1.
Icon Development Corp. v. National Life Insurance Company of the Philippines G.R. No. 220686
Insurance Law; Conservatorship Proceedings; Conservatorship proceedings against a financially distressed
insurance company are resorted to only when such company is in a state of continuing inability to maintain a
condition of solvency or liquidity deemed adequate to protect the interest of policyholders and creditors.—
Conservatorship proceedings against a financially distressed insurance company are resorted to only when such
company is in a state of continuing inability to maintain a condition of solvency or liquidity deemed adequate to
protect the interest of policyholders and creditors. An insurance company placed under conservatorship is facing
financial difficulties which require the appointment of a conservator to take charge of its assets, liabilities, and
management aimed at preserving its resources and restoring its viability as a going business enterprise. Icon
Development Corporation vs. National Life Insurance <br/>Company of the Philippines, 934 SCRA 586, G.R. No.
220686 March 9, 2020
Same; Same; Conservatorship, under Section 248 of the Insurance Code, is in the nature of a rehabilitation
proceeding.—Conser-vatorship, under Section 248 of the Insurance Code, is in the nature of a rehabilitation
proceeding. Rehabilitation signifies a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency. The conservator may only act with the
approval of the Insurance Commissioner with respect to the major aspects of rehabilitation. As regards the ordinary
details of administration, the conservator has implied authority by virtue of his appointment to proceed without the
approval of the Insurance Commissioner. He is clothed with such discretion in conducting and managing the affairs
of the insurance company placed under his control. Clearly, a conservatorship proceeding means a conservation of
company assets and business during the period of financial difficulties or inability to maintain a condition of
solvency. Hence, it can be deduced that the purpose of conservatorship is for the continuance of corporate life and
activities, and reinstatement of the corporation to its former status of successful operation.
Same; Same; The conservator is appointed to take charge of the company’s assets, liabilities, and management
aimed at restoring its viability as a going business enterprise and not to diminish and deplete its resources worsening
the financial situation.—While admittedly, the Insurance Code gives vast and far-reaching powers to the conservator
of a distressed company, it must be pointed out that such powers must be related to the preservation of the assets of
the company. The Insurance Code does not provide that the power of the conservator to preserve the assets of a
distressed company includes the total replacement or substitution of the existing board of directors and corporate
officers to the extent of making the latter ineffective during rehabilitation. There is nothing in the law which
provides that a conservator supplants the board of directors and management of the company. Although, under the
law, the appointed conservator has the power to overrule or revoke the actions of the previous management and
board of directors of the distressed company, this should not be construed as to totally undress the present and
existing board of directors and corporate officers of their functions during rehabilitation proceeding. Consequently,
the board of directors and corporate officers continue to exercise their powers as such, including the collection of
debts via foreclosure of mortgaged properties. Their actions, however, can be revoked by the conservator if they are
prejudicial to the corporation and worsen the financial difficulty that the company is facing. To stress, a company is
placed under conservatorship in order to prolong its corporate life in an effort to rehabilitate and restore it of its
former status as a financially fluid entity. The conservator is appointed to take charge of the company’s assets,
liabilities, and management aimed at restoring its viability as a going business enterprise and not to diminish and
deplete its resources worsening the financial situation. Logically, this purpose includes the effective function of the
board of directors and corporate officers such as collection of debts through foreclosure of real estate mortgage.
Same; Same; The insurance company’s juridical personality through its board of directors is not replaced by the
conservator.—The conservatorship of an insurance company should be likened to that of a bank rehabilitation. A
cursory reading of Section 28-A of the Central Bank Act, as amended by Presidential Decree No. 1937, and Section
248 of the Insurance Code, as amended, reveals that the powers and functions of the conservators of a distressed
bank and an insurance company are essentially the same. This Court held that once a bank is placed under
conservatorship, an action may still be filed on behalf of that bank even without prior approval of the conservator.
Conservator’s approval is not necessary where the action is instituted by the majority of the bank’s stockholders. A
bank retains its juridical personality even if placed under conservatorship; it is neither replaced nor substituted by
the conservator. This rule should likewise govern insurance companies. An action may still be filed by the insurance
company’s board of directors even in the absence of the conservator’s approval. The insurance company’s juridical
personality through its board of directors is not replaced by the conservator.
Same; Same; The conservatorship of an insurance company does not in any way diminish the function of the board
of directors during rehabilitation proceedings.—Having been established that the conservatorship of an insurance
company does not in any way diminish the function of the board of directors during rehabilitation proceedings, this
Court affirms that the respondent’s juridical personality continued even if it was placed under conservatorship.
There is no doubt that the respondent’s board of directors could validly authorize the foreclosure even without prior
approval of the conservator. Consequently, the demands made by the respondent’s board of directors, even without
the authority of the conservator, were sufficient to put the petitioner in default. Their power to demand payment is
part of the efforts to rehabilitate the respondent and restore it to its former status as a financially fluid corporation.
Not a single rule prohibits them from cooperating with the conservator in restoring the financial status of the
company subject of rehabilitation. To prevent the respondent’s board of directors from collecting debts through
foreclosure of the subject properties will surely frustrate the restoration of the respondent’s previous financial
standing. Moreover, during conservatorship, it is the appointed conservator who can question the authority of the
respondent’s board of directors to initiate foreclosure proceedings, and not the petitioner. Here, it was Atty. Chua
who had the personality to object to any actions of the respondent’s directors or officers. He can even countermand
any of the latter’s decision, if he found it prejudicial to the respondent’s rehabilitation. For this reason, the petitioner
was mistaken when they inquired into the authority of the respondent’s directors in filing the petition for foreclosure
of real estate mortgage during conservatorship.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
INTING,
J.:
Before the Court is a petition for review1 under Rule 45 of the Rules of Court assailing the Decision2 dated May 26,
2015 and the Resolution3 dated August 20, 2015 of the Court of Appeals (CA) in C.A.­G.R. S.P. No. 128708 which
reversed and set aside the Orders dated January 28, 2012,4 February 17, 2012,5 February 20, 2012,6 March 29,
20127 and December 7, 20128 of the Regional Trial Court (RTC), Branch 60, Lucena City.
The Facts
On various dates, Icon Development Corporation (petitioner) obtained several loans from National Life Insurance
Company of the Philippines (respondent). As security for the loans, several properties were mortgaged by the
petitioner to the respondent. These properties are located in Makati City and Tayabas Quezon. The petitioner made
several payments until 2008 when it suddenly refused to make further payments despite repeated demands from the
respondent. 9
On November 25, 2011, after the petitioner defaulted in the payment of its obligations, the respondent filed a
Petition for Extrajudicial Foreclosure10 of the mortgaged properties. It alleged that the petitioner failed to pay its
outstanding balance of P274,497,565.60 despite several written and verbal demands.
On November 23, 2011, the provincial Sheriff issued a Notice of Extrajudicial Sale11 setting the auction of the
mortgaged properties.
On December 27, 2011, the petitioner instituted before the RTC a Complaint for the Discharge of Obligation/or
Determination of Actual Indebtedness, and Declaration of Nullity with Temporary Restraining Order (TRO)/Writ of
Preliminary Injunction (WPI) with Damages.12
In the complaint, the petitioner insisted: that the respondent is collecting an exorbitant and unconscionable interest;
that it paid 550 membership shares to the respondent valued at P100,000.00 per share, but the latter declared its cost
at P250,000.00 per share;13 that despite the payment of these shares, the respondent stated that the amount was not
credited to the petitioner; that due to the amounts paid, the petitioner made an overpayment to the respondent; that it
could constitute an unjust enrichment on the part of the respondent if it will be able to acquire P1 Billion worth of
properties to pay a loan of P31,513,152.69;14 that the officers who secured the loans had no authority from the
petitioner; and that the respondent is under conservatorship; thus, the directors who initiated the foreclosure had no
authority to do so.15
The respondent opposed the petitioner’s application for TRO16 and cited Administrative Matter (A.M.) No. 99-1005-0,17 which prohibits injunctive reliefs in extrajudicial foreclosure of real estate mortgage. It claimed that the
petitioner failed to establish a clear right to any injunctive reliefs.18
On January 13, 2012, Atty. Clifford E. Chua (Atty. Chua), the appointed conservator of the respondent, filed a
Manifestation19 stating that he authorized the foreclosure petition.
The Orders of the RTC
On January 28, 2012, the RTC issued an Order20 granting the TRO and enjoining the Ex Officio Provincial Sheriff
of Quezon Province and the respondent from conducting the auction sale.21 It ruled that the respondent is under
conservatorship; thus, the filing of foreclosure petition by its directors was invalid. The RTC also found that the
conservator’s Manifestation cannot be taken into consideration as it was not formally offered as evidence. Lastly,
the RTC declared that A.M. No. 99-10-05-0 is not applicable because the authority of the persons who initiated the
foreclosure was put into issue.22
Thereafter, the respondent moved for reconsideration, but the RTC denied it in its Order23 dated February 17, 2012.
On February 20, 2012, the RTC issued an Order24 granting the issuance of WPI and fixing the bond thereof at
P2,500,000.00. The RTC found that the petitioner made an overpayment to the respondent. Accordingly, it would be
unfair for the respondent to foreclose the mortgaged properties.25
On March 16, 2012, the respondent filed a Motion for Reconsideration with Motion to Inhibit26 citing loss of
confidence in the judge’s impartiality in hearing the case.
Meanwhile, on March 29, 2012, the RTC issued an Order27 directing the issuance of WPI after the petitioner posted
the required bond.
On December 7, 2012, the RTC issued another Order28 suspending the proceedings and referred the case to the
Insurance Commission because the issues are allegedly within the latter’s jurisdiction. The RTC cited the doctrine of
primary jurisdiction as a ground in referring the case to the Insurance Commission.29 The dispositive portion of the
Order provides:
Wherefore, pending action of this Court on Motion for Reconsideration with Motion to Inhibit, let the following
issues be REFERRED to THE INSURANCE COMMISSION for immediate determination and resolution, to wit:
I. WHETHER OR NOT THE FILING OF THE PETITION FOR EXTRAJUDICIAL FORECLOSURE IS VALID
CONSIDERING THE LACK OF AUTHORITY OF THE OFFICERS WHO INITIATED THE SAME;
II. WHETHER OR NOT THE FILING OF THE PETITION FOR EXTRAJUDICIAL FORECLOSURE IS
APPROPRIATE CONSIDERING THAT ICON DEVELOPMENT IS NOT IN DEFAULT FOR LACK OF
DEMAND BY THE CONSERVATOR.
The parties through their respective counsels are directed to initiate and/or commence their proper action before the
INSURANCE COMMISSION, Metro Manila.
x x x x30
Aggrieved, the respondent filed a Petition31 for Certiorari and Prohibition with Prayer for the Issuance of a TRO
and/or a WPI under Rule 65 of the Rules of Court before the CA.
The Ruling of the CA
On May 26, 2015, the CA promulgated the assailed Decision32 reversing the RTC’s Orders, to wit:
WHEREFORE, the petition for certiorari is PARTIALLY GRANTED. The Orders dated January 28, 2012,
February 17, 2012, February 20, 2012, March 29, 2012 and December 7, 2012 of the RTC of Lucena City, Branch
60, in Civil Case No. 2011-59 are REVERSED and SET ASIDE. The motion to prohibit respondent judge from
taking further cognizance of the case is DENIED.
SO ORDERED.33
The CA held that the RTC misapplied the doctrine on primary jurisdiction as the issues before the latter do not
involve technical matters that require the specialized skills and expertise of the Insurance Commissioner. It found
that the issues are purely legal questions which are within the competence and jurisdiction of the RTC and not with
the Insurance Commissioner.34
Likewise, the CA ruled that a conservator of a distressed corporation does not supplant the board of directors or
management. The CA stressed that the board of directors and corporate officers continue to exercise their powers as
such including the collection of debts through foreclosure of the mortgaged properties. Accordingly, the
respondent’s board of directors could validly authorize the filing of foreclosure proceeding.35
Moreover, the CA highlighted that the RTC gravely abused its discretion when it failed to apply the guidelines in
extrajudicial and judicial foreclosure of real estate mortgage as outlined in A.M. No. 99-10-05-0.36
Finally, the CA denied the motion for inhibition filed by the respondent. According to the CA, there is no act or
conduct on the part of the RTC judge from which suspicion of bias and partiality can be appreciated.37
The petitioner moved for reconsideration,38 but the CA denied it in its assailed Resolution dated August 20, 2015.
Hence, the instant petition raising the following errors, to wit:
I- THE HONORABLE [CA] ERRED IN NOT SUSTAINING THE RULING OF THE REGIONAL TRIAL
COURT THAT THE DIRECTORS OF A COMPANY UNDER CONSERVATORSHIP CANNOT INITIATE A
PETITION FOR EXTRA-JUDICIAL FORECLOSURE OF MORTGAGED PROPERTIES OF THE COMPANY’S
DEBTOR
SINCE THAT IS A COLLECTION OF DEBTS WHICH MUST BE SOLELY INITIATED BY THE
CONSERVATOR;
II- THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A.M. NO. 99-10-05-0 DESPITE THE
FACT OF PRELIMINARY FINDING BY THE REGIONAL TRIAL COURT OF OVERPAYMENT;
III- THE COURT OF APPEALS ERRED IN NOT CONSIDERING AN UNJUST ENRICHMENT ON THE PART
OF THE RESPONDENT FOR NOT APPLYING THE PAYMENT AND RETURNING THE OVERPAYMENT;
IV- THE COURT OF APPEALS ERRED IN CONSIDERING THE PETITIONER IN DEFAULT DESPITE LACK
OF DEMAND BY THE CONSERVATOR.39
The basic contention of the petitioner is that the task of filing extrajudicial foreclosure during conservatorship
belongs to the conservator and not to the board of directors of the subject company. The petitioner maintains that it
was unlawful for the respondent’s board of directors to initiate the foreclosure proceedings as the latter was not
authorized by the conservator.40
The petitioner also contends that the demands made by the respondent’s directors were not sufficient to put it in
default as the conservator did not accede to their actions.41
Moreover, the petitioner insists that it already paid its obligations to the respondent and it even made an
overpayment. Accordingly, the respondent will be unjustly enriched if it will be allowed to foreclose the mortgaged
properties.42
Further, the petitioner argues that A.M. No. 99-10-05-0 is not applicable in this case as the obligation was already
extinguished by payment.43
In its Comment44 dated June 3, 2016, the respondent emphasizes the applicability of A.M. No. 99-10-05-0, which
prohibits the issuance of temporary restraining order and writ of injunction against foreclosure real estate mortgage
without complying with the conditions set forth therein. It asserts that the petitioner utterly failed to submit a proof
of payment or overpayment of the latter’s obligations.45
The respondent pleads that since the petitioner failed to comply with the requirements outlined in A.M. No. 99-1005-0, the RTC Judge should not have enjoined the foreclosure proceeding.46
Lastly, the respondent claims that its board of directors had the authority to demand payment and foreclose the real
properties mortgaged by the petitioner. According to the respondent, the authority of its board of directors to initiate
the foreclosure of the mortgaged properties was confirmed by the conservator himself.47
Our Ruling
The petition must fail.
The first and fourth issues, being interrelated, will be discussed jointly.
The Rules of Court requires that only questions of law should be raised in petitions filed under Rule 45.48 As a rule,
the Court is not duty­bound to analyze and weigh all over again the evidence already considered in the proceedings
below.49
Petitions for review on certiorari should cover only questions of law as this Court is not a trier of facts.50 However,
the rules do admit exceptions51 such as when the CA’s findings differed from the findings of the RTC. In this
instance, there is a reason to make exception to the rule since the finding of the appellate court is contrary to that of
the trial court. The incongruent factual findings of the RTC on one hand, and the CA on the other, compel the Court
to revisit the factual circumstances of the instant case.
On whether the respondent’s
directors can initiate foreclosure even without the authority of the conservator.
Conservatorship proceedings against a financially distressed insurance company are resorted to only when such
company is in a state of continuing inability to maintain a condition of solvency or liquidity deemed adequate to
protect the interest of policyholders and creditors.52 An insurance company placed under conservatorship is facing
financial difficulties which require the appointment of a conservator to take charge of its assets, liabilities, and
management aimed at preserving its resources and restoring its viability as a going business enterprise.53
Conservatorship, under Section 24854 of the Insurance Code, is in the nature of a rehabilitation proceeding.
Rehabilitation signifies a continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency.55 The conservator may only act with the
approval of the Insurance Commissioner with respect to the major aspects of rehabilitation. As regards the ordinary
details of administration, the conservator has implied authority by virtue of his appointment to proceed without the
approval of the Insurance Commissioner. He is clothed with such discretion in conducting and managing the affairs
of the insurance company placed under his control.56 Clearly, a conservatorship proceeding means a conservation of
company assets and business during the period of financial difficulties or inability to maintain a condition of
solvency. Hence, it can be deduced that the purpose of conservatorship is for the continuance of corporate life and
activities, and reinstatement of the corporation to its former status of successful operation.
While admittedly, the Insurance Code gives vast and far-reaching powers to the conservator of a distressed
company, it must be pointed out that such powers must be related to the preservation of the assets of the company.
The Insurance Code does not provide that the power of the conservator to preserve the assets of a distressed
company includes the total replacement or substitution of the existing board of directors and corporate officers to the
extent of making the latter ineffective during rehabilitation. There is nothing in the law which provides that a
conservator supplants the board of directors and management of the company.
Although, under the law, the appointed conservator has the power to overrule or revoke the actions of the previous
management and board of directors of the distressed company, this should not be construed as to totally undress the
present and existing board of directors and corporate officers of their functions during rehabilitation proceeding.
Consequently, the board of directors and corporate officers continue to exercise their powers as such, including the
collection of debts via foreclosure of mortgaged properties. Their actions, however, can be revoked by the
conservator if they are prejudicial to the corporation and worsen the financial difficulty that the company is facing.
To stress, a company is placed under conservatorship in order to prolong its corporate life in an effort to rehabilitate
and restore it of its former status as a financially fluid entity. The conservator is appointed to take charge of the
company’s assets, liabilities, and management aimed at restoring its viability as a going business enterprise and not
to diminish and deplete its resources worsening the financial situation. Logically, this purpose includes the effective
function of the board of directors and corporate officers such as collection of debts through foreclosure of real estate
mortgage.
The conservatorship of an insurance company should be likened to that of a bank rehabilitation. A cursory reading
of Section 28-A57 of the Central Bank Act, as amended by Presidential Decree No. 1937,58 and Section 24859 of
the Insurance Code, as amended, reveals that the powers and functions of the conservators of a distressed bank and
an insurance company are essentially the same. This Court held that once a bank is placed under conservatorship, an
action may still be filed on behalf of that bank even without prior approval of the conservator.60 Conservator’s
approval is not necessary where the action is instituted by the majority of the bank’s stockholders.61 A bank retains
its juridical personality even if placed under conservatorship; it is neither replaced nor substituted by the
conservator.62 This rule should likewise govern insurance companies. An action may still be filed by the insurance
company’s board of directors even in the absence of the conservator’s approval. The insurance company’s juridical
personality through its board of directors is not replaced by the conservator.
Apparently, the foreclosure proceeding in this case was initiated to collect the petitioner’s debts. Such action is in
accordance with the purpose of conservatorship, i.e., to preserve the assets of the respondent and restore its previous
financial status. Evidently, the trial court judge’s order of issuing the TRO and WPI, and stopping the foreclosure of
the mortgaged properties defeated the purpose of the respondent’s rehabilitation.
Having been established that the conservatorship of an insurance company does not in any way diminish the
function of the board of directors during rehabilitation proceedings, this Court affirms that the respondent’s juridical
personality continued even if it was placed under conservatorship. There is no doubt that the respondent’s board of
directors could validly authorize the foreclosure even without prior approval of the conservator.
Consequently, the demands made by the respondent’s board of directors, even without the authority of the
conservator, were sufficient to put the petitioner in default. Their power to demand payment is part of the efforts to
rehabilitate the respondent and restore it to its former status as a financially fluid corporation. Not a single rule
prohibits them from cooperating with the conservator in restoring the financial status of the company subject of
rehabilitation. To prevent the respondent’s board of directors from collecting debts through foreclosure of the
subject properties will surely frustrate the restoration of the respondent’s previous financial standing.
Moreover, during conservatorship, it is the appointed conservator who can question the authority of the respondent’s
board of directors to initiate foreclosure proceedings, and not the petitioner. Here, it was Atty. Chua who had the
personality to object to any actions of the respondent’s directors or officers. He can even countermand any of the
latter’s decision, if he found it prejudicial to the respondent’s rehabilitation. For this reason, the petitioner was
mistaken when they inquired into the authority of the respondent’s directors in filing the petition for foreclosure of
real estate mortgage during conservatorship.
Finally, a careful review of the records and the factual circumstances surrounding the instant case, reveals that the
appointed conservator, Atty. Chua, filed a Manifestation stating that he authorized the filing of the foreclosure
proceedings.63 This circumstance should have cautioned the trial judge in enjoining the foreclosure of the
mortgaged properties.
On whether A.M. No. 99-1005-0 was observed.
A.M. No. 99-10-05-0 embodies the guidelines in extrajudicial and judicial foreclosure of real estate mortgages thus:
(1) No temporary restraining order or writ of preliminary injunction against the extrajudicial foreclosure of real
estate mortgage shall be issued on the allegation that the loan secured by the mortgage has been paid or is not
delinquent unless the application is verified and supported by evidence of payment.
(2) No temporary restraining order or writ of preliminary injunction against the extrajudicial foreclosure of real
estate mortgage shall be issued on the allegation that the interest on the loan is unconscionable, unless the debtor
pays the mortgagee at least twelve percent per annum interest on the principal obligation as stated in the application
for foreclosure sale, which shall be updated monthly while the case is pending.
(3) Where a writ of preliminary injuction has been issued against a foreclosure of mortgage, the disposition of the
case shall be speedily resolved. To this end, the court concerned shall submit to the Supreme Court, through the
Office of the Court Administrator, quarterly reports on the progress of the cases involving ten million pesos and
above.
(4) All requirements and restrictions prescribed for the issuance of a temporary restraining order/writ of preliminary
injunction, such as the posting of a bond, which shall be equal to the amount of the outstanding debt, and the time
limitation for its effectivity, shall apply as well to a status quo order.64 (Italics Ours)
With the foregoing yardstick, it is crystal clear that a WPI or TRO cannot be issued against extrajudicial foreclosure
of real estate mortgage on a mere allegation that the debt secured by mortgage has been paid or is not delinquent
unless the debtor presents an evidence of payment. Even an allegation of unconscionable interest being imposed on
the loan by the mortgagee shall no longer be a ground to apply for WPI.
In addition, the rule prohibits the issuance of TRO or WPI unless the debtor pays the mortgagee at least 12% per
annum interest on the principal obligation as stated in the application for foreclosure sale which shall be updated
monthly while the case is pending. Likewise, it is mandated that all the requirements and restrictions prescribed for
the issuance of a TRO and WPI, such as the posting of a bond, which shall be equal to the amount of the outstanding
debt, and the time limitation for its effectivity, shall apply.
In the present case, the Court finds that the trial court judge erred in issuing the TRO and WPI based simply on
petitioner’s allegations of payment, overpayment, and the respondent’s imposition of unconscionable interest. It
must be emphasized that the petitioner did not present a single evidence of overpayment of the obligation or even
proof of payment thereof. Evidently, the RTC’s Order enjoining the foreclosure proceedings is a patent
circumvention of the guidelines outlined in A.M. No. 99-10-05-0.
Moreover, nothing in the records shows that the petitioner paid the respondent at least 12% per annum interest on
the principal obligation as stated in the application for foreclosure sale. Lastly, the petitioner failed to post a bond
which is equal to the amount of the outstanding debt. It appears that the petitioner posted a bond in the amount of
P2,500,000.00 only, which is way below the outstanding debt of P274,497,565.60. The bond posted is even short of
the principal loan of P31,034,510.00. Thus, the trial court judge should have applied A.M. No. 99-10-05-0 and
denied the petitioner’s application for TRO and WPI.
On whether the respondent
was unjustly enriched.
The petitioner’s allegation of unjust enrichment in the instant petition is premised on its assertion before the trial
court that there was payment and overpayment made to the respondent. The petitioner insists that it was able to
present proof of payment and overpayment before the trial court. This Court disagrees.
The principle of unjust enrichment is found in Article 22 of the Civil Code, to wit:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him.
(Italics supplied)
Clearly, there is unjust enrichment when: (1) A person is unjustly benefited; and (2) such benefit is derived at the
expense of or with damages to another.66
After a judicious scrutiny of the factual background and circumstances of the instant case, the Court finds that the
petitioner failed to forward an evidence of payment and overpayment. It must always be remembered that a mere
allegation is not a proof and the burden of evidence lies with the party who asserts the affirmative of an issue.67 The
petitioner only based this assertion of unjust enrichment on bare allegations, without any other evidence to
substantiate it. Therefore, the respondent was not unjustly benefited at the petitioner’s expense.
In conclusion, this Court affirms the CA’s ruling that the trial court committed grave abuse of discretion when it
issued the TRO and WPI considering that their issuances are contrary to law and established jurisprudence.
WHEREFORE, the petition is DENIED. The Decision dated May 26, 2015 and the Resolution dated August 20,
2015 of the Court of Appeals in C.A.-G.R. S.P. No. 128708 are AFFIRMED.
SO ORDERED.
Perlas-Bernabe (Chairperson, Senior Associate Justice), A. Reyes, Jr., Hernando and Delos Santos, JJ., concur.
Petition denied, judgment and resolution affirmed.
2. The Insular Life Assurance Co., Ltd. vs. Khu G.R. No. 195176
Insurance Law; Insurance Policy; It is settled that the reinstatement of an insurance policy should be
reckoned from the date when the same was approved by the insurer.—In Lalican v. The Insular Life
Assurance Company, Limited, 597 SCRA 159 (2009), which coincidentally also involves the herein
petitioner, it was there held that the reinstatement of the insured’s policy is to be reckoned from the
date when the application was processed and approved by the insurer. There, we stressed that: To
reinstate a policy means to restore the same to premium-paying status after it has been permitted to
lapse. x x x x x x x In the instant case, Eulogio’s death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue premiums and
interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the
Application for Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime
and good health. Thus, it is settled that the reinstatement of an insurance policy should be reckoned
from the date when the same was approved by the insurer. The Insular Life Assurance Company, Ltd. vs.
Khu, 789 SCRA 544, G.R. No. 195176 April 18, 2016
G.R. No. 195176 April 18, 2016
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,
vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.
DECISION
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date
that the insurer approved· the application for reinstatement. However, in light of the ambiguity in the
insurance documents to this case, this Court adopts the interpretation favorable to the insured in
determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of
Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and its December 13, 2010
Resolution3 which denied the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion
for partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life
under the latter’s Diamond Jubilee Insurance Plan. Felipe accomplished the required medical
questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life
thereafter issued him Policy Number A000015683 with a face value of P1 million. This took effect on
June 22, 1997.5
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period
from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as
premium. Except for the change in his occupation of being self-employed to being the Municipal
Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his
application for reinstatement was virtually identical to those mentioned in his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be
considered if he agreed to certain conditions such as payment of additional premium and the
cancellation of the riders pertaining to
premium waiver and accidental death benefits. Felipe agreed to these conditions8 and on December
27, 1999 paid the agreed additional premium of P3,054.50.9
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by
the Company on the understanding that the following changes are made on the policy effective June
22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
(WPD) rider originally attached to and forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually,
P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency.10
On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period
from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual
premium covering the period from June 22, 2001 to June 21, 2002.11
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of
death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s
beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy.
This claim was denied. Instead, Insular Life advised Felipe’s beneficiaries that it had decided to
rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with damages. Respondents
prayed that the reinstated life insurance policy be declared valid, enforceable and binding on Insular
Life; and that the latter be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy,
among others.13
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes
Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior
to his application for reinstatement of his insurance policy; and that it would not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse health condition. It
contended that when Felipe died, the policy was still
contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for Felipe’s
beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by
preponderance of evidence, judgment is hereby rendered in their favor and against defendants,
ordering the latter to pay jointly and severally the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it
is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to
insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as
attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the
insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance
Corporation v. Court of
Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer
upon the principle that an insurance contract is a contract of adhesion.18 The RTC also held that the
reinstated insurance policy had already become incontestable by the time of Felipe’s death on
September 22, 2001 since more than two years had already lapsed from the date of the policy’s
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life itself that supplied all
the pertinent forms relative to the reinstated policy, then it is barred from taking advantage of any
ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance
policy became effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision19 which contained the following decretal
portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED
with the MODIFICATION that the award of moral damages, attorney’s fees and litigation expenses
[is] DELETED.
SO ORDERED.20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the
date the insured died. It declared that contrary to Insular Life’s contention, there in fact exists a
genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the
obscurity/ambiguity in the language of these two documents, the construction/interpretation that
favors the insured’s right to recover should be adopted; and that in keeping with this principle, the
insurance policy in dispute must be deemed reinstated as of June 22, 1999.21
Insular Life moved for partial reconsideration22 but this was denied by the CA in its Resolution of
December 13, 2010.23 Hence, the present Petition.
Issue
The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy
is already incontestable at the time of his death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should
not be allowed to recover on the reinstated insurance policy because the two-year contestability
period had not yet lapsed inasmuch as the insurance policy was reinstated only on December 27,
1999, whereas Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe paid
the additional extra premium only on December 27, 1999, hence, it is only upon this date that the
reinstated policy had become effective; that the CA erred in declaring that resort to the principles of
statutory construction is still necessary to resolve that question given that the Application for
Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves already
embodied unequivocal provisions stipulating that the two-year contestability clause should be
reckoned from the date of approval of the reinstatement;25 and that Felipe’s misrepresentation and
concealment of material facts in regard to his health or adverse medical condition gave it (Insular
Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of
Felipe’s beneficiaries for death benefits under the disputed policy.26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence, i.e.,
the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that
granting that there was any obscurity or ambiguity in the insurance policy, the same should be laid at
the door of Insular Life as it was this insurance company that prepared the necessary documents
that make up the same;27 and that given the CA’s finding which effectively affirmed the RTC’s finding
on this particular issue, it stands to reason that the insurance policy had indeed become
incontestable upon the date of Felipe’s death.28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision
of this chapter, such right must be exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.
The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban,29
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives
insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted
denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the
two-year period expires as ordained under the law.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement thatxxxx
‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums
as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given
the stability to recover under the policy when the insured dies. The provision also makes clear when
the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement’.
In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the
herein petitioner, it was there held that the reinstatement of the insured’s policy is to be reckoned
from the date when the
application was processed and approved by the insurer. There, we stressed that:
To reinstate a policy means to restore the same to premium-paying status after it has been permitted
to lapse. x x x
xxxx
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application
for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy
No. 9011992 could only be considered reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio’s lifetime and good health.31
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date
when the same was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life
claims that it approved the reinstatement only on December 27, 1999. On the other hand,
respondents contend that it was on June
22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by
Insular Life. This pro-forma document reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we
agree to the following condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per
thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard
rates; the SAR at P____ annually per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse
James R. Toyhorada, issued an Endorsement33 dated January 7, 2000. For emphasis, the
Endorsement is again quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by
the Company on the understanding that the following changes are made on the policy effective June
22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
(WPD) rider originally attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly,
[P]14,843.00 semi-annually and [P]7,557.00 quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
Based on the foregoing, we find that the CA did not commit any error in holding that the subject
insurance policy be considered as reinstated on June 22, 1999. This finding must be upheld not only
because it accords with the evidence, but also because this is favorable to the insured who was not
responsible for causing the ambiguity or obscurity in the insurance contract.34
The CA expounded on this point thus –
The Court discerns a genuine ambiguity or obscurity in the language of the two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It
is true that the phrase as used in this
particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court
notes that the reinstatement was conditioned upon the payment of additional premium not only
prospectively, that is, to cover the
remainder of the annual period of coverage, but also retroactively, that is for the period starting June
22, 1999. Hence, by paying the amount of P3,054.50 on December 27, 1999 in addition to the
P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the insurance coverage
starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely
clear whether the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the
reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the construction favorable to the
insured will be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of
contestability has lapsed.35
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance
Company,36 we ruled in favor of the insured and in favor of the effectivity of the insurance contract in
the midst of ambiguity in the insurance contract provisions. We held that:
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.
xxxx
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of
adhesion containing technical terms and conditions of the industry, confusing if at all understandable
to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.37
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated
on June 22, 1999 vis-a-vis Felipe’s death on September 22, 2001. As such, the subject insurance
policy has already become incontestable at the time of Felipe’s death.
1âw phi 1
Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral
damages, attorney’s fees and litigation expenses; hence this award must be deleted.
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13,
2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are AFFIRMED.
SO ORDERED.