Serrano v. CA 11. CA: affirmed SSS. Hence, this petition.

[G.R. No. L-35529, July 16, 1984, MAKASIAR, J.]

Petitioner: Nora Cansing Serrano
Respondent: CA and SSS
Topic: General

Doctrine: Ambiguity in words of insurance contract shall be

interpreted in favor of its beneficiary.

FACTS:

1. Upon application of the SSS, a Group Mortgage Redemption

Policy was issued by Private Life Insurance Companies for a
group life insurance policy on the lives of housing loan
mortgagors of the SSS.
2. Under this Group Mortgage Redemption scheme, a grantee of a
housing loan of SSS is required to mortgage the house
constructed out of the loan and the lot on which it stands.
3. SSS takes a life insurance on the eligible mortgagor to the
extent of the mortgage indebtedness such that if the
mortgagor dies, the proceeds of his life insurance under the
policy will be used to pay his indebtedness to the SSS and the
deceased's heirs will thereby be relieved of the burden of
paying for the amortization of the deceased's still unpaid loan
to the SSS.
4. Petitioner herein is the widow of the late Bernardo Serrano,
who, at the time of his death, was an airline pilot of Air Manila,
Inc. and as such was a member of the SSS.
5. SSS approved the real estate mortgage loan of the late Capt.
Serrano for P37,400.00 for the construction of the applicant's
house.
6. A partial release in the amount of P35,400.00 was effected and
devoted to the construction of the house. As a consequence, a
mortgage contract was executed in favor of SSS by the late
Capt. Serrano with his wife as co-mortgagor.
7. On March 8, 1968, Capt. Serrano died in a plane crash and
because of his death, SSS closed his housing loan account to
the released amount of P35,400.00.
8. Petitioner sent a letter addressed to the Chairman of SSS
requesting that the benefits of the Group Mortgage Redemption
Insurance be extended to her.
9. The letter was referred to the Administrator of SSS, who
recommended its disapproval on the ground that the late Capt.
Serrano was not yet covered by the Group Mortgage
Redemption Insurance policy at the time of his death.
10. SSS: sustained the said stand and denied petitioners request.
ISSUE/S: WON CA erred in construing the effectivity date of the words or stipulations in a contract shall not favor the
insurance coverage from the beginning of the amortization period party who caused the obscurity" (Article 1377, Civil
of the Mortgage Loan. YES Code). The provisions, conditions or exceptions tending
to work a forfeiture of insurance policies should be
HELD: CA set aside. SSS is directed to release the petitioner from construed most strongly against those for whose
paying the mortgage loan. Petitioner is directed to refund to the benefit they are inserted, and most favorably toward
SSS the premium corresponding to the released amount, if the those against whom they are intended to operate.
same had not been deducted therefrom. 8. While the issuance of the Group Mortgage Redemption
Insurance is a contract between SSS and the Private Life
RATIO: Insurance Companies, the fact is that SSS entered into such a
contract to afford protection not only to itself should the
1. There can be no doubt as to the eligibility of the late Capt. mortgagor die before fully paying the loan, but also to afford
Serrano for coverage under Sec. 1 of Art. II of the Group protection to the mortgagor.
Mortgage Redemption Insurance Policy as he was a mortgagor 9. WE take note of the following:
of SSS not over the age of 65 nearest his birthday at the time I. Insurance Coverage.
when the mortgage loan was granted to him. 1. Fire insurance. The SSS-financed house shall be
2. The problem manifests itself in Secs. 2 and 3 of the same covered by fire insurance equal to its appraised value or
article of the said policy. Sec 2 provides that "any mortgagor the amount of the loan, whichever is lesser.
who is eligible for coverage on or after the Date of Issue shall 2. Mortgage Redemption Insurance. Coverage shall be
be automatically insured,..."; while Sec 3 provides that the compulsory for any mortgagor who is not more than 60
insurance "shall take effect from the beginning of the years old.
amortization period of such Mortgage loan or partial release of The insured indebtedness on the mortgage as provided in
Mortgage Loan" the policy shall be deemed paid upon the death of a
3. Under Sec. 2, the mortgagor who is eligible for coverage on or mortgagor covered under the MRI (Employees' Benefits &
after the date of issue shall be automatically insured. The only Social Welfare, 1983 Rev. Ed., CBSI, pp. 50-51).
condition is that the age requirement should be satisfied, which 10. On the part of SSS, it has to enter into such form of contract so
had been complied with by Bernardo. The mortgage that in the event of the unexpected demise of the mortgagor
redemption insurance is not just automatic; it is compulsory for during the subsistence of the mortgage contract, the proceeds
all qualified borrowers. from such insurance will be applied to the payment of the
4. The Mortgage Contract being issued by the SSS in connection mortgage debt, thereby relieving the heirs of the mortgagor
with applications for housing loans, specifically Sec. 16, from paying the obligation. SSS insures the payment to itself of
provides: (a) The loan shall be secured against the death of the loan with the insurance proceeds. It also negates any future
the borrower through the Mortgage Redemption Insurance problem that can crop up should the heirs be not in a position
Plan; (b) Coverage shall take effect on the date of the first to pay the mortgage loan. In short, the process of amortization
release voucher of the loan and shall continue until the real is hastened and possible litigation in the future is avoided.
estate mortgage loan is fully paid 11. In a similar vein, ample protection is given to the mortgagor
5. However, Sec. 3 of Article II presents an ambiguity. The under such a concept so that in the event of his death; the
effective date of coverage can be interpreted to mean that the mortgage obligation will be extinguished by the application of
insurance contract takes effect "from the beginning of the the insurance proceeds to the mortgage indebtedness.
amortization period of such Mortgage Loan" or "partial release 12. The interpretation of SSS goes against the very rationale of the
of Mortgage Loan." insurance scheme. It cannot unjustly enrich itself at the
6. Applying Article 1374 of the new Civil Code, the mortgagor in expense of another (Nemo cum alterius detrimento protest).
the instant case was already covered by the insurance upon "Every person must, in the exercise of his rights and in the
the partial release of the loan. performance of his duties, act with justice, give everyone his
7. The ambiguity in Section 3 of Article II should be resolved in due, and observe honesty and good faith" (Article 19, Civil
favor of the petitioner. "The interpretation of obscure Code).
13. Simply put, SSS cannot be allowed to have the advantage of 15. It is very clear that the spirit of social justice permeates the
collecting the insurance benefits from the private life insurance insurance scheme under the Group Mortgage Redemption
companies and at the same time avoid its responsibility of Insurance.
giving the benefits of the Mortgage Redemption Insurance plan 16. Usually, among the items to be deducted by SSS from the first
to the mortgagor. The very reason for the existence of SSS is to release of the loan is the premium corresponding to the
extend social benefits. mortgage redemption insurance (MRI). However, if the
14. To sustain the position of the SSS is to allow it to collect twice premium corresponding to the amount to be deducted from the
the same amount first from the insurance companies which first release of the loan was not paid by the borrower, the
paid to it the amount of the MRI and then from the heirs of the deceased mortgagor, the said unpaid premium should be
deceased mortgagor. This result is unconscionable as it is refunded by the heirs of the borrower.
iniquitous.