreement;

“3.     This compromise agreement shall in no way waive nor prejudice plaintiff’s (herein petitioner’s) rights

to proceed against the other defendants with respect the remainder of his claims;

“4.     This compromise agreement shall be a full and final settlement of the issues between plaintiff (herein

petitioner) and defendant Western Guaranty in their complaint and answer and, from now on, they shall have

no more right against one another except the enforcement of this compromise agreement.”[5]

In consequence of the compromise agreement, the trial court dismissed the Complaint for Damages against

Western Guaranty Corporation on June 16, 1987.[6] A copy of the Order of dismissal was received by private

respondent Holiday Hills Stock and Breeding Farm Corporation on July 13, 1987. Nearly eighteen (18) months

later, said private respondent moved to dismiss the case against all the other defendants. It argued that

since they are all indispensable parties under a common cause of action, the dismissal of the case against

defendant insurer must result in the dismissal of the suit against all of them. The trial court denied the

motion.

Private respondent Holiday Hills Stock and Breeding Farm Corporation assailed the denial order through a

Petition for Certiorari, Prohibition and Mandamus With Restraining Order filed with respondent Court of

Appeals. The Petition was docketed as CA-G.R. SP No. 17651. On July 10, 1992, the Court of Appeals,[7]through its Special Sixth Division,[8] reversed the trial court, as it ruled:

“The petitioner (herein private respondent Holiday Hills Stock and Breeding Farm Corporation) cites the

doctrine laid down in Lim Tanhu v. Hon. Ramolete, 66 SCRA 425, as applied later in Co v. Acosta, 134 SCRA

185, to support its averment that the court a quogravely abused its discretion in refusing to dismiss the

case.

“Essentially, the doctrine adverted to essays that in a common cause of action where all the defendants are

indispensable parties, the court’s power to act is integral and cannot be split, such that it cannot relieve any

of them and at the same time render judgment against the rest.

“We find applicability of the doctrine to the case at bar.

“A cursory reading of the complaint xxx reveals that the cause of action was the alleged bad faith and gross

negligence of the defendants resulting in the injuries complained of and for which the action for damages

was filed. The inclusion of Western Guaranty Corporation was vital to the claim, it being the insurer of the

diesel truck without which, the claim could be set for naught. Stated otherwise, it is an indispensable party

as the petitioner (herein private respondent stock and breeding farm corporation) xxx. Private respondent’s

(herein petitioner’s) argument that the said insurance company was sued on a different cause of action, i.e.,

its bounden duty under the insurance law to pay or settle claims arising under its policy coverage, is

untenable, for the cited law perceives the existence of a just cause, and according to the answer filed by the

Western Guaranty Corporation xxx the proximate cause of the accident was the fault of the plaintiff (herein

petitioner), hence it was not liable for damages. There is in fact a congruence of affirmative defense among

the answering defendants.

“Moreover, it is undisputed that the injury caused is covered by the insurance company concerned. Thus,

when the said insurer settled its liability with the private respondent (petitioner herein) xxx, the other

defendants, as the insured and indispensable parties to a common cause of action, necessarily benefited

from such settlement including the defaulted defendants, for as stated in the aforecited cases, it is deemed

that anything done by or for the answering defendant is done by or for the ones in default since it is implicit

in the rule that default is in essence a mere formality that deprives them of no more than to take part in the

trial, but if the complaint is dismissed as to the answering defendant, it should also be dismissed as to

them.”[9] (Citations omitted.)

Petitioner now comes to this Court with the following assignments of error:

“A.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE DEFENDANTS IN

CIVIL CASE NO. 248-R ARE INDISPENSABLE PARTIES;

“B.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO.

248-R THERE IS A COMMON CAUSE OF ACTION AGAINST THE DEFENDANTS THEREIN;

“C.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO.

248-R THE RULING OF THIS HONORABLE COURT IN LIM TANHU VS. RAMOLETE IS APPLICABLE;

“D.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE DOCTRINE OF

ESTOPPEL AND LACHES ON MATTERS OF JURISDICTION IS NOT APPLICABLE IN CIVIL CASE NO. 248-R.”

There is merit to the petition.

In the case of Lim Tanhu v. Ramolete, 66 SCRA 425, 458-459 (1975) this court held that:

“xxx (I)n all instances where a common cause of action is alleged against several defendants, some of whom

answer and the others do not, the latter or those in default acquire a vested right not only to own the

defense interposed in the answer of their co-defendant or co-defendants not in default but also to expect a

result of the litigation totally common with them in kind and in amount whether favorable or unfavorable.

The substantive unity of the plaintiff’s cause against all the defendants is carried through to its adjective

phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. xxx The integrity of the

common cause of action against all the defendants and the indispensability of all of them in the proceedings

do not permit any possibility of waiver of the plaintiff’s right only as to one or some of them, without

including all of them, and so, as a rule, withdrawal must be deemed to be a confession of weakness as to all.

xxx Where all the defendants are indispensable parties, for which reason the absence of any of them in the

case would result in the court losing its competency to act validly, any compromise that the plaintiff might

wish to make with any of them must, as a matter of correct procedure, have to await until after the rendition

of the judgment, at which stage the plaintiff may then treat the matter of its execution and the satisfaction

of his claim as variably as he might please. Accordingly, in the case now before Us together with the

dismissal of the complaint against the non-defaulted defendants, the court should have ordered also the

dismissal thereof as to petitioners (referring to the defaulting defendants in the case).”

In sum, Lim Tanhu states that where a complaint alleges a common cause of action against defendants who

are all indispensable parties to the case, its dismissal against any of them by virtue of a compromise

agreement with the plaintiff necessarily results in the dismissal of the case against the other defendants,

including those in default. The ruling is rooted on the rationale that the court’s power to act in a case

involving a common cause of action against indispensable parties “is integral and cannot be split such that it

cannot relieve any of them and at the same time render judgment against the rest.”[10]

For Lim Tanhu to apply to the case at bench, it must be established that: (1) petitioner has a common

cause of action against private respondents and the other defendants in Civil Case No. 248-R; and (2) all the

defendants are indispensable parties to the case.

Cause of action has a fixed meaning in this jurisdiction. It is the delict or wrong by which the right of the

plaintiff is violated by the defendant.[11] The questionas to whether a plaintiff has a cause of action is

determined by the averments in the pleadings pertaining to the acts of the defendant. Whether such acts

give him a right of action is determined by substantive law.[12]

In the case at bench, it is clear that petitioner has different and separate causes of action against the

defendants in the case. The allegations in the Complaint show that petitioner seeks to recover from the truck

driver for his wrong which caused injury to petitioner and his car. The cause of action against him is based on

quasi-delict under Article 2176 of the New Civil Code. Quasi-delict, too, is the basis of the cause of action

against defendants beneficial and registered owners. But in their case, it is Article 2180 of the same Code

which governs the rights of the parties.

However, with respect to defendant Western Guaranty Corporation, petitioner’s cause of action is based on

contract. He seeks to recover from the insurer on the basis of the third-party liability clause of its insurance

contract with the owners of the truck. This is acknowledged by the second paragraph of the compromise

agreement between petitioner and defendant insurer, thus:

“2.     In full settlement of its liability under the laws and the said insurance contract, defendant Western

Guaranty shall pay plaintiff (herein petitioner) the amount of P70,000.00 upon the signing of this

compromise agreement.”

Quite clearly then, Lim Tanhu will not apply to the case at bench for there is no showing that petitioner has

a common cause of action against the defendants in Civil Case No. 248-R.

But this is not all. Defendants in Civil Case No. 248-R are not all indispensable parties. An indispensable party

is one whose interest will be affected by the court’s action in the litigation, and without whom no final

determination of the case can be had. The party’s interest in the subject matter of the suit and in the relief

sought are so inextricably intertwined with the other parties’ that his legal presence as a party to the

proceeding is an absolute necessity.[13] In his absence there cannot be a resolution of the dispute of the

parties before the court which is effective, complete, or equitable.[14]

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject

matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by

a judgment which does complete justice to the parties in court.[15] He is not indispensable if his presence

would merely permit complete relief between him and those already parties to the action, or will simply

avoid multiple litigation.[16]

It is true that all of petitioner’s claims in Civil Case No. 248-R is premised on the wrong committed by

defendant truck driver. Concededly, the truck driver is an indispensable party to the suit. The other

defendants, however, cannot be categorized as indispensable parties. They are merely proper parties to the

case. Proper parties have been described as parties whose presence is necessary in order to adjudicate the

whole controversy, but whose interests are so far separable that a final decree can be made in their absence

without affecting them.[17] It is easy to see that if any of them had not been impleaded as defendant, the case

would still proceed without prejudicing the party not impleaded. Thus, if petitioner did not sue Western

Guaranty Corporation, the omission would not cause the dismissal of the suit against the other defendants.

Even without the insurer, the trial court would not lose its competency to act completely and validly on the

damage suit. The insurer, clearly, is not an indispensable party in Civil Case No. 248-R.

IN VIEW WHEREOF, the instant petition is GRANTED. The Decision, dated July 10, 1992, of the Court of

Appeals in CA-G.R. SP No. 17651 is REVERSED AND SET ASIDE. The Complaint in Civil Case No. 248-R

is REINSTATED andREMANDED to the trial court for further proceedings. No costs.

SO ORDERED.

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs.COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

 

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with

Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto attached as Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services and property protection as such — in a context which does not impress the Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard, beyond perhaps entitling plaintiff to request are replacement for such driver guard. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy, particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized representatives" of plaintiff. They were merely an assigned armored car driver and security guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly — it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along a specified money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore its definition as to employer-employee relationships insofar as the application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-appellant itself had

formulated. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors. 5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling inInternational Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention

of the Labor Code, a social legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such provisions are those in the insured's service and employment. 11 The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. 13 The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the

case for judgment on the basis of their stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and PRC Management Systems and Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.