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G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as admiis!ra!or o" !#e es!a!e o" !#e $a!e %oa&'i (a.)errer, plaintiff-appellant,

vs.

*UN LIFE A**URAN+E +(AN F +ANA/A, defendant-appellee.

 Jose A. Espiritu for appellant.Cohn, Fisher and DeWitt for appellee.

 

(AL+L(, J.:

This is an action brought by the plaintiff ad administrator of the estate of the late

Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of 

 pesos 6,000 paid by the deceased for a life annuity. The trial court gave udgment for 

the defendant. !laintiff appeals.

The undisputed facts are these" #n $eptember %&, '('), Joaquin Herrer madeapplication to the $un *ife +ssurance ompany of anada through its office in

Manila for a life annuity. To days later he paid the sum of !6,000 to the manager of 

the companys Manila office and as given a receipt reading as follos"

M+/*+, . 1., 26 de septiembre, 1917 .

!2#3$#/+* 244!T !esos 6,000

2ecibi la suma de seis mil pesos de 5on Joaquin Herrer de Manila como prima dela

2enta 3italicia solicitada por dicho 5on Joaquin Herrer hoy, sueta al eamen

medico y aprobacion de la #ficina entral de la ompa7ia.

The application as immediately forarded to the head office of the company at

Montreal, anada. #n /ovember %6, '('), the head office gave notice of acceptance

 by cable to Manila. 89hether on the same day the cable as received notice as sent

 by the Manila office of Herrer that the application had been accepted, is a disputed

 point, hich ill be discussed later.: #n 5ecember &, '('), the policy as issued at

Montreal. #n 5ecember ';, '('), attorney +urelio +. Torres rote to the Manila

office of the company stating that Herrer desired to ithdra his application. The

folloing day the local office replied to Mr. Torres, stating that the policy had been

issued, and called attention to the notification of /ovember %6, '('). This letter as

received by Mr. Torres on the morning of 5ecember %', '('). Mr. Herrer died on

5ecember %0, '(').

+s above suggested, the issue of fact raised by the evidence is hether Herrer 

received notice of acceptance of his application. To resolve this question, e propose

to go directly to the evidence of record.

The chief cler< of the Manila office of the $un *ife +ssurance ompany of anada

at the time of the trial testified that he prepared the letter introduced in evidence as

4hibit =, of date /ovember %6, '('), and handed it to the local manager, Mr. 4. 4.

9hite, for signature. The itness admitted on cross-eamination that after preparing

the letter and giving it to he manager, he ne nothing of hat became of it. The localmanager, Mr. 9hite, testified to having received the cablegram accepting the

application of Mr. Herrer from the home office on /ovember %6, '('). He said that

on the same day he signed a letter notifying Mr. Herrer of this acceptance. The

itness further said that letters, after being signed, ere sent to the chief cler< and

 placed on the mailing des< for transmission. The itness could not tell if the letter 

had every actually been placed in the mails. Mr. Tuason, ho as the chief cler<, on

 /ovember %6, '('), as not called as a itness. 1or the defense, attorney Manuel

Torres testified to having prepared the ill of Joaquin Ma. Herrer, that on this

occasion, Mr. Herrer mentioned his application for a life annuity, and that he said

that the only document relating to the transaction in his possession as the

 provisional receipt. 2afael 4nrique>, the administrator of the estate, testified that he

had gone through the effects of the deceased and had found no letter of notification

from the insurance company to Mr. Herrer.

#ur deduction from the evidence on this issue must be that the letter of /ovember 

%6, '('), notifying Mr. Herrer that his application had been accepted, as prepared

and signed in the local office of the insurance company, as placed in the ordinary

channels for transmission, but as far as e <no, as never actually mailed and thus

as never received by the applicant.

 /ot forgetting our conclusion of fact, it net becomes necessary to determine the la

hich should be applied to the facts. n order to reach our legal goal, the obvious

signposts along the ay must be noticed.

?ntil quite recently, all of the provisions concerning life insurance in the !hilippines

ere found in the ode of ommerce and the ivil ode. n the ode of the

ommerce, there formerly eisted Title 3 of @oo< and $ection of Title

of @oo< , hich dealt ith insurance contracts. n the ivil ode there formerly

eisted and presumably still eist, hapters and 3, entitled insurance contracts

and life annuities, respectively, of Title A of @oo< 3. #n the after July ', '('B,

there as, hoever, in force the nsurance +ct. /o. %&%). hapter 3 of this +ct

concerns life and health insurance. The +ct epressly repealed Title 3 of @oo<

and $ection of Title of @oo< of the code of ommerce. The la of 

insurance is consequently no found in the nsurance +ct and the ivil ode.

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9hile, as ust noticed, the nsurance +ct deals ith life insurance, it is silent as to the

methods to be folloed in order that there may be a contract of insurance. #n the

other hand, the ivil ode, in article ';0%, not only describes a contact of life

annuity mar<edly similar to the one e are considering, but in to other articles,

gives strong clues as to the proper disposition of the case. 1or instance, article '6 of 

the ivil ode provides that Cn matters hich are governed by special las, any

deficiency of the latter shall be supplied by the provisions of this ode.C #n the

supposition, therefore, hich is incontestable, that the special la on the subect of 

insurance is deficient in enunciating the principles governing acceptance, the subect-matter of the ivil code, if there be any, ould be controlling. n the ivil ode is

found article '%6% providing that Consent is shon by the concurrence of offer and

acceptance ith respect to the thing and the consideration hich are to constitute the

contract. +n acceptance made by letter shall not bind the person ma<ing the offer 

ecept from the time it came to his <noledge. The contract, in such case, is

 presumed to have been entered into at the place here the offer as made.C This

latter article is in opposition to the provisions of article B& of the ode of ommerce.

f no mista<e has been made in announcing the successive steps by hich e reach a

conclusion, then the only duty remaining is for the court to apply the la as it is

found. The legislature in its isdom having enacted a ne la on insurance, and

epressly repealed the provisions in the ode of ommerce on the same subect, and

having thus left a void in the commercial la, it ould seem logical to ma<e use of 

the only pertinent provision of la found in the ivil code, closely related to the

chapter concerning life annuities.

The ivil ode rule, that an acceptance made by letter shall bind the person ma<ing

the offer only from the date it came to his <noledge, may not be the best epression

of modern commercial usage. $till it must be admitted that its enforcement avoids

uncertainty and tends to security. /ot only this, but in order that the principle may

not be ta<en too lightly, let it be noticed that it is identical ith the principles

announced by a considerable number of respectable courts in the ?nited $tates. The

courts ho ta<e this vie have epressly held that an acceptance of an offer of 

insurance not actually or constructively communicated to the proposer does not ma<e

a contract. #nly the mailing of acceptance, it has been said, completes the contract of 

insurance, as the lous poenitentiae is ended hen the acceptance has passed beyond

the control of the party. 8 Joyce, The *a of nsurance, pp. %=B, %&&.:

n resume, therefore, the la applicable to the case is found to be the second

 paragraph of article '%6% of the ivil ode providing that an acceptance made by

letter shall not bind the person ma<ing the offer ecept from the time it came to his

<noledge. The pertinent fact is, that according to the provisional receipt, three

things had to be accomplished by the insurance company before there as a contract"

8': There had to be a medical eamination of the applicantD 8%: there had to be

approval of the application by the head office of the companyD and 8=: this approval

had in some ay to be communicated by the company to the applicant. The further 

admitted facts are that the head office in Montreal did accept the application, did

cable the Manila office to that effect, did actually issue the policy and did, through

its agent in Manila, actually rite the letter of notification and place it in the usual

channels for transmission to the addressee. The fact as to the letter of notification

thus fails to concur ith the essential elements of the general rule pertaining to the

mailing and delivery of mail matter as announced by the +merican courts, namely,

hen a letter or other mail matter is addressed and mailed ith postage prepaid there

is a rebuttable presumption of fact that it as received by the addressee as soon as itcould have been transmitted to him in the ordinary course of the mails. @ut if any

one of these elemental facts fails to appear, it is fatal to the presumption. 1or 

instance, a letter ill not be presumed to have been received by the addressee unless

it is shon that it as deposited in the post-office, properly addressed and stamped.

8!ee %% .J., (6, and &( *. 2. +. E/. $.F, pp. &B;, et seq., notes.:

9e hold that the contract for a life annuity in the case at bar as not perfected

 because it has not been proved satisfactorily that the acceptance of the application

ever came to the <noledge of the applicant.la"ph#l.net 

Judgment is reversed, and the plaintiff shall have and recover from the defendant the

sum of !6,000 ith legal interest from /ovember %0, '(';, until paid, ithoutspecial finding as to costs in either instance. $o ordered.

 $apa, C.J., Araullo, A%ane&a and 'illamor, JJ., onur.

 Johnson, J., dissents.

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G.R. No. L-059 !ober 28, 19

3)E IN*ULAR LIFE A**URAN+E +(AN, L3/., plaintiff-appellee,

vs.

+ARNIA 3. E4RA/ ad A*+UALA /A. /E E4RA/, defendants-

appellants.

 

(AR3IN, J .6

This is a novel question in insurance la" an a common-la ife named as

 beneficiary in the life insurance policy of a legally married man claim the proceeds

thereof in case of death of the latterG

#n $eptember ', '(6;, @uenaventura ristor 4brado as issued by The *ife

+ssurance o., *td., !olicy /o. 00((%( on a hole-life for !B,;;%.00 ith a, rider 

for +ccidental 5eath for the same amount @uenaventura . 4brado designated T.4brado as the revocable beneficiary in his policy. He to her as his ife.

#n #ctober %', '(6(, @uenaventura . 4brado died as a result of an t hen he as

hit by a failing branch of a tree. +s the policy as in force, The nsular *ife

+ssurance o., *td. liable to pay the coverage in the total amount of !'',)&B.)=,

representing the face value of the policy in the amount of !B,;;%.00 plus the

additional benefits for accidental death also in the amount of !B,;;%.00 and the

refund of !';.00 paid for the premium due /ovember, '(6(, minus the unpaid

 premiums and interest thereon due for January and 1ebruary, '(6(, in the sum of 

!=6.%).

arponia T. 4brado filed ith the insurer a claim for the proceeds of the !olicy asthe designated beneficiary therein, although she admits that she and the insured

@uenaventura . 4brado ere merely living as husband and ife ithout the benefit

of marriage.

!ascuala 3da. de 4brado also filed her claim as the ido of the deceased insured.

$he asserts that she is the one entitled to the insurance proceeds, not the common-

la ife, arponia T. 4brado.

n doubt as to hom the insurance proceeds shall be paid, the insurer, The nsular 

*ife +ssurance o., *td. commenced an action for nterpleader before the ourt of 

1irst nstance of 2i>al on +pril %(, '()0.

+fter the issues have been oined, a pre-trial conference as held on July ;, '()%,

after hich, a pre-trial order as entered reading as follos" &().*+"ph#1

5uring the pre-trial conference, the parties manifested to the court.

that there is no possibility of amicable settlement. Hence, the ourt

 proceeded to have the parties submit their evidence for the purpose

of the pre-trial and ma<e admissions for the purpose of pretrial.

5uring this conference, parties arponia T. 4brado and !ascuala

4brado agreed and stipulated" ': that the deeased uena%entura Ebrado "as married to -asuala Ebrado "ith "hom she has si / 

0leitimate namel34 5ernando, Cresenio, Elsa, Erlinda,

 Feliardo and 5elen, all surnamed EbradoD %: that during the

lifetime of the deceased, he as insured ith nsular *ife

+ssurance o. ?nder !olicy /o. 00((%( hole life plan, dated

$eptember ', '(6; for the sum of !B,;;%.00 ith the rider for 

accidental death benefit as evidenced by 4hibits + for plaintiffs

and 4hibit ' for the defendant !ascuala and 4hibit ) for 

arponia 4bradoD =: that durin the lifetime of uena%entura

 Ebrado, he "as li%in "ith his ommon"ife, Carponia Ebrado,

"ith "hom she had 2 hildren althouh he "as not leall3

 separated from his leal "ifeD &: that @uenaventura in accident on

#ctober %', '(6( as evidenced by the death 4hibit = and affidavit

of the police report of his death 4hibit BD B: that complainant

arponia 4brado filed claim ith the nsular *ife +ssurance o.

hich as contested by !ascuala 4brado ho also filed claim for 

the proceeds of said policy 6: that in vie ofthe adverse claims the

insurance company filed this action against the to herein

claimants arponia and !ascuala 4bradoD ): that there is no due

from the nsular *ife +ssurance o. as proceeds of the policy

!'',)&B.)=D ;: that the beneficiary designated by the insured in the

 policy is arponia 4brado and the insured made reservation to

change the beneficiary but although the insured made the option to

change the beneficiary, same as never changed up to the time of 

his death and the ife did not have any opportunity to rite the

company that there as reservation to change the designation of 

the parties agreed that a decision be rendered based on and

stipulation of facts as to ho among the to claimants is entitled to

the policy.

?pon motion of the parties, they are given ten 8'0: days to file

their simultaneous memoranda from the receipt of this order.

$# #254245.

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#n $eptember %B, '()%, the trial court rendered udgment declaring among others,

arponia T. 4brado disqualified from becoming beneficiary of the insured

@uenaventura ristor 4brado and directing the payment of the insurance proceeds to

the estate of the deceased insured. The trial court held" &().*+"ph#1

t is patent from the last paragraph of +rt. )=( of the ivil ode

that a criminal conviction for adultery or concubinage is not

essential in order to establish the disqualification mentioned

therein. /either is it also necessary that a finding of such guilt or commission of those acts be made in a separate independent action

 brought for the purpose. The guilt of the donee 8beneficiary: may

 be proved by preponderance of evidence in the same proceeding

8the action brought to declare the nullity of the donation:.

t is, hoever, essential that such adultery or concubinage eists at

the time defendant arponia T. 4brado as made beneficiary in the

 policy in question for the disqualification and incapacity to eist

and that it is only necessary that such fact be established by

 preponderance of evidence in the trial. $ince it is agreed in their 

stipulation above-quoted that the deceased insured and defendant

arponia T. 4brado ere living together as husband and ife

ithout being legally married and that the marriage of the insured

ith the other defendant !ascuala 3da. de 4brado as valid and

still eisting at the time the insurance in question as purchased

there is no question that defendant arponia T. 4brado is

disqualified from becoming the beneficiary of the policy in

question and as such she is not entitled to the proceeds of the

insurance upon the death of the insured.

1rom this udgment, arponia T. 4brado appealed to the ourt of +ppeals, but on

July '', '()6, the +ppellate ourt certified the case to ?s as involving only

questions of la.

9e affirm the udgment of the loer court.

'. t is quite unfortunate that the nsurance +ct 82+ %=%), as amended: or even the

ne nsurance ode 8!5 /o. 6'%, as amended: does not contain any specific

 provision grossly resolutory of the prime question at hand. $ection B0 of the

nsurance +ct hich provides that C8t:he insurance shag be applied eclusively to the

 proper interest of the person in hose name it is madeC 1 cannot be validly sei>ed

upon to hold that the mm includes the beneficiary. The ord CinterestC highly

suggests that the provision refers only to the CinsuredC and not to the beneficiary,

since a contract of insurance is personal in character. 2 #therise, the prohibitory

las against illicit relationships especially on property and descent ill be rendered

nugatory, as the same could easily be circumvented by modes of insurance. 2ather,

the general rules of civil la should be applied to resolve this void in the nsurance

*a. +rticle %0'' of the /e ivil ode states" CThe contract of insurance is

governed by special las. $atters not epressl3 pro%ided for in suh speial la"s

 shall be reulated b3 this Code.C 9hen not otherise specifically provided for by the

nsurance *a, the contract of life insurance is governed by the general rules of the

civil la regulating contracts. 7 +nd under +rticle %0'% of the same ode, Cany

 person ho is forbidden from receiving any donation under +rticle )=( cannot be

named beneficiary of a fife insurance policy by the person ho cannot ma<e adonation to him.  ommon-la spouses are, definitely, barred from receiving

donations from each other. +rticle )=( of the ne ivil ode provides" &().*+"ph#1

The folloing donations shall be void"

'. 8hose made bet"een persons "ho "ere uilt3 of adulter3 or 

onubinae at the time of donation4

Those made beteen persons found guilty of the same criminal

offense, in consideration thereofD

=. Those made to a public officer or his ife, descendants or ascendants by reason of his office.

n the case referred to in /o. ', the action for declaration of nullity

may be brought by the spouse of the donor or doneeD and the uilt 

of the donee ma3 be pro%ed b3 preponderane of e%idene in the

 same ation.

%. n essence, a life insurance policy is no different from a civil donation insofar as

the beneficiary is concerned. @oth are founded upon the same consideration"

liberality. + beneficiary is li<e a donee, because from the premiums of the policy

hich the insured pays out of liberality, the beneficiary ill receive the proceeds or 

 profits of said insurance. +s a consequence, the proscription in +rticle )=( of thene ivil ode should equally operate in life insurance contracts. The mandate of 

+rticle %0'% cannot be laid aside" any person ho cannot receive a donation cannot

 be named as beneficiary in the life insurance policy of the person ho cannot ma<e

the donation.5 ?nder +merican la, a policy of life insurance is considered as a

testament and in construing it, the courts ill, so far as possible treat it as a ill and

determine the effect of a clause designating the beneficiary by rules under hich

ins are interpreted.

=. !olicy considerations and dictates of morality rightly ustify the institution of a

 barrier beteen common la spouses in record to !roperty relations since such hip

ultimately encroaches upon the nuptial and filial rights of the legitimate family There

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is every reason to hold that the bar in donations beteen legitimate spouses and

those beteen illegitimate ones should be enforced in life insurance policies since

the same are based on similar consideration +s above pointed out, a beneficiary in a

fife insurance policy is no different from a donee. @oth are recipients of pure

 beneficence. $o long as manage remains the threshold of family las, reason and

morality dictate that the impediments imposed upon married couple should li<eise

 be imposed upon etra-marital relationship. f legitimate relationship is

circumscribed by these legal disabilities, ith more reason should an illicit

relationship be restricted by these disabilities. Thus, in $atabuena %.

Cer%antes,  

this ourt, through Justice 1ernando, said" &().*+"ph#1

f the policy of the la is, in the language of the opinion of the

then Justice J.@.*. 2eyes of that court 8ourt of +ppeals:, to

 prohibit donations in favor of the other consort and his descendants

 because of and undue and improper pressure and influence upon

the donor, a preudice deeply rooted in our ancient laDC por-que

no se enganen desponandose el uno al otro por amor que han de

consuno 8+ccording to: the !artidas 8!art 3, Tit. A, *+9 3:,

reiterating the rationale /o Mutuato amore invicem spoliarentur

the !andects 8@<, %&, Titl. ', 5e donat, inter virum et uorem:D

then there is very reason to apply the same prohibitive policy to

 persons living together as husband and ife ithout the benefit of 

nuptials. 1or it is not to be doubted that assent to such irregular 

connection for thirty years bespea<s greater influence of one party

over the other, so that the danger that the la see<s to avoid is

correspondingly increased. Moreover, as already pointed out by

?lpian 8in his lib. =% ad $abinum, fr. ':, it ould not be ust that

such donations should subsist, lest the condition 6f those ho

incurred guilt should turn out to be better. $o long as marriage

remains the cornerstone of our family la, reason and morality

ali<e demand that the disabilities attached to marriage should

li<eise attach to concubinage.

t is hardly necessary to add that even in the absence of the above

 pronouncement, any other conclusion cannot stand the test of 

scrutiny. t ould be to indict the frame of the ivil ode for a

failure to apply a laudable rule to a situation hich in its essentials

cannot be distinguished. Moreover, if it is at all to be differentiated

the policy of the la hich embodies a deeply rooted notion of 

hat is ust and hat is right ould be nullified if such irregular 

relationship instead of being visited ith disabilities ould be

attended ith benefits. ertainly a legal norm should not be

susceptible to such a reproach. f there is every any occasion here

the principle of statutory construction that hat is ithin the spirit

of the la is as much a part of it as hat is ritten, this is it.

#therise the basic purpose discernible in such codal provision

ould not be attained. 9hatever omission may be apparent in an

interpretation purely literal of the language used must be remedied

 by an adherence to its avoed obective.

&. 9e do not thin< that a conviction for adultery or concubinage is eacted before the

disabilities mentioned in +rticle )=( may effectuate. More specifically, ith record

to the disability on Cpersons ho ere guilty of adultery or concubinage at the timeof the donation,C +rticle )=( itself provides" &().*+"ph#1

n the case referred to in /o. ', the action for declaration of nullity

may be brought by the spouse of the donor or doneeD and the uilt3

of the donee ma3 be pro%ed b3 preponderane of e%idene in the

 same ation.

The underscored clause neatly conveys that no criminal conviction for the offense is

a condition precedent. n fact, it cannot even be from the aforequoted provision that a

 prosecution is needed. #n the contrary, the la plainly states that the guilt of the

 party may be proved Cin the same acting for declaration of nullity of donation. +nd,

it ould be sufficient if evidence preponderates upon the guilt of the consort for theoffense indicated. The quantum of proof in criminal cases is not demanded.

n the ca before ?s, the requisite proof of common-la relationship beteen the

insured and the beneficiary has been conveniently supplied by the stipulations

 beteen the parties in the pre-trial conference of the case. t case agreed upon and

stipulated therein that the deceased insured @uenaventura . 4brado as married to

!ascuala 4brado ith hom she has si legitimate childrenD that during his lifetime,

the deceased insured as living ith his common-la ife, arponia 4brado, ith

hom he has to children. These stipulations are nothing less than udiial 

admissions hich, as a consequence, no longer require proof and cannot be

contradicted. 8 + fortiori, on the basis of these admissions, a udgment may be

validly rendered ithout going through the rigors of a trial for the sole purpose of 

 proving the illicit liaison beteen the insured and the beneficiary. n fact, in that

 pretrial, the parties even agreed Cthat a decision be rendered based on this agreement

and stipulation of facts as to ho among the to claimants is entitled to the policy.C

+#25/*I, the appealed udgment of the loer court is hereby affirmed.

arponia T. 4brado is hereby declared disqualified to be the beneficiary of the late

@uenaventura . 4brado in his life insurance policy. +s a consequence, the proceeds

of the policy are hereby held payable to the estate of the deceased insured. osts

against arponia T. 4brado.

$# #254245.

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G.R. No. L-1978 %'e 20, 19

FILIINA* +(AIA /E *EGUR*, E3 AL., petitioners and appellees,

vs.

)N. FRAN+I*+ . (AN/ANA*, i #is a:ai!; as Is'rae+ommissioer, respondent and appellant.

AGRI+UL3URAL FIRE IN*URAN+E < *URE3 +., IN+., E3

AL., intervenors and appellees.

 Jalandoni and Jamir for petitioner and appellees.

:ffie of the !oliitor ;eneral Arturo A. Alafri, 1st Assistant !oliitor ;eneral

 Esmeraldo <mali and !oliitor Comrade 8. =imaoo for inter%enors and appellees.

+N+E+IN, C.J.:

This is a special civil action for a declaratory relief Thirty-nine 8=(: non-life

insurance companies instituted it, in the ourt of 1irst nstance of Manila, to secure a

declaration of legality of +rticle %% of the onstitution of the !hilippine 2ating

@ureau, of hich they are members, inasmuch as respondent nsurance

ommissioner assails its validity upon the ground that it constitutes an illegal or undue restraint of trade. $ubsequently to the filing of the petition, tenty 8%0: other 

non-life insurance companies, li<eise, members of said @ureau, ere alloed to

intervene in support of the petition. +fter appropriate proceedings, said court

rendered udgment declaring that the aforementioned +rticle %% is neither contrary to

la nor against public policy, and that, accordingly, petitioners herein, as ell as the

intervenors and other members of the aforementioned @ureau, may lafully observe

and enforce said +rticle, and are bound to comply ith the provisions thereof,

ithout special pronouncement as to costs. Hence this appeal by respondent

nsurance ommissioner, ho insists that the +rticle in question constitutes an

illegal or undue restraint of trade and, hence, null and void.

The record discloses that on March '', '(60, respondent rote to said @ureau, acommunication epressing his doubts of the validity of said +rticle %%, reading"

n respect to the classes of insurance specified in the #bects of the

@ureau' and for !hilippine business only, the members of this @ureau agree

not to represent nor to effect reinsurance ith, nor to accept reinsurance

from, any ompany, @ody, or ?nderriter licensed to do business in the

!hilippines not a Member in good standing of this @ureau.

and requesting that said provision, be, accordingly, repealed. #n +pril '', '(60,

respondent rote another letter to the @ureau inquiring on the action ta<en on the

subect-matter of his previous communication. n reply thereto, the @ureau advised

respondent that the suggestion to delete said +rticle %% as still under consideration

 by a committee of said @ureau. $oon thereafter, or on May (, '(6', the latter as

advised by respondent that, being an illegal agreement or combination in restraint of 

trade, said +rticle should not be given force and effectD that failure to comply ith

this requirement ould compel respondent to suspend the license issued to the

@ureauD and that the latter should circulari>e all of its members on this matter and

advise them that Cviolation of this requirement by any member of the @ureauC ould

also compel respondent Cto suspend the certificate of authority of the company

concerned to do business in the !hilippinesC. Thereupon, or on May '6, '(6', the

 present action as commenced.

@riefly, appellant maintains that, since, in the aforementioned +rticle %%, members of 

the @ureau Cagree not to represent nor to effect reinsurance ith, nor to accept

reinsurance from any company, body, or underriter, licensed to do business in the

!hilippines not a member in good standing of the @ureauC, said provision is illegal as

a combination in restraint of trade. +s early as +ugust '0, '('6, this ourt had had

occasion to declare that the test on hether a given agreement constitutes an

unlaful machination or a combination in restraint of trade

... is, hether, under the particular circumstances of the case and the nature

of the particular contract involved in it, the contract is, or is not,

unreasonable. 81erra>ini vs. sell, =& !hil. 6(), )'%-'=.:

This vie as reiterated in :llendorf %s. Abrahamson 8=; !hil. B;B: and >ed =ine

8ransportation Co. %s. ahrah $otor Co. 86) !hil. )):, in the folloing language"

...The general tendency, e believe, of modern authority, is to ma<e the test

hether the restraint is reasonably necessary for the protection of the

contracting parties. f the contract is reasonably necessary to protect the

interest of the parties, it ill be upheld.

...e adopt the modern rule that the validity of restraints upon trade or 

employment is to be determined by the intrinsi reasonableness of the

restriction in each case, rather than by any fied rule, and that

suchrestritions ma3 be upheld "hen not ontrar3 to the publi "elfare and 

not reater than is neessar3 to afford a fair and reasonable protetion to

the part3 in "hose fa%or it is imposed . 8#llendorf vs. +brahamson, =; !hil.

B;B.:

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...The test of validity is hether under the particular circumstances of the

case and considering the nature of the particular contract involved, public

interest and elfare are not involved and the restraint is not only reasonably

necessary for the protection of the contracting parties but ill not affect the

 public interest or service. 82ed *ine Transportation o. vs. @achrach Motor 

o., 6) !hil. )).: 8$ee also, 5el astillo vs. 2ichmond, &B !hil. &;=.:

The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed

 provision. The only evidence on this point is the uncontradicted testimony of $alvador 4strada, hairman of the @ureau hen it as first organi>ed and hen he

too< the itness stand. @riefly stated, he declared that the purpose of +rticle %% is to

maintain a high degree or standard of ethical practice, so that insurance companies

may earn and maintain the respect of the public, because the intense competition

 beteen the great number of non-life insurance companies operating in the

!hilippines is conducive to unethical practices, oftentimes ta<ing the form of 

underratingD that to achieve this purpose it is highly desirable to have cooperative

action beteen said companies in the compilation of their total eperience in the

 business, so that the @ureau could determine more accurately the proper rate of 

 premium to be charged from the insuredD that, several years ago, the very nsurance

ommissioner had indicated to the @ureau the necessity of doing something to

combat underrating, for, otherise, he ould urge the amendment of the la so that

appropriate measures could be ta<en therefor by his officeD that much of the or< of 

the @ureau has to do ith rate-ma<ing and policy-ordingD that rate-ma<ing is

actually dependent very much on statisticsD that, unli<e life insurance companies,

hich have tables of mortality to guide them in the fiing of rates, non-life insurance

companies have, as yet, no such guidesD that, accordingly, non-life insurance

companies need an adequate record of losses and premium collections that ill

enable them to determine the amount of ris< involved in each type of ris< and, hence,

to determine the rates or premiums that should be charged in insuring every type of 

ris<D that this information cannot be compiled ithout full cooperation on the part of 

the companies concerned, hich cannot be epected from non-members of the

@ureau, over hich the latter has no controlD and that, in addition to submitting

information about their respective eperience, said @ureau members must, li<eise,

share in the rather appreciable epenses entailed in compiling the aforementioned

data and in analy>ing the same.1?"ph@1.&t 

9e find nothing unlaful, or immoral, or unreasonable, or contrary to public policy

either in the obectives thus sought to be attained by the @ureau, or in the means

availed of to achieve said obectives, or in the consequences of the accomplishment

thereof. The purpose of said +rticle %% is not  to eliminate competition, but

to promote ethial praties among non-life insurance companies, although,

incidentally it may discourage, and hence, eliminate unfair  competition, through

underrating, hich in itself is eventually inurious to the public. ndeed, in the ords

of Mr. Justice @randeis"

... the legality of an agreement or regulation cannot be determined by so

simple a test, as hether it restrains competition. 4very agreement

concerning trade, every regulation of trade, restrains. To bind, to restrain, is

of their very essence. 8he true test of lealit3 is "hether the restraint 

imposed is suh as merel3 reulates and promotes ompetition, or hether 

it is such as may suppress or even destroy competition. Todetermine that 

Buestion the ourt must ordinaril3 onsider the fats peuliar to the

business to "hih the restraint is applied D its condition before and after the

restraint as imposedD the nature of the restraint, and its effect, actual or 

 probable. 8@oard of Trade of hicago vs. ?.$., %&6 ?.$. %=', 6% *. ed. 6;=

E'(';F.:

Thus, in !uar nstitute, n. %s. <.!. 8%() ?.$. BB=:, the 1ederal $upreme ourt

added"

8he restritions imposed b3 the !herman At are not mehanial or 

artifiial. We ha%e repeatedl3 said that the3 set up the essential standard of 

reasonableness. !tandard :il Co. %s. <nited !tates , %%' ?.$. ', BB *. ed.

6'(, =' $. t. B0%, =& *.2.+. 8/.$.: ;=&, +nn. as. '('%5, )=&D <nited 

!tates %s. Amerian 8obao Co., %%' ?.$. '06, BB *. ed. 66=, =' $. t.

6=%. They are aimed at contracts and combinations hich Cby reason of 

intent or the inherent nature of the contemplated acts, preudice the public

interests by undul3restraining competition or undul3 obstructing the course

of trade.C ash %s. <nited !tates, %%( ?.$. =)=, =)6, B) *. ed. '%=%, '%=B,

== $. t. );0D <nited !tates %s. Amerian =inseed :il Co. , %6% ?.$. =)',

=;;, =;(, 6) *. ed. '0=B, '0&0, '0&', &= $. t. 60). 5esigned to

frustrate unreasonable restraints, the3 do not pre%ent the adoption of 

reasonable means to protet interstate ommere from destruti%e or 

inurious praties and to promote ompetition upon a sound basis.

'oluntar3 ation to end abuses and to foster fair ompetiti%e opportunities

in the publi interest ma3 be more effeti%e than leal proesses . +nd

cooperative endeavor may appropriately have ider obectives than merely

the removal of evils hich are infractions of positive la.

Hence, the ity 1iscal of Manila refused to prosecute criminally in Manila 1ire

nsurance +ssociation for folloing a policy analogous to that incorporated in the

 provision disputed in this case and the action of said official as sustained by the

$ecretary of Justice, upon the ground that"

... combinations among insurance companies or their agents to fi and

control rates of insurance do not constitute indictable conspiracies, provided

no unlaful means are used in accomplishing their purpose 8&' .J. '6'D

+etna ns. o. vs. ommonealth, '06 y. ;6&, B' $9 6%&D Kueen ns.

o. vs. $tate, ;6 Te. %B0, %& $9 =()D Joyce on nsurance, par. =%(-a:.

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ndeed, Mr. 4stradas testimony shos that the limitation upon reinsurance contained

in the aforementioned +rticle %% does not affect the public at all, for, hether there is

reinsurance or not, the liability of the insurer in favor of the insured is the same.

@esides, there are sufficient foreign reinsurance companies operating in the

!hilippines from hich non-members of the @ureau may secure reinsurance. 9hat is

more, "hate%er the ureau ma3 do in the matter of ratefiin is not deisi%e insofar 

as the publi is onerned, for no insurane ompan3 in the -hilippines ma3 hare

a rate of premium that has not been appro%ed b3 the nsurane Commissioner .

n fact, respondents ircular /o. B&, dated 1ebruary %6' '(B&, provides"

. /on-life nsurance company or roup +ssociation of such companies.

 E%er3 non-life insurance company or group or association of such

companies doing business in the !hilippines shall file "ith the nsurane

Commissioner for appro%al eneral basi shedules sho"in the premium

rates on all lasses of ris  ecept marine, as distinguished from inland

marine insurable by such insurance company or association of insurance

companies in this country.

+n insurance company or group of such companies may satisfy its

obligation to ma<e such filings by becoming a member of or subscriber to a

rating organi>ation hich ma<es such filing and by authori>ing the

insurance commissioner to accept such filings of the rating organi>ation on

such companys or groups behalf.

. 2equiring !revious +pplication to and +pproval by the nsurance

ommissioner before any hange in the 2ates $chedules filed ith Him

$hall Ta<e 4ffect.

 /o change in the schedules filed in compliance ith the requirements of thenet preceding paragraph shall be made ecept upon application duly filed

ith and approved by the nsurance ommissioner. $aid application shall

state the changes proposed and the date of their effectivityD all changes

finally approved by the nsurance ommissioner shall be incorporated in

the old schedules or otherise indicated as ne in the ne schedules.

3. 4mpoering the nsurance ommissioner to nvestigate +ll /on-*ife

nsurance 2ates.

8he nsurane Commissioner shall ha%e po"er to eamine an3 or all 

rates established by non-life insurance companies or group or association of 

such insurance companies in the country. $hould any rate appear, in the

opinion of the nsurance ommissioner, unreasonably high or not adequate

to the financial safety or soundness to the company charging the same, or 

 pre-udicial to policy-holders, the ommissioner shall, in such case, hold a

hearing andLor conduct an investigation. !hould the result of suh hearin 

andor in%estiation sho" that the rate is unreasonabl3 hih or lo" that it is

not adeBuate to the finanial safet3 and soundness of the ompan3 harin 

the same, or is preudiial to poli3holders, the nsurane Commissioner 

 shall diret a re%ision of the said rate in aordane "ith his findins. +ny

insurance company or group or association of insurance companies may be

required to publish the schedule of rates hich may have been revised in

accordance hereith.

The decision of the nsurance ommissioner shall be appealable ithin thirty days

after it has been rendered to the $ecretary of 1inance.

3. !rohibiting /on-life nsurance ompanies and their +gents from

nsuring +ny !roperty in this ountry at a 2ate 5ifferent from that in the

$chedulesD ?nethical !ractices.

 o insurane ompan3 shall enae or partiipate in the insurane of an3

 propert3 loated in the -hilippines ... unless the shedule of rates under 

"hih suh propert3 is insured has been filed and appro%ed in aordane

"ith the pro%isions of this Cirular . ... . 84mphasis ours.:

#n the same date, the onstitution of the @ureau, containing a provision

substantially identical to the one no under consideration, as approved. +rticle % of 

said onstitution reads"

%. #@J4T$

The obects of the @ureau shall be"

a. To establish rates in respect of 1ire, 4arthqua<e, 2iot and ivil

ommotion, +utomobile and 9or<mens ompensation, and henever 

applicable, Marine nsurance business.

c. To file the rates referred to above, tariff rules, and all other conditions or 

data hich may in any ay affect premium rates ith the #ffice of the

nsurance ommissioner on behalf of members for appro%al . 84mphasis

ours.:

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n compliance ith the aforementioned ircular /o. B&, in +pril, '(B&, the @ureau

applied for the license required therein, and submitted ith its application a copy of 

said onstitution. #n +pril %;, '(B&, respondents office issued to the @ureau the

license applied for, certifying not only that it had complied ith the requirements of 

ircular /o. B&, but, also, that the license empoered it Cto engage in the ma<ing of 

rates or policy conditions to be used by insurance companies in the !hilippinesC.

$ubsequently, thereafter, the @ureau applied for and as granted yearly the requisite

license to operate in accordance ith the provisions of its onstitution. 5uring all

this time, respondents office did not question, but impliedly ac<noledged, the

legality of +rticle %%. t as not until March '', '(60, that it assailed its validity.

2espondents contention is anchored mainly on !aramount 1amous *as<y orp. vs.

?.$., %;% ?.$. =0, but the same is not in point, not only because it refers to the

conditions under hich movie film producers and distributors determine the terms

under hich theaters or ehibitors may be alloed to run movie films thereby

 placing the ehibitors under the control of the producers or distributors and giving

the ehibitors, in effect, no choice as to hat films and hose films they ill sho

  but, also, because there is, in the film industry, no agency or officer ith poers

or functions comparable to those in the nsurance ommissioner, as regards the

regulation of the business concerned and of the transactions involved therein.

9herefore, the decision appealed from should be, as it is hereby affirmed, ithout

costs. t is so ordered.

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=G.R. No. 1551. %'$; 28, 2005>

?)I3E GL/ (ARINE *ERI+E*, IN+., petitioner , vs. INEERIN*URAN+E AN/ *URE3 +RRA3IN AN/ 3)E*3EA(*)I (U3UAL UN/ER?RI3ING A**+IA3IN@4ER(U/A L3/., respondents.

/ E + I * I NQUI*U(4ING, J .6

This petition for revie assails the /eisioE'F dated July =0, %00% of the ourt

of +ppeals in +-.2. $! /o. 60'&&, affirming the /eisioE%F dated May =, %000 of 

the nsurance ommission in .. +dm. ase /o. 25-%)). @oth decisions held that

there as no violation of the nsurance ode and the respondents do not need license

as insurer and insurance agentLbro<er.

The facts are undisputed.

9hite old Marine $ervices, nc. 89hite old: procured a protection andindemnity coverage for its vessels from The $teamship Mutual ?nderriting

+ssociation 8@ermuda: *imited 8$teamship Mutual: through !ioneer nsurance and

$urety orporation 8!ioneer:. $ubsequently, 9hite old as issued a ertificate of 

4ntry and +cceptance.E=F !ioneer also issued receipts evidencing payments for the

coverage. 9hen 9hite old failed to fully pay its accounts, $teamship Mutual

refused to rene the coverage.

$teamship Mutual thereafter filed a case against 9hite old for collection of 

sum of money to recover the latters unpaid balance. 9hite old on the other hand,

filed a complaint before the nsurance ommission claiming that $teamship Mutual

violated $ections ';6E&F and ';)EBF of the nsurance ode, hile !ioneer violated

$ections %((,

E6F

 =00

E)F

 and =0'

E;F

 in relation to $ections =0% and =0=, thereof.

The nsurance ommission dismissed the complaint. t said that there as no

need for $teamship Mutual to secure a license because it as not engaged in the

insurance business. t eplained that $teamship Mutual as a !rotection and

ndemnity lub 8! N lub:. *i<eise, !ioneer need not obtain another license as

insurance agent andLor a bro<er for $teamship Mutual because $teamship Mutual

as not engaged in the insurance business. Moreover, !ioneer as already licensed,

hence, a separate license solely as agentLbro<er of $teamship Mutual as already

superfluous.

The ourt of +ppeals affirmed the decision of the nsurance ommissioner. n

its decision, the appellate court distinguished beteen ! N lubs %is

%is conventional insurance. The appellate court also held that !ioneer merely acted as

a collection agent of $teamship Mutual.

n this petition, petitioner assigns the folloing errors allegedly committed by

the appellate court,

12$T +$$/M4/T #1 422#2 

TH4 #?2T + K?# 42245 9H4/ T 2?*45 TH+T 24$!#/54/T

$T4+M$H! $ /#T 5#/ @?$/4$$ / TH4 !H*!!/4$ #/ TH4

2#?/5 TH+T T #?2$45 . . . T$ T2+/$+T#/$ TH2#?H T$

+4/T +/5L#2 @2#42 H4/4 +$ +/ /$?242 T /445 /#T $4?24

+ *4/$4 T# 4/+4 / /$?2+/4 @?$/4$$ / TH4 !H*!!/4$.

$4#/5 +$$/M4/T #1 422#2 

TH4 #?2T + K?# 42245 9H4/ T 2?*45 TH+T TH4 24#25 $

@4241T #1 +/I 4354/4 TH+T 24$!#/54/T $T4+M$H! $

4/+45 / /$?2+/4 @?$/4$$.

TH25 +$$/M4/T #1 422#2 

TH4 #?2T + K?# 42245 9H4/ T 2?*45, TH+T 24$!#/54/T

!#/442 /445 /#T $4?24 + *4/$4 9H4/ #/5?T/ T$

+11+2 +$ +/ +4/TL@2#42 #1 24$!#/54/T $T4+M$H!.

1#?2TH +$$/M4/T #1 422#2 

TH4 #?2T + K?# 42245 / /#T 243#/ TH4 *4/$4 #1

24$!#/54/T !#/442 +/5 E/ /#T 24M#3/F TH4 #1142$ +/5

524T#2$ #1 24$!#/54/T !#/442.

E(F

$imply, the basic issues before us are 8': s $teamship Mutual, a ! N lub,

engaged in the insurance business in the !hilippinesG 8%: 5oes !ioneer need a license

as an insurance agentLbro<er for $teamship MutualG

The parties admit that $teamship Mutual is a ! N lub. $teamship Mutual

admits it does not have a license to do business in the !hilippines although !ioneer is

its resident agent. This relationship is reflected in the certifications issued by the

nsurance ommission.

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!etitioner insists that $teamship Mutual as a ! N lub is engaged in the

insurance business. To buttress its assertion, it cites the definition of a ! N lub

in 53opsun $aritime Co., =td. %. Court of AppealsE'0F as an association composed of 

shiponers in general ho band together for the specific purpose of providing

insurance cover on a mutual basis against liabilities incidental to shiponing that the

members incur in favor of third parties. t stresses that as a ! N lub, $teamship

Mutuals primary purpose is to solicit and provide protection and indemnity coverage

and for this purpose, it has engaged the services of !ioneer to act as its agent.

2espondents contend that although $teamship Mutual is a ! N lub, it is not

engaged in the insurance business in the !hilippines. t is merely an association of 

vessel oners ho have come together to provide mutual protection against

liabilities incidental to shiponing. E''F 2espondents aver 53opsun is inapplicable in

this case because the issue in 53opsun  as the urisdiction of the court

over 53opsun .

s $teamship Mutual engaged in the insurance businessG

$ection %8%: of the nsurance ode enumerates hat constitutes doing an

insurance business or transacting an insurance business. These are"

8a: ma<ing or proposing to ma<e, as insurer, any insurance contractD

8b: ma<ing, or proposing to ma<e, as surety, any contract of suretyship as a

vocation and not as merely incidental to any other legitimate business or 

activity of the suretyD

8c: doing any <ind of business, including a reinsurance business, specifically

recogni>ed as constituting the doing of an insurance business ithin the

meaning of this odeD

8d: 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 ode.

. . .

The same provision also provides, the fact that no profit is derived from the

ma<ing of insurance contracts, agreements or transactions, or that no separate or 

direct consideration is received therefor, shall not preclude the eistence of an

insurance business.E'%F

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 eact nature of 

the agreement in the light of the occurrence, contingency, or circumstances under 

hich the performance becomes requisite. t is not by hat it is called.E'=F

@asically, an insurance contract is a contract of indemnity. n it, one underta<es

for a consideration to indemnify another against loss, damage or liability arising

from an un<non or contingent event.E'&F

n particular, a marine insurance underta<es to indemnify the assured against

marine losses, such as the losses incident to a marine adventure. E'BF $ection ((E'6F of 

the nsurance ode enumerates the coverage of marine insurance.

2elatedly, a mutual insurance company is a cooperative enterprise here the

members are both the insurer and insured. n it, the members all contribute, by a

system of premiums or assessments, to the creation of a fund from hich all losses

and liabilities are paid, and here the profits are divided among themselves, in

 proportion to their interest.E')F +dditionally, mutual insurance associations, or clubs,

 provide three types of coverage, namely, protection and indemnity, ar ris<s, and

defense costs.E';F

+ ! N lub is a "orm o" is'rae against third party liability, here the

third party is anyone other than the ! N lub and the members. E'(F @y definition

then, $teamship Mutual as a ! N lub is a mutual insurance association engaged in

the marine insurance business.

The records reveal $teamship Mutual is doing business in the country albeit

ithout the requisite certificate of authority mandated by $ection ';)E%0F of the

nsurance ode. t maintains a resident agent in the !hilippines to solicit insurance

and to collect payments in its behalf. 9e note that $teamship Mutual even reneed

its ! N lub cover until it as cancelled due to non-payment of the calls. Thus, to

continue doing business here, $teamship Mutual or through its agent !ioneer, must

secure a license from the nsurance ommission.

$ince a contract of insurance involves public interest, regulation by the $tate is

necessary. Thus, no insurer or insurance company is alloed to engage in the

insurance business ithout a license or a certificate of authority from the nsurance

ommission.E%'F

5oes !ioneer, as agentLbro<er of $teamship Mutual, need a special licenseG

!ioneer is the resident agent of $teamship Mutual as evidenced by the

certificate of registrationE%%F issued by the nsurance ommission. t has been licensed

to do or transact insurance business by virtue of the certificate of authority E%=F issued

 by the same agency. Hoever, a ertification from the ommission states that

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!ioneer does not have a separate license to be an agentLbro<er of $teamship Mutual.E%&F

+lthough !ioneer is already licensed as an insurance company, it needs a

separate license to act as insurance agent for $teamship Mutual. $ection %(( of the

nsurance ode clearly states"

$4. %(( . . .

 /o person shall act as an insurance agent or as an insurance bro<er 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 !hilippines or any agent thereof, ithout first procuring a

license so to act from the ommissioner, hich must be reneed annually on the

first day of January, or ithin si months thereafter. . .

1inally, 9hite old see<s revocation of !ioneers certificate of authority and

removal of its directors and officers. 2egrettably, e are not the forum for these

issues.

?)EREFRE, the petition is !+2T+**I 2+/T45. The 5ecision datedJuly =0, %00% of the ourt of +ppeals affirming the 5ecision dated May =, %000 of 

the nsurance ommission is hereby 24342$45 +/5 $4T +$54. The $teamship

Mutual ?nderriting +ssociation 8@ermuda: *td., and !ioneer nsurance and $urety

orporation are #254245 to obtain licenses and to secure proper authori>ations to

do business as insurer and insurance agent, respectively. The petitioners prayer for 

the revocation of !ioneers ertificate of +uthority and removal of its directors and

officers, is 54/45. osts against respondents.

* R/ERE/.

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=G.R. No. 1258. (ar# 18, 2002>

)ILA(+ARE )EAL3) **3E(*, IN+., petitioner , vs. +UR3 FAEAL* ad %ULI3A 3RIN*, respondents.

/ E + I * I N

NARE*-*AN3IAG,  J.64rnani Trinos, deceased husband of respondent Julita Trinos, applied for a

health care coverage ith petitioner !hilamcare Health $ystems, nc. n the standard

application form, he ansered no to the folloing question"

Have you or any of your family members ever consulted or been treated for high

 blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcerG

8f Ies, give details:.E'F

The application as approved for a period of one year from March ', '(;; to

March ', '(;(. +ccordingly, he as issued Health are +greement /o.

!0'0'(&. ?nder the agreement, respondents husband as entitled to avail of hospitali>ation benefits, hether ordinary or emergency, listed therein. He as also

entitled to avail of out-patient benefits such as annual physical eaminations,

 preventive health care and other out-patient services.

?pon the termination of the agreement, the same as etended for another year 

from March ', '(;( to March ', '((0, then from March ', '((0 to June ', '((0. The

amount of coverage as increased to a maimum sum of !)B,000.00 per disability.E%F

5uring the period of his coverage, 4rnani suffered a heart attac< and as

confined at the Manila Medical enter 8MM: for one month beginning March (,

'((0. 9hile her husband as in the hospital, respondent tried to claim the benefits

under the health care agreement. Hoever, petitioner denied her claim saying thatthe Health are +greement as void. +ccording to petitioner, there as a

concealment regarding 4rnanis medical history. 5octors at the MM allegedly

discovered at the time of 4rnanis confinement that he as hypertensive, diabetic and

asthmatic, contrary to his anser in the application form. Thus, respondent paid the

hospitali>ation epenses herself, amounting to about !)6,000.00.

+fter her husband as discharged from the MM, he as attended by a

 physical therapist at home. *ater, he as admitted at the hinese eneral

Hospital. 5ue to financial difficulties, hoever, respondent brought her husband

home again. n the morning of +pril '=, '((0, 4rnani had fever and as feeling very

ea<. 2espondent as constrained to bring him bac< to the hinese eneral

Hospital here he died on the same day.

#n July %&, '((0, respondent instituted ith the 2egional Trial ourt of 

Manila, @ranch &&, an action for damages against petitioner and its president, 5r.

@enito 2everente, hich as doc<eted as ivil ase /o. (0-B=)(B. $he as<ed for 

reimbursement of her epenses plus moral damages and attorneys fees. +fter trial,

the loer court ruled against petitioners, %iG

9H4241#24, in vie of the forgoing, the ourt renders udgment in favor of the

 plaintiff Julita Trinos, ordering"

'. 5efendants to pay and reimburse the medical and hospital coverage of the late

4rnani Trinos in the amount of !)6,000.00 plus interest, until the amount is fully

 paid to plaintiff ho paid the sameD

%. 5efendants to pay the reduced amount of moral damages of !'0,000.00 to

 plaintiffD

=. 5efendants to pay the reduced amount of  !'0,000.00 as eemplary damages to

 plaintiffD

&. 5efendants to pay attorneys fees of !%0,000.00, plus costs of suit.

$# #254245.E=F

#n appeal, the ourt of +ppeals affirmed the decision of the trial court but

deleted all aards for damages and absolved petitioner 2everente.E&F !etitioners

motion for reconsideration as denied.EBF Hence, petitioner brought the instant

 petition for revie, raising the primary argument that a health care agreement is not

an insurance contractD hence the incontestability clause under the nsurance

odeE6F does not apply.

!etitioner argues that the agreement grants living benefits, such as medical

chec<-ups and hospitali>ation hich a member may immediately enoy so long as he

is alive upon effectivity of the agreement until its epiration one-year 

thereafter. !etitioner also points out that only medical and hospitali>ation benefits are

given under the agreement ithout any indemnification, unli<e in an insurance

contract here the insured is indemnified for his loss. Moreover, since Health are

+greements are only for a period of one year, as compared to insurance contracts

hich last longer,E)F  petitioner argues that the incontestability clause does not apply,

as the same requires an effectivity period of at least to years. !etitioner further 

argues that it is not an insurance company, hich is governed by the nsurance

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ommission, but a Health Maintenance #rgani>ation under the authority of the

5epartment of Health.

$ection % 8': of the nsurance ode defines a contract of insurance as an

agreement hereby one underta<es for a consideration to indemnify another against

loss, damage or liability arising from an un<non or contingent event. +n insurance

contract eists here the folloing elements concur"

'. The insured has an insurable interestD

%. The insured is subect to a ris< of loss by the happening of the

designated perilD

=. The insurer assumes the ris<D

&. $uch assumption of ris< is part of a general scheme to distribute actual

losses among a large group of persons bearing a similar ris<D and

B. n consideration of the insurers promise, the insured pays a premium.E;F

$ection = of the nsurance ode states that any contingent or un<non event,hether past or future, hich may damnify a person having an insurable interest

against him, may be insured against. 4very person has an insurable interest in the life

and health of himself. $ection '0 provides"

4very person has an insurable interest in the life and health"

8': of himself, of his spouse and of his childrenD

8%: of any person on hom he depends holly or in part for education or 

support, or in hom he has a pecuniary interestD

8=: of any person under a legal obligation to him for the payment of money, respecting property or service, of hich death or illness

might delay or prevent the performanceD and

8&: of any person upon hose life any estate or interest vested in him

depends.

n the case at bar, the insurable interest of respondents husband in obtaining the

health care agreement as his on health. The health care agreement as in the

nature of non-life insurance, hich is primarily a contract of indemnity. E(F #nce the

member incurs hospital, medical or any other epense arising from sic<ness, inury

or other stipulated contingent, the health care provider must pay for the same to the

etent agreed upon under the contract.

!etitioner argues that respondents husband concealed a material fact in his

application. t appears that in the application for health coverage, petitioners required

respondents husband to sign an epress authori>ation for any person, organi>ation or 

entity that has any record or <noledge of his health to furnish any and all

information relative to any hospitali>ation, consultation, treatment or any other 

medical advice or eamination.E'0F $pecifically, the Health are +greement signed by

respondents husband states"

9e hereby declare and agree that all statement and ansers contained herein and in

any addendum anneed to this application are full, complete and true and bind all

 parties in interest under the +greement herein applied for, that there shall be no

contract of health care coverage unless and until an +greement is issued on this

application and the full Membership 1ee according to the mode of payment applied

for is actually paid during the lifetime and good health of proposed MembersD that no

information acquired by any 2epresentative of !hilamare shall be binding upon

!hilamare unless set out in riting in the applicationD that any physician is, by

these presents, epressly authori>ed to disclose or give testimony at anytime relative

to any information acquired by him in his professional capacity upon any question

affecting the eligibility for health care coverage of the !roposed Members and that

the acceptance of any +greement issued on this application shall be a ratification of 

any correction in or addition to this application as stated in the space for Home

#ffice 4ndorsement.E''F 8?nderscoring ours:

n addition to the above condition, petitioner additionally required the applicant

for authori>ation to inquire about the applicants medical history, thus"

hereby authori>e any person, organi>ation, or entity that has any record or 

<noledge of my health andLor that of OOOOOOOOOO to give to the !hilamare Health

$ystems, nc. any and all information relative to any hospitali>ation, consultation,

treatment or any other medical advice or eamination. This authori>ation is in

connection ith the application for health care coverage only. + photographic copy

of this authori>ation shall be as valid as the original. E'%F 8?nderscoring ours:

!etitioner cannot rely on the stipulation regarding nvalidation of agreement

hich reads"

1ailure to disclose or misrepresentation of any material information by the member 

in the application or medical eamination, hether intentional or unintentional, shall

automatically invalidate the +greement from the very beginning and liability of 

!hilamcare shall be limited to return of all Membership 1ees paid. +n undisclosed or 

misrepresented information is deemed material if its revelation ould have resulted

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in the declination of the applicant by !hilamcare or the assessment of a higher 

Membership 1ee for the benefit or benefits applied for.E'=F

The anser assailed by petitioner as in response to the question relating to the

medical history of the applicant. This largely depends on opinion rather than fact,

especially coming from respondents husband ho as not a medical doctor. 9here

matters of opinion or udgment are called for, ansers made in good faith and

ithout intent to deceive ill not avoid a policy even though they are untrue.E'&F Thus,

8+:lthough false, a representation of the epectation, intention, belief, opinion, or 

 udgment of the insured ill not avoid the policy if there is no actual fraud in

inducing the acceptance of the ris<, or its acceptance at a loer rate of premium, and

this is li<eise the rule although the statement is material to the ris<, if the statement

is obviously of the foregoing character, since in such case the insurer is not ustified

in relying upon such statement, but is obligated to ma<e further inquiry. There is a

clear distinction beteen such a case and one in hich the insured is fraudulently

and intentionally states to be true, as a matter of epectation or belief, that hich he

then <nos, to be actually untrue, or the impossibility of hich is shon by the facts

ithin his <noledge, since in such case the intent to deceive the insurer is obvious

and amounts to actual fraud.E'BF8?nderscoring ours:

The fraudulent intent on the part of the insured must be established to arrant

rescission of the insurance contract. E'6F oncealment as a defense for the health care

 provider or insurer to avoid liability is an affirmative defense and the duty to

establish such defense by satisfactory and convincing evidence rests upon the

 provider or insurer. n any case, ith or ithout the authority to investigate,

 petitioner is liable for claims made under the contract. Having assumed a

responsibility under the agreement, petitioner is bound to anser the same to the

etent agreed upon. n the end, the liability of the health care provider attaches once

the member is hospitali>ed for the disease or inury covered by the agreement or 

henever he avails of the covered benefits hich he has prepaid.

?nder $ection %) of the nsurance ode, a concealment entitles the inured

 party to rescind a contract of insurance. The right to rescind should be eercised

 previous to the commencement of an action on the contract. E')F n this case, no

rescission as made. @esides, the cancellation of health care agreements as in

insurance policies require the concurrence of the folloing conditions"

'. !rior notice of cancellation to insuredD

%. /otice must be based on the occurrence after effective date of the policy of one or 

more of the grounds mentionedD

=. Must be in riting, mailed or delivered to the insured at the address shon in the

 policyD

&. Must state the grounds relied upon provided in $ection 6& of the nsurance ode

and upon request of insured, to furnish facts on hich cancellation is based. E';F

 /one of the above pre-conditions as fulfilled in this case. 9hen the terms of 

insurance contract contain limitations on liability, courts should construe them in

such a ay as to preclude the insurer from non-compliance ith his obligation.E'(F @eing a contract of adhesion, the terms of an insurance contract are to be

construed strictly against the party hich prepared the contract the insurer. E%0F @y

reason of the eclusive control of the insurance company over the terms and

 phraseology of the insurance contract, ambiguity must be strictly interpreted against

the insurer and liberally in favor of the insured, especially to avoid forfeiture. E%'FThis

is equally applicable to Health are +greements. The phraseology used in medical or 

hospital service contracts, such as the one at bar, must be liberally construed in favor 

of the subscriber, and if doubtful or reasonably susceptible of to interpretations the

construction conferring coverage is to be adopted, and eclusionary clauses of 

doubtful import should be strictly construed against the provider.E%%F

+nent the incontestability of the membership of respondents husband, e quote

ith approval the folloing findings of the trial court"

8?:nder the title laim procedures of epenses, the defendant !hilamcare Health

$ystems nc. had telve months from the date of issuance of the +greement ithin

hich to contest the membership of the patient if he had previous ailment of asthma,

and si months from the issuance of the agreement if the patient as sic< of diabetes

or hypertension. The periods having epired, the defense of concealment or 

misrepresentation no longer lie.E%=F

1inally, petitioner alleges that respondent as not the legal ife of the deceased

member considering that at the time of their marriage, the deceased as previously

married to another oman ho as still alive. The health care agreement is in the

nature of a contract of indemnity. Hence, payment should be made to the party ho

incurred the epenses. t is not controverted that respondent paid all the hospital and

medical epenses.$he is therefore entitled to reimbursement. The records adequately

 prove the epenses incurred by respondent for the deceaseds hospitali>ation,

medication and the professional fees of the attending physicians.E%&F

?)EREFRE, in vie of the foregoing, the petition is 54/45. The

assailed decision of the ourt of +ppeals dated 5ecember '&, '((B is +112M45.

* R/ERE/.

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G.R. No. 1770 *e:!ember 18, 2009

)ILIINE )EAL3) +ARE RI/ER*, IN+., !etitioner,

vs.

+((I**INER F IN3ERNAL REENUE, 2espondent.

2 4 $ # * ? T # /

+RNA, J.:

+2T*4

5eclaration of !rinciples and $tate !olicies

$ection 'B. The $tate shall protect and promote the right to health of the people and

instill health consciousness among them.

+2T*4 A

$ocial Justice and Human 2ights

$ection ''. The $tate shall adopt an integrated and comprehensive approach to healthdevelopment hich shall endeavor to ma<e essential goods, health and other social

services available to all the people at affordable cost. There shall be priority for the

needs of the underprivileged sic<, elderly, disabled, omen, and children. The $tate

shall endeavor to provide free medical care to paupers.'

1or resolution are a motion for reconsideration and supplemental motion for 

reconsideration dated July '0, %00; and July '&, %00;, respectively, filed by

 petitioner !hilippine Health are !roviders, nc.%

9e recall the facts of this case, as follos"

!etitioner is a domestic corporation hose primary purpose is CEtFo establish,maintain, conduct and operate a prepaid group practice health care delivery system

or a health maintenance organi>ation to ta<e care of the sic< and disabled persons

enrolled in the health care plan and to provide for the administrative, legal, and

financial responsibilities of the organi>ation.C ndividuals enrolled in its health care

 programs pay an annual membership fee and are entitled to various preventive,

diagnostic and curative medical services provided by its duly licensed physicians,

specialists and other professional technical staff participating in the group practice

health delivery system at a hospital or clinic oned, operated or accredited by it.

#n January %), %000, respondent ommissioner of nternal 2evenue E2F sent

 petitioner a formal demand letter and the corresponding assessment notices

demanding the payment of deficiency taes, including surcharges and interest, for 

the taable years '((6 and '(() in the total amount of !%%&,)0%,6&'.';.

The deficiency Edocumentary stamp ta 85$T:F assessment as imposed on

 petitionerPs health care agreement ith the members of its health care program

 pursuant to $ection ';B of the '(() Ta ode

!etitioner protested the assessment in a letter dated 1ebruary %=, %000. +s

respondent did not act on the protest, petitioner filed a petition for revie in the

ourt of Ta +ppeals 8T+: see<ing the cancellation of the deficiency 3+T and 5$T

assessments.

#n +pril B, %00%, the T+ rendered a decision, the dispositive portion of hich read"

9H4241#24, in vie of the foregoing, the instant !etition for 2evie is

!+2T+**I 2+/T45. !etitioner is hereby #254245 to !+I the deficiency

3+T amounting to !%%,0B&,;='.)B inclusive of %BQ surcharge plus %0Q interest

from January %0, '(() until fully paid for the '((6 3+T deficiency

and !=',0(&,'6=.;) inclusive of %BQ surcharge plus %0Q interest from January %0,

'((; until fully paid for the '(() 3+T deficiency. +ccordingly, 3+T 2uling /o.

E%='F-;; is declared void and ithout force and effect. The '((6 and '(()

deficiency 5$T assessment against petitioner is hereby +/4**45 +/5 $4T

+$54. 2espondent is #254245 to 54$$T from collecting the said 5$T

deficiency ta.

$# #254245.

2espondent appealed the T+ decision to the Eourt of +ppeals 8+:F insofar as it

cancelled the 5$T assessment. He claimed that petitionerPs health care agreement

as a contract of insurance subect to 5$T under $ection ';B of the '(() Ta ode.

#n +ugust '6, %00&, the + rendered its decision. t held that petitionerPs health care

agreement as in the nature of a non-life insurance contract subect to 5$T.

9H4241#24, the petition for revie is 2+/T45. The 5ecision of the ourt of 

Ta +ppeals, insofar as it cancelled and set aside the '((6 and '(() deficiency

documentary stamp ta assessment and ordered petitioner to desist from collecting

the same is 24342$45 and $4T +$54.

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2espondent is ordered to pay the amounts of !BB,)&6,=B%.'( and !6;,&B0,%B;.)= as

deficiency 5ocumentary $tamp Ta for '((6 and '((), respectively, plus %BQ

surcharge for late payment and %0Q interest per annum from January %), %000,

 pursuant to $ections %&; and %&( of the Ta ode, until the same shall have been

fully paid.

$# #254245.

!etitioner moved for reconsideration but the + denied it. Hence, petitioner filed this

case.

n a decision dated June '%, %00;, the ourt denied the petition and affirmed the

+Ps decision. 9e held that petitionerPs health care agreement during the pertinent

 period as in the nature of non-life insurance hich is a contract of indemnity,

citing lue Cross 5ealthare, n. %. :li%ares= and -hilamare 5ealth !3stems, n.

%. CA.&9e also ruled that petitionerPs contention that it is a health maintenance

organi>ation 8HM#: and not an insurance company is irrelevant because contracts

 beteen companies li<e petitioner and the beneficiaries under their plans are treated

as insurance contracts. Moreover, 5$T is not a ta on the business transacted but an

ecise on the privilege, opportunity or facility offered at echanges for the

transaction of the business.

?nable to accept our verdict, petitioner filed the present motion for reconsideration

and supplemental motion for reconsideration, asserting the folloing arguments"

8a: The 5$T under $ection ';B of the /ational nternal 2evenue of '(() is

imposed only on a company engaged in the business of fidelity bonds and

other insurance policies. !etitioner, as an HM#, is a service provider, not an

insurance company.

8b: The ourt, in dismissing the appeal in C> %. -hilippine ational an ,

affirmed in effect the +Ps disposition that health care services are not in the

nature of an insurance business.

8c: $ection ';B should be strictly construed.

8d: *egislative intent to eclude health care agreements from items subect

to 5$T is clear, especially in the light of the amendments made in the 5$T

la in %00%.

8e: +ssuming aruendo that petitionerPs agreements are contracts of 

indemnity, they are not those contemplated under $ection ';B.

8f: +ssuming aruendo that petitionerPs agreements are a<in to health

insurance, health insurance is not covered by $ection ';B.

8g: The agreements do not fall under the phrase Cother branch of insuranceC

mentioned in $ection ';B.

8h: The June '%, %00; decision should only apply prospectively.

8i: !etitioner availed of the ta amnesty benefits under 2+B (&;0 for the

taable year %00B and all prior years. Therefore, the questioned assessments

on the 5$T are no rendered moot and academic.6

#ral arguments ere held in @aguio ity on +pril %%, %00(. The parties submitted

their memoranda on June ;, %00(.

n its motion for reconsideration, petitioner reveals for the first time that it availed of 

a ta amnesty under 2+ (&;0) 8also <non as the CTa +mnesty +ct of %00)C: by

fully paying the amount of !B,'%),'&(.0; representing BQ of its net orth as of the

year ending 5ecember =', %00B.;

9e find merit in petitionerPs motion for reconsideration.

!etitioner as formally registered and incorporated ith the $ecurities and 4change

ommission on June =0, '(;).( t is engaged in the dispensation of the folloing

medical services to individuals ho enter into health care agreements ith it"

reve!ive medical services such as periodic monitoring of health problems, family

 planning counseling, consultation and advices on diet, eercise and other healthy

habits, and immuni>ationD

/iaBos!i medical services such as routine physical eaminations, -rays,

urinalysis, fecalysis, complete blood count, and the li<e and

+'ra!ive medical services hich pertain to the performing of other remedial and

therapeutic processes in the event of an inury or sic<ness on the part of the enrolled

member.'0

ndividuals enrolled in its health care program pay an annual membership fee.

Membership is on a year-to-year basis. The medical services are dispensed to

enrolled members in a hospital or clinic oned, operated or accredited by petitioner,

through physicians, medical and dental practitioners under contract ith it. t

negotiates ith such health care practitioners regarding payment schemes, financing

and other procedures for the delivery of health services. 4cept in cases of 

emergency, the professional services are to be provided only by petitioners

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 physicians, i.e. those directly employed by it'' or hose services are contracted by

it.'% !etitioner also provides hospital services such as room and board

accommodation, laboratory services, operating rooms, -ray facilities and general

nursing care.'= f and hen a member avails of the benefits under the agreement,

 petitioner pays the participating physicians and other health care providers for the

services rendered, at pre-agreed rates.'&

To avail of petitionerPs health care programs, the individual members are required to

sign and eecute a standard health care agreement embodying the terms and

conditions for the provision of the health care services. The same agreement contains

the various health care services that can be engaged by the enrolled member, i.e.,

 preventive, diagnostic and curative medical services. 4cept for the curative aspect

of the medical service offered, the enrolled member may actually ma<e use of the

health care services being offered by petitioner at any time.

)ea$!# (ai!eae rBaiCa!ios Are No! EBaBed I 3#e Is'rae 4'siess

9e said in our June '%, %00; decision that it is irrelevant that petitioner is an HM#

and not an insurer because its agreements are treated as insurance contracts and the

5$T is not a ta on the business but an ecise on the privilege, opportunity or facility

used in the transaction of the business.'B

!etitioner, hoever, submits that it is of critical importance to characteri>e the

 business it is engaged in, that is, to determine hether it is an HM# or an insurance

company, as this distinction is indispensable in turn to the issue of hether or not it

is liable for 5$T on its health care agreements. '6

+ second hard loo< at the relevant la and urisprudence convinces the ourt that

the arguments of petitioner are meritorious.

$ection ';B of the /ational nternal 2evenue ode of '(() 8/2 of '(():

 provides"

$ection ';B. !tamp ta on fidelit3 bonds and other insurane poliies . R a$$:o$iies o" is'rae or bonds or obligations o" !#e a!'re o" idemi!; "or $oss,damaBe, or $iabi$i!; made or reeDed b; a; :erso, assoia!io or om:a; oror:ora!io !rasa!iB !#e b'siess o"  accident, fidelity, employerPs liability,

 plate, glass, steam boiler, burglar, elevator, automatic sprin<ler, or o!#er bra# o" is'rae @ee:! $i"e, marie, i$ad, ad "ire is'rae, and all bonds,

underta<ings, or recogni>ances, conditioned for the performance of the duties of any

office or position, for the doing or not doing of anything therein specified, and on all

obligations guaranteeing the validity or legality of any bond or other obligations

issued by any province, city, municipality, or other public body or organi>ation, and

on all obligations guaranteeing the title to any real estate, or guaranteeing any

mercantile credits, hich may be made or reneed by any such person, company or 

corporation, there shall be collected a documentary stamp ta of fifty centavos

8!0.B0: on each four pesos 8!&.00:, or fractional part thereof, of the premium

charged. 84mphasis supplied:

t is a cardinal rule in statutory construction that no ord, clause, sentence, provision

or part of a statute shall be considered surplusage or superfluous, meaningless, void

and insignificant. To this end, a construction hich renders every ord operative is

 preferred over that hich ma<es some ords idle and nugatory.') This principle is

epressed in the maim <t mais %aleat Buam pereat , that is, e choose the

interpretation hich gives effect to the hole of the statute R its every ord.';

1rom the language of $ection ';B, it is evident that !Do re&'isi!es must concur 

 before the 5$T can apply, namely" 8': the document must be a :o$i; o" is'raeor a ob$iBa!io i !#e a!'re o" idemi!; ad 8%:!#e maer s#o'$d be!rasa!iB !#e b'siess o"  accident, fidelity, employerPs liability, plate, glass,

steam boiler, burglar, elevator, automatic sprin<ler, or other branch

of is'rae 8ecept life, marine, inland, and fire insurance:.

!etitioner is admittedly an HM#. ?nder 2+ );)B 8or CThe /ational Health

nsurance +ct of '((BC:, an HM# is Can entity that provides, offers or arranges for 

coverage of designated health services needed by plan members for a fied prepaid

 premium.C'( The payments do not vary ith the etent, frequency or type of services

 provided.

The question is" as petitioner, as an HM#, engaged in the business of insurance

during the pertinent taable yearsG 9e rule that it as not.

$ection % 8%: of !5%0 '&60 8otherise <non as the nsurance ode: enumerates

hat constitutes Cdoing an insurance businessC or Ctransacting an insurance

 business"C

a: ma<ing or proposing to ma<e, as insurer, any insurance contractD

 b: ma<ing or proposing to ma<e, as surety, any contract of suretyship as a

vocation and not as merely incidental to any other legitimate business or 

activity of the suretyD

c: doing any <ind of business, including a reinsurance business, specifically

recogni>ed as constituting the doing of an insurance business ithin the

meaning of this odeD

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 ode.

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n the application of the provisions of this ode, the fact that no profit is derived

from the ma<ing of insurance contracts, agreements or transactions or that no

separate or direct consideration is received therefore, shall not be deemed conclusive

to sho that the ma<ing thereof does not constitute the doing or transacting of an

insurance business.

3arious courts in the ?nited $tates, hose urisprudence has a persuasive effect on

our decisions,%' have determined that HM#s are not in the insurance business. #ne

test that they have applied is hether the assumption of ris< and indemnification of 

loss 8hich are elements of an insurance business: are the principal obect and

 purpose of the organi>ation or hether they are merely incidental to its business. f 

these are the principal obectives, the business is that of insurance. @ut if they are

merely incidental and service is the principal purpose, then the business is not

insurance.

+pplying the Cprincipal obect and purpose test,C%% there is significant +merican case

la supporting the argument that a corporation 8such as an HM#, hether or not

organi>ed for profit:, hose main obect is to provide the members of a group ith

health services, is not engaged in the insurance business.

The rule as enunciated in Jordan %. ;roup 5ealth Assoiation%= herein the ourt

of +ppeals of the 5istrict of olumbia ircuit held that roup Health +ssociation

should not be considered as engaged in insurance activities since it as created

 primarily for the distribution of health care services rather than the assumption of 

insurance ris<.

+lthough roup HealthPs activities may be considered in one aspect as creating

security against loss from illness or accident more truly they constitute the quantity

 purchase of ell-rounded, continuous medical service by its members. 3#e"'!ios o" s'# a orBaiCa!io are o! ide!ia$ Di!# !#ose o" is'rae oridemi!; om:aies. The latter are concerned primarily, if not eclusively, ith

ris< and the consequences of its descent, not ith service, or its etension in <ind,

quantity or distributionD ith the unusual occurrence, not the daily routine of living.

Ha>ard is predominant. !#e o!#er #ad, !#e oo:era!ive is oered:rii:a$$; Di!# Be!!iB servie redered !o i!s members ad doiB so a! $oDer:ries made :ossib$e b; &'a!i!; :'r#asiB ad eoomies i o:era!io. I!s:rimar; :'r:ose is !o red'e !#e os! ra!#er !#a !#e ris o" media$ are !obroade !#e servie !o !#e idivid'a$ i id ad &'a!i!; !o e$arBe !#e'mber reeiviB i! !o reB'$ariCe i! as a ever;da; iide! o" $iviB, $ie:'r#asiB "ood ad $o!#iB or oi$ ad Bas, ra!#er !#a mere$; :ro!e!iBaBais! !#e "iaia$ $oss a'sed b; e!raordiar; ad ''s'a$ o'rrees,s'# as dea!#, disas!er a! sea, "ire ad !orado.  t is, in this instance, to ta<e care

of colds, ordinary aches and pains, minor ills and all the temporary bodily

discomforts as ell as the more serious and unusual illness. 3o s'mmariCe, !#e

dis!i!ive "ea!'res o" !#e oo:era!ive are !#e rederiB o" servie, i!s e!esio,!#e briBiB o" :#;siia ad :a!ie! !oBe!#er, !#e :reve!ive "ea!'res, !#ereB'$ariCa!io o" servie as De$$ as :a;me!, !#e s'bs!a!ia$ red'!io i os! b;&'a!i!; :'r#asiB i s#or!, Be!!iB !#e media$ Hob doe ad :aid "or o!,ee:! iide!a$$; !o !#ese "ea!'res, !#e idemi"ia!io "or os! a"!er !#eservies is redered. Ee:! !#e $as!, !#ese are o! dis!i!ive or Beera$$;#ara!eris!i o" !#e is'rae arraBeme!.  There is, therefore, a substantial

difference beteen contracting in this ay for the rendering of service, even on the

contingency that it be needed, and contracting merely to stand its cost hen or after 

it is rendered.

That an incidental element of ris< distribution or assumption may be present should

not outeigh all other factors. f attention is focused only on that feature, the line

 beteen insurance or indemnity and other types of legal arrangement and economic

function becomes faint, if not etinct. This is especially true hen the contract is for 

the sale of goods or services on contingency. @ut obviously it as not the purpose of 

the insurance statutes to regulate all arrangements for assumption or distribution of 

ris<. That vie ould cause them to engulf practically all contracts, particularly

conditional sales and contingent service agreements. 3#e "a$$a; is i $ooiB o$;a! !#e ris e$eme!, !o !#e e$'sio o" a$$ o!#ers :rese! or !#eir s'bordia!io!o i!. 3#e &'es!io !'rs, o! o D#e!#er ris is ivo$ved or ass'med, b'! o

D#e!#er !#a! or some!#iB e$se !o D#i# i! is re$a!ed i !#e :ar!i'$ar :$a is i!s:rii:a$ obHe! :'r:ose.%& 84mphasis supplied:

n California -h3siiansH !er%ie %. ;arrison,%B the alifornia court felt that, after 

scrutini>ing the plan of operation as a hole of the corporation, it as service rather 

than indemnity hich stood as its principal purpose.

There is another and more compelling reason for holding that the service is not

engaged in the insurance business. Absee or :resee o" ass'm:!io o" ris or:eri$ is o! !#e so$e !es! !o be a::$ied i de!ermiiB i!s s!a!'s. 3#e &'es!io,more broad$;, is D#e!#er, $ooiB a! !#e :$a o" o:era!io as a D#o$e, servieJra!#er !#a idemi!;J is i!s :rii:a$ obHe! ad :'r:ose.  ertainly the obects

and purposes of the corporation organi>ed and maintained by the alifornia physicians have a ide scope in the field of social service. robab$; !#ere is omore im:e$$iB eed !#a !#a! o" ade&'a!e media$ are o a vo$'!ar;, $oD-os!basis "or :ersos o" sma$$ iome. 3#e media$ :ro"essio 'i!ed$; isedeavoriB !o mee! !#a! eed. U&'es!ioab$; !#is is servieJ o" a #iB# orderad o! idemi!;.J%6 84mphasis supplied:

+merican courts have pointed out that the main difference beteen an HM# and an

insurance company is that HM#s underta<e to provide or arrange for the provision

of medical services through participating physicians hile insurance companies

simply underta<e to indemnify the insured for medical epenses incurred up to a pre-

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agreed limit. !omerset  :rthopedi Assoiates, -.A. %. 5orion lue Cross and lue

!hield of e" Jerse3%) is clear on this point"

The basic distinction beteen medical service corporations and ordinary health and

accident insurers is that the former underta<e to provide prepaid medical

services !#ro'B# :ar!ii:a!iB :#;siias, thus relieving subscribers of any further 

financial burden, hile the latter only underta<e to indemnify an insured for medical

epenses up to, but not beyond, the schedule of rates contained in the policy.

The primary purpose of a medical service corporation, hoever, is an underta<ing to

 provide physicians ho ill render services to subscribers on a prepaid

 basis. )ee, i" !#ere are o :#;siias :ar!ii:a!iB i !#e media$ servieor:ora!ioJs :$a, o! o$; Di$$ !#e s'bsribers be de:rived o" !#e :ro!e!ioD#i# !#e; miB#! reasoab$; #ave e:e!ed Do'$d be :rovided, b'! !#eor:ora!io Di$$, i e""e!, be doiB b'siess so$e$; as a #ea$!# ad aide!idemi!; is'rer ithout having qualified as such and rendering itself subect to

the more stringent financial requirements of the eneral nsurance *asS.

+ participating provider of health care services is one ho agrees in riting to render 

health care services to or for persons covered by a contract issued by health service

corporation in return "or D#i# !#e #ea$!# servie or:ora!io aBrees !o mae:a;me! dire!$; !o !#e :ar!ii:a!iB :rovider.%; 84mphasis supplied:

onsequently, the mere presence of ris< ould be insufficient to override the

 primary purpose of the business to provide medical services as needed, ith payment

made directly to the provider of these services. %( n short, even if petitioner assumes

the ris< of paying the cost of these services even if significantly more than hat the

member has prepaid, it nevertheless cannot be considered as being engaged in the

insurance business.

@y the same to<en, any indemnification resulting from the payment for services

rendered in case of emergency by non-participating health providers ould still be

incidental to petitionerPs purpose of providing and arranging for health care services

and does not transform it into an insurer. To fulfill its obligations to its members

under the agreements, petitioner is required to set up a system and the facilities for 

the delivery of such medical services. This indubitably shos that indemnification is

not its sole obect.

n fact, a substantial portion of petitionerPs services covers preventive and diagnostic

medical services intended to <eep members from developing medical conditions or 

diseases.=0 +s an HM#, it is its obligation to maintain the good health of its

members. AordiB$;, i!s #ea$!# are :roBrams are desiBed !o :reve! or !o

miimiCe !#e :ossibi$i!; o" a; ass'm:!io o" ris o i!s :ar!. Thus, its

underta<ing under its agreements is not to indemnify its members against any loss or 

damage arising from a medical condition but, on the contrary, to provide the health

and medical services needed to prevent such loss or damage.='

#verall, petitioner appears to provide insurance-type benefits to its members 8ith

respect to its 'ra!ive medical services:, but these are incidental to the principal

activity of providing them medical care. The Cinsurance-li<eC aspect of petitionerPs

 business is miniscule compared to its noninsurance activities. Therefore, since it

substantially provides health care services rather than insurance services, it cannot be

considered as being in the insurance business.

t is important to emphasi>e that, in adopting the Cprincipal purpose testC used in the

above-quoted ?.$. cases, e are not saying that petitionerPs operations are identical

in every respect to those of the HM#s or health providers hich ere parties to

those cases. 9hat e are stating is that, for the purpose of determining hat Cdoing

an insurance businessC means, e have to scrutini>e the operations of the business as

a hole and not its mere components. This is of course only prudent and appropriate,

ta<ing into account the burdensome and strict las, rules and regulations applicable

to insurers and other entities engaged in the insurance business. Moreover, e are

also not unmindful that there are other +merican authorities ho have found

 particular HM#s to be actually engaged in insurance activities.=%

*astly, it is significant that petitioner, as an HM#, is not part of the insurance

industry. This is evident from the fact that it is not supervised by the nsurance

ommission but by the 5epartment of Health.== n fact, in a letter dated $eptember =,

%000, the nsurance ommissioner confirmed that petitioner is not engaged in the

insurance business. This determination of the commissioner must be accorded great

eight. t is ell-settled that the interpretation of an administrative agency hich is

tas<ed to implement a statute is accorded great respect and ordinarily controls the

interpretation of las by the courts. The reason behind this rule as eplained

in estle -hilippines, n. %. Court of Appeals"=&

The rationale for this rule relates not only to the emergence of the multifarious needsof a modern or moderni>ing society and the establishment of diverse administrative

agencies for addressing and satisfying those needsD it also relates to the accumulation

of eperience and groth of speciali>ed capabilities by the administrative agency

charged ith implementing a particular statute. n Asturias !uar Central, n. %s.

Commissioner of Customs,=Bthe ourt stressed that eecutive officials are presumed

to have familiari>ed themselves ith all the considerations pertinent to the meaning

and purpose of the la, and to have formed an independent, conscientious and

competent epert opinion thereon. The courts give much eight to the government

agency officials charged ith the implementation of the la, their competence,

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epertness, eperience and informed udgment, and the fact that they frequently are

the drafters of the la they interpret.=6

A )ea$!# +are ABreeme! Is No! A Is'rae +o!ra! +o!em:$a!ed Uder*e!io 185 " 3#e NIR+ o" 199

$ection ';B states that 5$T is imposed on Call policies of insuranceS or obligations

of the nature of indemnity for loss, damage, or liabilityS.C n our decision dated

June '%, %00;, e ruled that petitionerPs health care agreements are contracts of 

indemnity and are therefore insurance contracts"

t is S incorrect to say that the health care agreement is not based on loss or damage

 because, under the said agreement, petitioner assumes the liability and indemnifies

its member for hospital, medical and related epenses 8such as professional fees of 

 physicians:. The term Closs or damageC is broad enough to cover the monetary

epense or liability a member ill incur in case of illness or inury.

?nder the health care agreement, the rendition of hospital, medical and professional

services to the member in case of sic<ness, inury or emergency or his availment of 

so-called Cout-patient servicesC 8including physical eamination, -ray and

laboratory tests, medical consultations, vaccine administration and family planning

counseling: is the contingent event hich gives rise to liability on the part of the

member. n case of eposure of the member to liability, he ould be entitled to

indemnification by petitioner.

1urthermore, the fact that petitioner must relieve its member from liability by paying

for epenses arising from the stipulated contingencies belies its claim that its

services are prepaid. The epenses to be incurred by each member cannot be

 predicted beforehand, if they can be predicted at all. !etitioner assumes the ris< of 

 paying for the costs of the services even if they are significantly and substantially

more than hat the member has Cprepaid.C !etitioner does not bear the costs alone

 but distributes or spreads them out among a large group of persons bearing a similar 

ris<, that is, among all the other members of the health care program. This is

insurance.=)

9e reconsider. 9e shall quote once again the pertinent portion of $ection ';B"

$ection ';B. !tamp ta on fidelit3 bonds and other insurane poliies . R a$$:o$iies o" is'rae or bondsor ob$iBa!ios o" !#e a!'re o" idemi!; "or $oss,damaBe, or $iabi$i!; made or reneed by any person, association or company or 

corporation transacting the business of accident, fidelity, employerPs liability, plate,

glass, steam boiler, burglar, elevator, automatic sprin<ler, or other branch of 

insurance 8ecept life, marine, inland, and fire insurance:, 84mphasis supplied:

n construing this provision, e should be guided by the principle that ta statutes

are strictly construed against the taing authority.=; This is because taation is a

destructive poer hich interferes ith the personal and property rights of the

 people and ta<es from them a portion of their property for the support of the

government.=(Hence, ta las may not be etended by implication beyond the clear 

import of their language, nor their operation enlarged so as to embrace matters not

specifically provided.&0

9e are aare that, in lue Cross and -hilamare, the ourt pronounced that a health

care agreement is in the nature of non-life insurance, hich is primarily a contract of 

indemnity. Hoever, those cases did not involve the interpretation of a ta provision.

nstead, they dealt ith the liability of a health service provider to a member under 

the terms of their health care agreement. $uch contracts, as contracts of adhesion, are

liberally interpreted in favor of the member and strictly against the HM#. 1or this

reason, e reconsider our ruling that lue Crossand -hilamare are applicable here.

$ection % 8': of the nsurance ode defines a contract of insurance as an agreement

hereby one underta<es for a consideration to indemnify another against loss,

damage or liability arising from an un<non or contingent event. +n insurance

contract eists here the folloing elements concur"

'. The insured has an insurable interestD

%. The insured is subect to a ris< of loss by the happening of the designed

 perilD

=. The insurer assumes the ris<D

&. $uch assumption of ris< is part of a general scheme to distribute actual

losses among a large group of persons bearing a similar ris< and

B. n consideration of the insurerPs promise, the insured pays a premium.&'

5o the agreements beteen petitioner and its members possess all these elementsG

They do not.

 First . n our urisdiction, a commentator of our insurance las has pointed out that,

even if a contract contains all the elements of an insurance contract, if its primary

 purpose is the rendering of service, it is not a contract of insurance"

t does not necessarily follo hoever, that a contract containing all the four 

elements mentioned above ould be an insurance contract. 3#e :rimar; :'r:ose o" !#e :ar!ies i maiB !#e o!ra! ma; eBa!e !#e eis!ee o" a is'raeo!ra!. 1or eample, a la firm hich enters into contracts ith clients hereby

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in consideration of periodical payments, it promises to represent such clients in all

suits for or against them, is not engaged in the insurance business. ts contracts are

simply for the purpose of rendering personal services. #n the other hand, a contract

 by hich a corporation, in consideration of a stipulated amount, agrees at its on

epense to defend a physician against all suits for damages for malpractice is one of 

insurance, and the corporation ill be deemed as engaged in the business of 

insurance. ?nli<e the layerPs retainer contract, the essential purpose of such a

contract is not to render personal services, but to indemnify against loss and damage

resulting from the defense of actions for malpractice.&% 84mphasis supplied:

!eond . /ot all the necessary elements of a contract of insurance are present in

 petitionerPs agreements. To begin ith, there is no loss, damage or liability on the

 part of the member that should be indemnified by petitioner as an HM#. ?nder the

agreement, the member pays petitioner a predetermined consideration in echange

for the hospital, medical and professional services rendered by the petitionerPs

 physician or affiliated physician to him. n case of availment by a member of the

 benefits under the agreement, petitioner does not reimburse or indemnify the

member as the latter does not pay any third party. nstead, it is the petitioner ho

 pays the participating physicians and other health care providers for the services

rendered at pre-agreed rates. The member does not ma<e any such payment.

n other ords, there is nothing in petitioners agreements that gives rise to amonetary liability on the part of the member to any third party-provider of medical

services hich might in turn necessitate indemnification from petitioner. The terms

CindemnifyC or CindemnityC presuppose that a liability or claim has already been

incurred. There is no indemnity precisely because the member merely avails of 

medical services to be paid or already paid in advance at a pre-agreed price under the

agreements.

8hird . +ccording to the agreement, a member can ta<e advantage of the bul< of the

 benefits anytime, e..laboratory services, -ray, routine annual physical eamination

and consultations, vaccine administration as ell as family planning counseling,

even in the absence of any peril, loss or damage on his or her part.

 Fourth. n case of emergency, petitioner is obliged to reimburse the member ho

receives care from a non-participating physician or hospital. Hoever, this is only a

very minor part of the list of services available. The assumption of the epense by

 petitioner is not confined to the happening of a contingency but includes incidents

even in the absence of illness or inury.

n $ihian -odiatri $edial Assoiation %. ational Foot Care -roram,

 n.,&= although the health care contracts called for the defendant to partially

reimburse a subscriber for treatment received from a non-designated doctor, this did

not ma<e defendant an insurer. iting Jordan, the ourt determined that Cthe primary

activity of the defendant 8as: the provision of podiatric services to subscribers in

consideration of prepayment for such services.C&& $ince indemnity of the insured as

not the focal point of the agreement but the etension of medical services to the

member at an affordable cost, it did not parta<e of the nature of a contract of 

insurance.

 Fifth. +lthough ris< is a primary element of an insurance contract, it is not

necessarily true that ris< alone is sufficient to establish it. +lmost anyone ho

underta<es a contractual obligation alays bears a certain degree of financial ris<.

onsequently, there is a need to distinguish prepaid service contracts 8li<e those of 

 petitioner: from the usual insurance contracts.

ndeed, petitioner, as an HM#, underta<es a business ris< hen it offers to provide

health services" the ris< that it might fail to earn a reasonable return on its

investment. @ut it is not the ris< of the type peculiar only to insurance companies.

nsurance ris<, also <non as actuarial ris<, is the ris< that the cost of insurance

claims might be higher than the premiums paid. The amount of premium is

calculated on the basis of assumptions made relative to the insured.&B

Hoever, assuming that petitionerPs commitment to provide medical services to its

members can be construed as an acceptance of the ris< that it ill shell out more than

the prepaid fees, it still ill not qualify as an insurance contract because petitionerPsobective is to provide medical services at reduced cost, not to distribute ris< li<e an

insurer.

n sum, an eamination of petitionerPs agreements ith its members leads us to

conclude that it is not an insurance contract ithin the contet of our nsurance

ode.

3#ere ?as No LeBis$a!ive I!e! 3o Im:ose /*3 )ea$!# +are ABreeme!s" )(s

1urthermore, militating in convincing fashion against the imposition of 5$T on

 petitionerPs health care agreements under $ection ';B of the /2 of '(() is the

 provisionPs legislative history. The tet of $ection ';B came into ?.$. la as early as

'(0& hen HM#s and health care agreements ere not even in eistence in this

 urisdiction. t as imposed under $ection ''6, +rticle A of +ct /o. '';(

8otherise <non as the Cnternal 2evenue *a of '(0&C: &6 enacted on July %, '(0&

and became effective on +ugust ', '(0&. 4cept for the rate of ta, $ection ';B of 

the /2 of '(() is a verbatim reproduction of the pertinent portion of $ection ''6,

to it"

+2T*4 A

*!am: 3aes on $pecified #bects

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$ection ''6. There shall be levied, collected, and paid for and in respect to the

several bonds, debentures, or certificates of stoc< and indebtedness, and other 

documents, instruments, matters, and things mentioned and described in this section,

or for or in respect to the vellum, parchment, or paper upon hich such instrument,

matters, or things or any of them shall be ritten or printed by any person or persons

ho shall ma<e, sign, or issue the same, on and after January first, nineteen hundred

and five, the several taes folloing"

Third @ o a$$ :o$iies o" is'rae or bod or ob$iBa!io o" !#e a!'re o" idemi!; "or $oss, damaBe, or $iabi$i!; made or reeDed b; a; :erso,assoia!io, om:a;, or or:ora!io !rasa!iB !#e b'siess o" aide!,"ide$i!;, em:$o;erJs $iabi$i!;, :$a!e B$ass, s!eam boi$er, b'rB$ar, e$eva!or,a'!oma!i s:ri$e, or o!#er bra# o" is'rae @ee:! $i"e, marie, i$ad,ad "ire is'rae  84mphasis supplied:

#n 1ebruary %), '('&, +ct /o. %==( 8the nternal 2evenue *a of '('&: as

enacted revising and consolidating the las relating to internal revenue. The

aforecited pertinent portion of $ection ''6, +rticle A of +ct /o. '';( as

completely reproduced as $ection =0 8l:, +rticle of +ct /o. %==(. The very

detailed and eclusive enumeration of items subect to 5$T as thus retained.

#n 5ecember =', '('6, $ection =0 8l:, +rticle of +ct /o. %==( as again

reproduced as $ection '60& 8l:, +rticle 3 of +ct /o. %6B) 8+dministrative ode:.

?pon its amendment on March '0, '('), the pertinent 5$T provision became

$ection '&&( 8l: of +ct /o. %)'', otherise <non as the +dministrative ode of 

'(').

$ection '&&( 8': eventually became $ec. %%% of ommonealth +ct /o. &66 8the

 /2 of '(=(:, hich codified all the internal revenue las of the !hilippines. n an

amendment introduced by 2+ &0 on #ctober ', '(&6, the 5$T rate as increased

 but the provision remained substantially the same.

Thereafter, on June =, '()), the same provision ith the same 5$T rate as

reproduced in !5 ''B; 8/2 of '()): as $ection %=&. ?nder !5s '&B) and '(B(,

enacted on June '', '(); and #ctober '0, '(;& respectively, the 5$T rate as again

increased.1a%%phi1

4ffective January ', '(;6, pursuant to $ection &B of !5 '((&, $ection %=& of the

 /2 of '()) as renumbered as $ection '(;. +nd under $ection %= of 4#&) %)=

dated July %B, '(;), it as again renumbered and became $ection ';B.

#n 5ecember %=, '((=, under 2+ )660, $ection ';B as amended but, again, only

ith respect to the rate of ta.

 /otithstanding the comprehensive amendment of the /2 of '()) by 2+ ;&%&

8or the /2 of '(():, the subect legal provision as retained as the present $ection

';B. n %00&, amendments to the 5$T provisions ere introduced by 2+ (%&= &; but

$ection ';B as untouched.

#n the other hand, the concept of an HM# as introduced in the !hilippines ith

the formation of @ancom Health are orporation in '()&. The same pioneer HM#

as later reorgani>ed and renamed ntegrated Health are $ervices, nc. 8or 

ntercare:. Hoever, there are those ho claim that Health Maintenance, nc. is the

HM# industry pioneer, having set foot in the !hilippines as early as '(6B and having

 been formally incorporated in '(('. +fterards, HM#s proliferated quic<ly and

currently, there are =6 registered HM#s ith a total enrollment of more than %

million.&(

9e can clearly see from these to histories 8of the 5$T on the one hand and HM#s

on the other: that hen the la imposing the 5$T as first passed, HM#s ere yet

un<non in the !hilippines. Hoever, hen the various amendments to the 5$T la

ere enacted, they ere already in eistence in the !hilippines and the term had in

fact already been defined by 2+ );)B. f it had been the intent of the legislature toimpose 5$T on health care agreements, it could have done so in clear and

categorical terms. t had many opportunities to do so. @ut it did not. The fact that the

 /2 contained no specific provision on the 5$T liability of health care agreements

of HM#s at a time they ere already <non as such, belies any legislative intent to

impose it on them. As a ma!!er o" "a!, :e!i!ioer Das assessed i!s /*3 $iabi$i!;o$; o %a'ar; 2, 2000, a"!er more !#a a deade i !#e b'siess as a)(.B0

onsidering that $ection ';B did not change since '(0& 8ecept for the rate of ta:, it

ould be safe to say that health care agreements ere never, at any time, recogni>ed

as insurance contracts or deemed engaged in the business of insurance ithin the

contet of the provision.

3#e oDer 3o 3a Is No! 3#e oDer 3o /es!ro;

+s a general rule, the poer to ta is an incident of sovereignty and is unlimited in

its range, ac<noledging in its very nature no limits, so that security against its abuse

is to be found only in the responsibility of the legislature hich imposes the ta on

the constituency ho is to pay it.B' $o potent indeed is the poer that it as once

opined that Cthe poer to ta involves the poer to destroy.CB%

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!etitioner claims that the assessed 5$T to date hich amounts to !=)6 millionB= is

ay beyond its net orth of!%B( million.B& 2espondent never disputed these

assertions. iven the realities on the ground, imposing the 5$T on petitioner ould

 be highly oppressive. t is not the purpose of the government to throttle private

 business. #n the contrary, the government ought to encourage private

enterprise.BB !etitioner, ust li<e any concern organi>ed for a laful economic

activity, has a right to maintain a legitimate business.B6 +s aptly held in >oas, et al.

%. C8A, et al."B)

The poer of taation is sometimes called also the poer to destroy. Therefore itshould be eercised ith caution to minimi>e inury to the proprietary rights of a

tapayer. t must be eercised fairly, equally and uniformly, lest the ta collector <ill

the Chen that lays the golden egg.CB;

*egitimate enterprises enoy the constitutional protection not to be taed out of 

eistence. ncurring losses because of a ta imposition may be an acceptable

consequence but <illing the business of an entity is another matter and should not be

alloed. t is counter-productive and ultimately subversive of the nationPs thrust

toards a better economy hich ill ultimately benefit the maority of our people.B(

e!i!ioerJs 3a Liabi$i!; ?as E!iB'is#ed Uder 3#e rovisios " RA 980

!etitioner asserts that, regardless of the arguments, the 5$T assessment for taable

years '((6 and '(() became moot and academic60 hen it availed of the ta amnesty

under 2+ (&;0 on 5ecember '0, %00). t paid!B,'%),'&(.0; representing BQ of its

net orth as of the year ended 5ecember =', %00B and complied ith all

requirements of the ta amnesty. ?nder $ection 68a: of 2+ (&;0, it is entitled to

immunity from payment of taes as ell as additions thereto, and the appurtenant

civil, criminal or administrative penalties under the '(() /2, as amended, arising

from the failure to pay any and all internal revenue taes for taable year %00B and

 prior years.6'

1ar from disagreeing ith petitioner, respondent manifested in its memorandum"

$ection 6 of E2+ (;&0F provides that availment of ta amnesty entitles a tapayer to

immunity from payment of the ta involved, including the civil, criminal, or 

administrative penalties provided under the '(() E/2F, for ta liabilities arising in

%00B and the preceding years.

n vie of petitionerPs availment of the benefits of E2+ (;&0F, and ithout

conceding the merits of this case as discussed above, res:ode! oedes !#a!s'# !a ames!; e!iB'is#es !#e !a $iabi$i!ies o" :e!i!ioer . This admission,

hoever, is not meant to preclude a revocation of the amnesty granted in case it is

found to have been granted under circumstances amounting to ta fraud under 

$ection '0 of said amnesty la.6%84mphasis supplied:

1urthermore, e held in a recent case that 5$T is one of the taes covered by the ta

amnesty program under 2+ (&;0.6= There is no other conclusion to dra than that

 petitionerPs liability for 5$T for the taable years '((6 and '(() as totally

etinguished by its availment of the ta amnesty under 2+ (&;0.

Is 3#e +o'r! 4o'd 4; A (i'!e Reso$'!io I Ao!#er +aseK

!etitioner raises another interesting issue in its motion for reconsideration" hether 

this ourt is bound by the ruling of the +6& in C> %. -hilippine ational 

 an 6B that a health care agreement of !hilamcare Health $ystems is not an insurance

contract for purposes of the 5$T.

n support of its argument, petitioner cites the +ugust %(, %00' minute resolution of 

this ourt dismissing the appeal in -hilippine ational an 8.2. /o.

'&;6;0:.66 !etitioner argues that the dismissal of .2. /o. '&;6;0 by minute

resolution as a udgment on the meritsD hence, the ourt should apply the + ruling

there that a health care agreement is not an insurance contract.

t is true that, although contained in a minute resolution, our dismissal of the petition

as a disposition of the merits of the case. 9hen e dismissed the petition, e

effectively affirmed the + ruling being questioned. +s a result, our ruling in that

case has already become final.6) 9hen a minute resolution denies or dismisses a

 petition for failure to comply ith formal and substantive requirements, the

challenged decision, together ith its findings of fact and legal conclusions, are

deemed sustained.6; @ut hat is its effect on other casesG

9ith respect to the same subect matter and the same issues concerning the same

 parties, it constitutes res udiata.6( Hoever, if other parties or another subect

matter 8even ith the same parties and issues: is involved, the minute resolution is

not binding precedent. Thus, in C> %. aieriel ,)0 the ourt noted that a previous

case, C> %. aieriel )' ivo$viB !#e same :ar!ies ad !#e same iss'es , as

 previously disposed of by the ourt thru a minute resolution dated 1ebruary '), %00=

sustaining the ruling of the +. /onetheless, the ourt ruled that !#e :revio's ase#a@d o beariB on the latter case  because the to cases involved different

subect matters as they ere concerned ith the taable income of different taable

years.)%

@esides, there are substantial, not simply formal, distinctions beteen a minute

resolution and a decision. The constitutional requirement under the first paragraph of 

$ection '&, +rticle 3 of the onstitution that the facts and the la on hich the

 udgment is based must be epressed clearly and distinctly applies only to decisions,

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not to minute resolutions. + minute resolution is signed only by the cler< of court by

authority of the ustices, unli<e a decision. t does not require the certification of the

hief Justice. Moreover, unli<e decisions, minute resolutions are not published in the

!hilippine 2eports. 1inally, the proviso of $ection &8=: of +rticle 3 spea<s of a

decision.)= ndeed, as a rule, this ourt lays don doctrines or principles of la

hich constitute binding precedent in a decision duly signed by the members of the

ourt and certified by the hief Justice.

+ccordingly, since petitioner as not a party in .2. /o. '&;6;0 and since

 petitionerPs liability for 5$T on its health care agreement as not the subect matter of .2. /o. '&;6;0, petitioner cannot successfully invo<e the minute resolution in

that case 8hich is not even binding precedent: in its favor. /onetheless, in vie of 

the reasons already discussed, this does not detract in any ay from the fact that

 petitionerPs health care agreements are not subect to 5$T.

A Fia$ No!e

Ta<ing into account that health care agreements are clearly not ithin the ambit of 

$ection ';B of the /2 and there as never any legislative intent to impose the

same on HM#s li<e petitioner, the same should not be arbitrarily and unustly

included in its coverage.

t is a matter of common <noledge that there is a great social need for adequate

medical services at a cost hich the average age earner can afford. HM#s arrange,

organi>e and manage health care treatment in the furtherance of the goal of providing

a more efficient and inepensive health care system made possible by quantity

 purchasing of services and economies of scale. They offer advantages over the pay-

for-service system 8herein individuals are charged a fee each time they receive

medical services:, including the ability to control costs. They protect their members

from eposure to the high cost of hospitali>ation and other medical epenses brought

about by a fluctuating economy. +ccordingly, they play an important role in society

as partners of the $tate in achieving its constitutional mandate of providing its

citi>ens ith affordable health services.

The rate of 5$T under $ection ';B is equivalent to '%.BQ of the premium

charged.)& ts imposition ill elevate the cost of health care services. This ill in turn

necessitate an increase in the membership fees, resulting in either placing health

services beyond the reach of the ordinary age earner or driving the industry to the

ground. +t the end of the day, neither side ins, considering the indispensability of 

the services offered by HM#s.

?)EREFRE, the motion for reconsideration is GRAN3E/. The +ugust '6,

%00& decision of the ourt of +ppeals in +-.2. $!

 /o. )0&)( is REER*E/ and *E3 A*I/E. The '((6 and '(() deficiency 5$T

assessment against petitioner is hereby +AN+ELLE/ and *E3A*I/E. 2espondent is ordered to desist from collecting the said ta.

 /o costs.

* R/ERE/.

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