FIRST DIVISION[G.R. No. 125678.March 18, 2002]PHILAMCARE HEALTH SYSTEMS, INC.,petitioner,vs. COURT OF APPEALS and JULITA TRINOS,respondents.D E C I S I O NYNARES-SANTIAGO,J.:Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc.In the standard application form, he answered no to the following 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 ulcer? (If Yes, give details).[1]The application was approved for a period of one year from March 1, 1988 to March 1, 1989.Accordingly, he was issued Health Care Agreement No. P010194.Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein.He was also entitled to avail of out-patient benefits such as annual physical examinations, preventive health care and other out-patient services.Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990.The amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2]During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990.While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement.However, petitioner denied her claim saying that the Health Care Agreement was void.According to petitioner, there was a concealment regarding Ernanis medical history.Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00.After her husband was discharged from the MMC, he was attended by a physical therapist at home.Later, he was admitted at the Chinese General Hospital.Due to financial difficulties, however, respondent brought her husband home again.In the morning of April 13, 1990, Ernani had fever and was feeling very weak.Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795.She asked for reimbursement of her expenses plus moral damages and attorneys fees.After trial, the lower court ruled against petitioners,viz:WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:1.Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;2.Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;3.Defendants to pay the reduced amount ofP10,000.00 as exemplary damages to plaintiff;4.Defendants to pay attorneys fees of P20,000.00, plus costs of suit.SO ORDERED.[3]On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.[4]Petitioners motion for reconsideration was denied.[5]Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code[6]does not apply.Petitioner argues that the agreement grants living benefits, such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter.Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss.Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer,[7]petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years.Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.An insurance contract exists where the following elements concur:1.The insured has an insurable interest;2.The insured is subject to a risk of loss by the happening of the designated peril;3.The insurer assumes the risk;4.Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and5.In consideration of the insurers promise, the insured pays a premium.[8]Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against.Every person has an insurable interest in the life andhealthof himself.Section 10 provides:Every person has an insurable interest in the life and health:(1)of himself, of his spouse and of his children;(2)of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;(3)of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and(4)of any person upon whose life any estate or interest vested in him depends.In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health.The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.[9]Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.Petitioner argues that respondents husband concealed a material fact in his application.It appears that in the application for health coverage, petitioners required respondents husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.[10]Specifically, the Health Care Agreement signed by respondents husband states:We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application;that any physician is, by these presents, expressly authorized 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 Proposed Membersand that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement.[11](Underscoring ours)In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicants medical history, thus:I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc.any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.This authorization is in connection with the application for health care coverage only.A photographic copy of this authorization shall be as valid as the original.[12](Underscoring ours)Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.[13]The answer assailed by petitioner was 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 who was not a medical doctor.Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue.[14]Thus,(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, sincein such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry.There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.[15](Underscoring ours)The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.[16]Concealment 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.In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract.Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon.In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of insurance.The right to rescind should be exercised previous to the commencement of an action on the contract.[17]In this case, no rescission was made.Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:1.Prior notice of cancellation to insured;2.Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;3.Must be in writing, mailed or delivered to the insured at the address shown in the policy;4.Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.[18]None of the above pre-conditions was fulfilled in this case.When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.[19]Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer.[20]By reason of the exclusive 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.[21]This is equally applicable to Health Care Agreements. 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 two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.[22]Anent the incontestability of the membership of respondents husband, we quote with approval the following findings of the trial court:(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.[23]Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that atthe time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity.Hence, payment should be made to the party who incurred the expenses.It is not controverted that respondent paid all the hospital and medical expenses.She is therefore entitled to reimbursement.The records adequately prove the expenses incurred by respondent for the deceaseds hospitalization, medication and the professional fees of the attending physicians.[24]WHEREFORE, in view of the foregoing, the petition is DENIED.The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.SO ORDERED.Davide, Jr., C.J., (Chairman), Puno,andKapunan, JJ.,concur.Republic of the PhilippinesSUPREME COURTManilaFIRST DIVISIONG.R. No. 167330 June 12, 2008PHILIPPINE HEALTH CARE PROVIDERS, INC.,petitioner,vs.COMMISSIONER OF INTERNAL REVENUE,respondent.D E C I S I O NCORONA,J.:Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)?This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16, 2004 decision1in CA-G.R. SP No.70479. Petitioner Philippine Health Care Providers, Inc. believes otherwise and assails the CA decision in this petition for review under Rule 45 of the Rules of Court.Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization."2Individuals 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 owned, operated or accredited by it.3The pertinent part of petitioner's membership or health care agreement4provides:VII BENEFITSSubject to paragraphs VIII [on pre-existing medical condition] and X [on claims for reimbursement] of this Agreement, Members shall have the following Benefits under this Agreement:In-Patient Services.In the event that a Member contract[s] sickness or suffers injury which requires confinement in a participating Hospital[,] the services or benefits stated below shall be provided to the Member free of charge, but in no case shall [petitioner] be liable to pay more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If a member has exhausted such maximum benefits with respect to a particular sickness, injury or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It is[,] however, understood that the payment by [petitioner] of the said maximum in In-Patient Benefits to any one member shall preclude a subsequent payment of benefits to such member in respect of an unrelated sickness, injury or related causes happening during the remainder of his membership term.(a) Room and Board(b) Services of physician and/or surgeon or specialist(c) Use of operating room and recovery room(d) Standard Nursing Services(e) Drugs and Medication for use in the hospital except those which are used to dissolve blood clots in the vascular systems (i.e., trombolytic agents)(f) Anesthesia and its administration(g) Dressings, plaster casts and other miscellaneous supplies(h) Laboratory tests, x-rays and other necessary diagnostic services(i) Transfusion of blood and other blood elementsCondition for in-Patient Care.The provision of the services or benefits mentioned in the immediately preceding paragraph shall be subject to the following conditions:(a) The Hospital Confinement must be approved by [petitioner's] Physician, Participating Physician or [petitioner's] Medical Coordinator in that Hospital prior to confinement.(b) The confinement shall be in a Participating Hospital and the accommodation shall be in accordance with the Member[']s benefit classification.(c) Professional services shall be provided only by the [petitioner's] Physicians or Participating Physicians.(d) If discharge from the Hospital has been authorized by [petitioner's] attending Physician or Participating Physician and the Member shall fail or refuse to do so, [petitioner] shall not be responsible for any charges incurred after discharge has been authorized.Out-Patient Services.A Member is entitled free of charge to the following services or benefits which shall be rendered or administered either in [petitioner's] Clinic or in a Participating Hospital under the direction or supervision of [petitioner's] Physician, Participating Physician or [petitioner's] Medical Coordinator.(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at [petitioner's] designated hospital/clinic, to wit:(i) Taking a medical history(ii) Physical examination(iii) Chest x-ray(iv) Stool examination(v) Complete Blood Count(vi) Urinalysis(vii) Fasting Blood Sugar (FBS)(viii) SGPT(ix) Creatinine(x) Uric Acid(xi) Resting Electrocardiogram(xii) Pap Smear (Optional for women 40 years and above)(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination.The following tests are to be done as part of the Member[']s Annual check-up program at [petitioner's] designated clinic, to wit:1) Routine Physical Examination2) CBC (Complete Blood Count)* Hemoglobin * Hematocrit* Differential * RBC/WBC3) Chest X-ray4) Urinalysis5) Fecalysis(c) Preventive Health Care, which shall include:(i) Periodic Monitoring of Health Problems(ii) Family planning counseling(iii) Consultation and advices on diet, exercise and other healthy habits(iv) Immunization but excluding drugs for vaccines used(d) Out-Patient Care, which shall include:(i) Consultation, including specialist evaluation(ii) Treatment of injury or illness(iii) Necessary x-ray and laboratory examination(iv) Emergency medicines needed for the immediaterelief of symptoms(v) Minor surgery not requiring confinementEmergency Care.Subject to the conditions and limitations in this Agreement and those specified below, a Member is entitled to receive emergency care [in case of emergency. For this purpose, all hospitals and all attending physician(s) in the Emergency Room automatically become accredited. In participating hospitals, the member shall be entitled to the following services free of charge: (a) doctor's fees, (b) emergency room fees, (c) medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids and whole blood and human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and diagnostic examinations and other medical services related to the emergency treatment of the patient.]5Provided, however, that in no case shall the total amount payable by [petitioner] for said Emergency, inclusive of hospital bill and professional fees, exceed P75,000.00.If the Member received care in a non-participating hospital, [petitioner] shall reimburse [him]680% of the hospital bill or the amount of P5,000.00[,] whichever is lesser, and 50% of the professional fees of non-participating physicians based on [petitioner's] schedule of fees provided that the total amount[,] inclusive of hospital bills and professional fee shall not exceed P5,000.00.On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount ofP224,702,641.18. The assessment represented the following:Value Added Tax (VAT)DST

1996P 45,767,596.23P 55,746,352.19

199754,738,434.0368,450,258.73

P 100,506,030.26P 124,196,610.92

The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code which provides:Section 185.Stamp tax on fidelity bonds and other insurance policies. -On all policies of insuranceor bonds or obligationsof the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business ofaccident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler,or other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, 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 organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.On April 5, 2002, the CTA rendered a decision,7the dispositive portion of which read:WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting toP22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency andP31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.SO ORDERED.8Respondent appealed the CTA decision to the CA9insofar as it cancelled the DST assessment. He claimed that petitioner's health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.On August 16, 2004, the CA rendered its decision.10It held that petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST:WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE.Respondent is ordered to pay the amounts ofP55,746,352.19 andP68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.SO ORDERED.11Petitioner moved for reconsideration but the CA denied it. Hence, this petition.Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a prepaid basis of medical services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care agreement is not subject to DST.We do not agree.The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.12It is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business.13In particular,the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligationin the nature of indemnityfor loss, damage, or liability.Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.14The event insured against must be designated in the contract and must either be unknown or contingent.15Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case ofBlue Cross Healthcare, Inc. v. Olivares,16this Court ruled that a health care agreement is in the nature of a non-life insurance policy.Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the same17and pays for them up to the stipulated maximum amount of coverage. It is also 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 expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner.Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program. This is insurance.Petitioner's health care agreement is substantially similar to that involved inPhilamcare Health Systems, Inc.v. CA.18The health care agreement inthat case entitled the subscriber to avail of the hospitalization benefits, whether ordinary or emergency, listed therein. It also provided for "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. This Court ruled inPhilamcare Health Systems, Inc.:[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own health.The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency, the health care provider must pay for the same to the extent agreed upon under the contract.19(emphasis supplied)Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.Petitioner's contention that it is a health maintenance organization and not an insurance company is irrelevant. Contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts.20Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction of the business.21It is an excise on the facilities usedin the transaction of the business,separate and apart from the business itself.22WHEREFORE, the petition is herebyDENIED.The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP No.70479isAFFIRMED.Petitioner is ordered to pay the amounts ofP55,746,352.19 andP68,450,258.73 as deficiency documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000 until full payment thereof.Costs against petitioner.SO ORDERED.Puno, C.J., Chairperson, Carpio, Azcuna, Leonardo-de Castro, JJ.,concur.Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. L-22042 August 17, 1967DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON,plaintiffs-appellees,vs.ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO., INC.,defendants.CAPITAL INSURANCE and SURETY CO., INC.,defendant-appellant.Generoso Almario and Associates for plaintiffs-appellees.Achacoso and Associates for defendant-appellant.BENGZON, J.P.,J.:Julio Aguilar owned and operated several jeepneys in the City of Manila among which was one with plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability. As a consequence thereof an insurance policy was executed by the Capital Insurance & Surety Co., Inc., the pertinent provisions of which in so far as this case is concerned contains the following:Section II LIABILITY TO THE PUBLIC1. The Company, will, subject to the limits of liability, indemnify the Insured in the event of accident caused by or arising out of the use of the Motor Vehicle/s or in connection with the loading or unloading of the Motor Vehicle/s, against all sums including claimant's costs and expenses which the Insured shall become legally liable to pay in respect of:a. death of or bodily injury to any personb. damage to propertyDuring the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, while driving along the intersection of Juan Luna and Moro streets, City of Manila, bumped with the jeepney abovementioned one Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter died some days thereafter.A corresponding information for homicide thru reckless imprudence was filed against Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was imposed on him.As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc. For failure to answer the complaint, Del Monte and Aguilar were declared in default. Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it. During the trial the following facts were stipulated:COURT: The Court wants to find if there is a stipulation in the policy whereby the insured is insured against liability to third persons who are not passengers of jeeps.ALMARIO: As far as I know, in my honest belief, there is no particularization as to the passengers, whether the passengers of the jeep insured or a passenger of another jeep or whether it is a pedestrian. With those, we can submit the stipulation.SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the following dispositive portion:WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death of their father, plus P1,000.00 for attorney's fees plus costs.The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay the plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00) Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction of the judgment rendered against Iluminado del Monte and Julio Aguilar in this case.SO ORDERED.The case was appealed to the Court of Appeals which appellate court on September 30, 1963 certified the case to Us because the appeal raises purely questions of law.The issues raised before Us in this appeal are (1) As the company agreed to indemnify the insured Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first show himself to be entitled to indemnity before the insurance company may be held liable for the same? (3) Plaintiffs not being parties to the insurance contract, do they have a cause of action against the company; and (4) Does the fact that the insured is liable to the plaintiffs necessarily mean that the insurer is liable to the insured?In the discussion of the points thus raised, what is paramount is the interpretation of the insurance contract with the aim in view of attaining the objectives for which the insurance was taken. The Rules of Court provide that parties may be joined either as plaintiffs or defendants, as the right to relief in respect to or arising out of the same transactions is alleged to exist (Sec. 6, Rule 3). The policy, on the other hand, contains a clause stating:E.Action Against CompanyNo action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all of the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant, and the Company.Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by the Policy. Nothing contained in this policy shall give any person or organization any right to join the Company as a co-defendant in any action against the Insured to determine the Insured's liability.Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder.Appellant contends that the "no action" clause in the policy closes the avenue to any third party which may be injured in an accident wherein the jeepney of the insured might have been the cause of the injury of third persons, alleging the freedom of contracts. Will the mere fact that such clause was agreed upon by the parties in an insurance policy prevail over the Rules of Court which authorizes the joining of parties plaintiffs or defendants?The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all? (2) If so, can plaintiffs sue the insurerjointlywith the insured?The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legallyliableto pay in respect of: a. death of or bodily injury to any person . . . ." Clearly, therefore, it is one for indemnity against liability;1from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.1wph1.tThe right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the contract provides for indemnity againstliabilityto third persons, then third persons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone.2The next question is on the right of the third person to sue the insurer jointly with the insured. The policy requires, as afore-stated, that suit and final judgment be first obtained against the insured; that only "thereafter" can the person injured recover on the policy; it expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. As adverted to before, the query is which procedure to follow that of the insurance policy or the Rules of Court.The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits. In a case squarely on the point,American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits. We quote:Appellants filed a plea in abatement on the grounds that the suit had been prematurely brought against the insurance company, and that it had been improperly joined with Zunker, as said insurance company, under the terms of the policy, was only liable after judgment had been awarded against Zunker. . . .* * * That plea was properly overruled, because under the laws of Texas a dual suit will always be avoided whenever all parties can have a fair trial when joined in one suit. Appellee, had he so desired, could have prosecuted his claim to judgment as against Zunker and then have sued on that judgment against the insurance company, but the law does not make it imperative that he should do so, but would permit him to dispose of the whole matter in one suit.The rule has often been announced in Texas that when two causes of action are connected with each other, or grow out of the same transaction, they may be properly joined, and in such suit all parties against whom the plaintiff asserts a common or an alternative liability may be joined as defendants. . . . Even if appellants had presented any plea in abatement as to joinder of damages arising from a tort with those arising from a contract, it could not, under the facts of this case, be sustained, for the rule is that a suit may include an action for breach of contract and one for tort, provided they are connected with each other or grew out of the same transaction.Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded,at least with respect to third persons not a party to the contract, as herein, by a "no action" clause in the contract of insurance.Wherefore, the judgment appealed from is affirmedin toto. Costs against appellant. So ordered.Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.Concepcion, C.J. and Dizon, J., are on leave.FootnotesRepublic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. L-20853 May 29, 1967BONIFACIO BROS., INC., ET AL.,plaintiffs-appellants,vs.ENRIQUE MORA, ET AL.,defendants-appellees.G. Magsaysay for plaintiffs-appellants.Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.CASTRO,J.:This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent provisions of which read:1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear,x x x x x x x x x2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be the maximum amount payable by the Company in respect of any claim for loss or damage.1wph1.tx x x x x x x x x4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this Policy provided that: (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee;x x x x x x x x xDuring the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials.Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence against him was receivedex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Hence, this appeal.The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials and repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of the insurance company.This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person.1Such stipulation is known as stipulationpour autruior a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person.2Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same.3The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulationpour autruior merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.4In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulationpour autruimust be clearly expressed by the parties, which we cannot do.As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishingprivity betweenthe appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom.Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person."5In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read:The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy.The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the intention of the parties.The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage.Loss in insurance, defined. The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.Lessons Applicable:stipulation pour autrui(Insurance)

FACTS: Enrique Mora,owner ofOldsmobile sedan model 1956, mortgaged it to H.S. Reyes, Inc., withthe conditionthatthey wouldbethe beneficiaryof its insurance June 23, 1959: The sedan was insured withState Bonding & Insurance Co., Inc During the period of effectivity, the sedan met an accident and it wasappraised byBayne Adjustment Co. and repaired it with Bonifacio Bros. and the parts were supplied by AyalaAuto PartsCo. This was all done without theknowledge ofH.S. Reyes. Enrique was billed P2,102.73 through Bayne. The insurancecompany drew a check deducting P100 for franchise and entrusted it to Bayne payable to Enrique or H.S. Reyes. Still unpaid, the sedan was delivered to Enrique without theKnowledge ofH.S. Reyes Bonifacio Bros and Ayala Auto filed in the MTC on the theory thatthe insuranceproceeds should be paid directly to them CFI affirmed MTC:H.S. Reyes, Inc. as having a better right

ISSUE: W/N there is privity between Bonifacio Bro and Ayala Auto againstthe insurancecompany

HELD: NO. Judgment affirmed GR:contracts take effect only between the parties thereto EX: some specific instances provided by law where the contract contains some stipulation in favor of a third person -stipulation pour autrui provision in favor of a third person not a party to the contract third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person stipulation pour autrui must be clearly expressed - none here "loss payable" clause ofthe insurancepolicy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person "loss" in insurance law embraces injury or damage The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured Republic of the PhilippinesSUPREME COURTManila EN BANC G.R. No. L-23248 February 28, 1969 MANUEL UY,plaintiff-appellee,vs.ENRICO PALOMAR, in his capacity as Postmaster General,defendant-appellant. Jalandoni and Jamir for plaintiff-appellee.Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Solicitor Augusto M. Amores and Special Attorney M. N. Maningat for defendant-appellant. ZALDIVAR,J.: Manuel Uy filed a complaint with the Court of First Instance of Manila (Civil Case No. 55678) against the Postmaster General, praying for an injunction to restrain said Postmaster General and his subordinates, agents or representatives from enforcing Fraud Order No. 3, dated November 22, 1963, declaring Manuel Uy Sweepstakes Agency as conducting a lottery or gift enterprise and directing all postmasters and other employees of the Bureau of Posts concerned to return to the sender any mail matter addressed to Manuel Uy Sweepstakes Agency or to any of its agents or representatives with the notation "Fraudulent" stamped upon the cover of such mail matter, and prohibiting the issuance or payment of any money order or telegraphic transfer to the said agency or to any of its agents and representatives. As prayed for in the complaint, a writ of preliminary injunction was issuedex parteby the lower court. The Postmaster General moved for the dissolution of the writ of preliminary injunction, but the motion was denied. The Postmaster General filed an answer to the complaint, setting up the defense that Manuel Uy was conducting a lottery or gift enterprise that is prohibited by law; that as Postmaster General he has the authority to issue the fraud order in question and he did not abuse his discretion in doing so; and that Manuel Uy had not exhausted all the administrative remedies before invoking judicial intervention. The lower court, on the basis of the stipulation of facts submitted by the parties declared Fraud Order No. 3 contrary to law and violative of the rights of the plaintiff and made permanent the preliminary injunction previously issued. The Postmaster General appealed to this Court. The salient facts gathered from the stipulation of facts and culled from the briefs of the parties are as follows: Manuel Uy (appellee, for short) is a duly authorized agent of the Philippine Charity Sweepstakes Office (PCSO for short), a government entity created and empowered by law to hold sweepstakes draws and lotteries for charitable and public purposes. As such agent of the PCSO appellee is engaged in the sale and distribution of sweepstakes and lottery tickets which the PCSO prints and issues for each and every one of the not less than twenty draws that said office annually holds. To carry out its business of selling sweepstakes and lottery tickets issued by the PCSO appellee, upon authority of the said office, employs sub-agents throughout the Philippines, through which sub-agents not less than 70% of appellee's total sales for each draw are made; and, with the consent of the PCSO appellee agrees to give 50% of the agent's prize to the sub-agent selling the prize-winning ticket. The agent's prize is 10% of the prize won by the ticket sold. For the Grand Christmas Sweepstakes Draw which would be held on December 15, 1963, the PCSO fixed the first, second and third prizes at P700,000.00, P350,000.00, and P175,000.00, respectively, and set a sale goal, of P6,000,000.00 worth of tickets. The PCSO directed its duly authorized agents to undertake every means possible to help achieve the six-million-peso sales goal. In compliance with said directive, appellee devised and, through his representatives, offered to the public, the "Grand Christmas Bonus Award" plan. The plan was designed to boost the sales of tickets for the PCSO Grand Christmas Sweepstakes Draw. According to said plan, the appellee's sub-agents and purchasers ofwholesweepstakes tickets sold by appellee and his sub-agents may, in addition to the regular prize money of the December 15, 1963 draw, win bonuses and awards as follows: for the sub-agent and buyer of the ticket winning the first prize, one 1963 Volkswagen sedan each; for the sub-agent and buyer of the ticket winning the second prize, one Radiowealth 23-inch television set each; for the sub-agent and buyer of the ticket winning the third prize, one Radiowealth refrigerator each; for the sub-agents and buyers of the tickets winning any of the six fourth prizes, one Radiowealth sewing machine each; and for the sub-agent and buyer of the ticket winning the charity prize, one Radiowealth Fiesta "hi-fi" radio set each. Except for the amount paid for the authorized prize of the sweepstakes tickets, those entitled to benefit from the plan did not have to pay any other amount in consideration of the right to benefit from the plan. The awards may be claimed by presenting to the appellee the sales invoice of the winning tickets, in the case of the sellers, and the eight shares of the winning tickets, in the case of the buyers. The aforementioned plan is a modification (or alternative plan, as the appellee calls it) of the original scheme presented by the appellee, thru counsel, to the Assistant Postmaster General in a letter dated October 15, 1963, and which the latter, in his answer dated October 18, 1963, considered as violative of the Postal Law. The appellee advertised his "Grand Christmas Bonus Award" plan, as described above, in the metropolitan newspapers of nationwide circulation, the first of such advertisements appearing in seven such newspapers in their issues of November 18, 1963. The newspaper advertisements were repeated almost every week after November 18, 1963, with the last of them published in the issue of the "Daily Mirror" of December 7, 1963. As already stated, the fraud order in question was issued by the Postmaster-General (appellant, for short) under date of November 22, 1963. However, it was only on December 10, 1963 that the appellee came to know of the issuance and context thereof when he sought clarification from the Manila Post Office why his parcels containing sweepstakes tickets for his sub-agents, as well as his other mail matters of purely personal nature, were refused acceptance for mailing the day previous. In the afternoon of December 10, 1963, appellee filed the complaint, mentioned at the beginning of this opinion, alleging among others, that in issuing Fraud Order No. 3 the appellant "has acted arbitrarily or gravely exceeded his authority, and/or committed an error of law".1 Disclaiming that in issuing the fraud order he acted arbitrarily, or gravely exceeded his authority and/or committed an error of law, appellant, in his answer to the complaint, cites as basis of his action, the provisions of Sections 1954(a), 1982, and 1983 of the Postal Law (Chapter 52 of the Revised Administrative Code), pertinent portions of which read: SEC. 1954.Absolutely nonmailable matter. No matter belonging to any of the following classes, whether sealed as first class matter or not, shall be imported into the Philippines through the mails, or be deposited in or carried by the mails of the Philippines, or be delivered to its addressee by any officer or employee of the Bureau of Posts: (a) Written or printed matter in any form, advertising, describing, or in any manner pertaining to, or conveying or purporting to convey any information concerning any lottery, gift enterprise, or similar scheme depending in whole or in part upon lot or chance, or any scheme, device, or enterprise for obtaining money or property of any kind by means of false or fraudulent pretenses, representations, or promises. x x x x x x x x x SEC. 1982.Fraud orders. Upon satisfactory evidence that any person or company is engaged in conducting any lottery, gift enterprise, or scheme or the distribution of money, or of any real or personal property by lot, chance, or drawing of any kind, or that any person or company is conducting any scheme, device, or enterprise for obtaining money or property of any kind through the mails by means of false or fraudulent pretenses, representations, or promises, the Director of Posts may instruct any postmaster or other officer or employee of the Bureau of Posts to return to the person depositing same in the mails, with the word "fraudulent" plainly written or stamped upon the outside cover thereof, any mail matter of whatever class mailed by or addressed to such person or company or the representative or agent of such person or company.... SEC. 1983.Deprivation of use of money order system and telegraphic transfer service. Director of Posts may, upon evidence satisfactory to him that any person or company is engaged in conducting any lottery, gift enterprise, or scheme for the distribution of money or of any real or personal property by lot, chance, or drawing of any kind, or that any person or company is conducting any scheme, device, or enterprise for obtaining money or property of any kind through the mails by means of false or fraudulent pretenses, representations, or promise, forbid the issue or payment by any postmaster of any postal money order or telegraphic transfer to said person or company, or to the agent of any such person or company, whether such agent is acting as an individual or as a firm, bank, corporation, or association of any kind, and may provide by regulation for the return to the remitters of the sums named in money orders or telegraphic transfers drawn in favor of such person or company or its agent.... (Emphasis supplied). Invoking the phrase "upon evidence satisfactory to him the appellant contends that the fraud order in question was legally issued because he had been satisfied with the evidence presented to him that appellee was conducting a lottery or gift enterprise.2We note that the appellee does not question the authority of the appellant, under Sections 1954(a), 1982 and 1983 aforequoted, to prohibit the use of the mails, the money order system and the telegraphic transfer service for the promotion of lotteries, gift enterprises or fraudulent schemes.3Indeed, appellant would be remiss in the performance of his duties should he fail to exercise his authority under the Postal Law if and when the mails, the money order system, and the telegraphic transfer service are utilized for the promotion of lotteries, gift enterprises and similar schemes prohibited by law. Appellant's authority, however, is not absolute. Neither does the law give him unlimited discretion. The appellant may only exercise his authority if there is a clear showing that the mails, the money order system and the telegraphic transfer service are used to promote a scheme or enterprise prohibited by law. In the present case, therefore, the question that must be resolved is whether appellee's "Grand Christmas Bonus Award" plan constitutes a lottery, gift enterprise, or similar scheme proscribed by the Postal Law, aforequoted, as would authorize the appellant to issue the fraud order in question. Before we resolve the question, however, we wish to advert to the claim of the appellant that he had made his decision based upon satisfactory evidence that the "Grand Christmas Bonus Award" plan of appellee is a lottery or gift enterprise for the distribution of gifts by chance, and his decision in this regard cannot be reviewed by the court.4Thus, the appellant, in his brief,5says: It is respectfully submitted that corollary to the rule that courts cannot interfere in the performance of ordinary duties of the executive department is the equally compelling rule that decisions of the defendant on questions of fact are final and conclusive and generally cannot be reviewed by the courts. For it cannot be denied that the Postmaster General is charged with quasi-judicial functions and vested with discretion in determining what is mailable matter and in withholding from the plaintiff the privilege of using the mail, the money order system and the telegraphic transfer service... As the disputed, Fraud Order No. 3 was issued pursuant to the powers vested in the defendant by the Postal Law and in accordance with satisfactory evidence presented to him, it cannot be said that the defendant was palpably wrong or that his decision had no reasonable basis whatever. Neither can it be said that he exceeded his authority nor that he abused his discretion. In this connection it may be stated that the Postal Law contains no provision for judicial review of the decision of the Postmaster General. This Court, however, inReyes vs. Topacio6had stated that the action of the Director of Posts (now Postmaster General) is subject to revision by the courts in case he exceeded his authority or his act is palpably wrong. And in "El Debate"Inc. vs. Topacio7this Court said that the courts will not interfere with the decision of the Director of Post (Postmaster General) as to what is, and what is not, mailable matter unless clearly of opinion that it was wrong. In other words, the courts will interfere with the decision of the Postmaster General if it clearly appears that the decision is wrong. This Court, by said rulings, recognizes the availability of judicial review over the action of the Postmaster General, notwithstanding the absence of statutory provision for judicial review of his action. It may not be amiss to state that said rulings are in consonance with American jurisprudence to the effect that the absence of statutory provisions for judicial review does not necessarily mean that access to the courts is barred. The silence of the Congress is not to be construed as indicating a legislative intent to preclude judicial review.8InAmerican School of Magnetic Healing vs. McAnnulty,9the U.S. Supreme Court, speaking on the power of the courts to review the action of the Postmaster General under a statute similar to our Postal Law,10said: That the conduct of the post office is a part of the administrative department of the government is entirely true, but that does not necessarily and always oust the courts of jurisdiction to grant relief to a party aggrieved by any action by the head, or one of the subordinate officials, of that Department, which is unauthorized by the statute under which he assumes to act. The acts of all its officers must be justified by some law, and in case an official violates the law to the injury of an individual the courts generally have jurisdiction to grant relief. Appellant also invokes the doctrine of exhaustion of administrative remedies, and asserts that the action of the appellee in the present case was premature because he had not first appealed the fraud order to higher administrative authorities. This assertion of appellant has no merit. The rule on exhaustion of administrative remedies is not a hard and fast one. It admits of exceptions, amongst which are: (1) where the question involved is purely a legal one,11and (2) where there are circumstances indicating the urgency of judicial intervention.12The question involved in the present case is legal whether or not the "Grand Christmas Bonus Award" plan of appellee, based upon the facts as stipulated, is a lottery or gift enterprise. We take note that the Grand Christmas Sweepstakes draw in conjunction with which appellee's plan was offered, was scheduled for December 15, 1963, or barely five days from December 10, 1963, the date when appellee learned of the issuance of the fraud order. Time was of the essence to the appellee. We now resolve the main question in this case, namely, whether or not appellee's "Grand Christmas Bonus Award" plan constitutes a lottery or a gift enterprise. There is no statutory definition of the terms "lottery" and "gift enterprise". This Court, in the case of "El Debate"Inc. vs. Topacio,supra, referring to lottery, said: ... while countless definitions of lottery have been attempted, the authoritative one for this jurisdiction is that of the United States Supreme Court, in analogous cases having to do with the power of the United States Postmaster General,viz: The term "lottery" extends to all schemes for the distribution of prizes by chance, such as policy playing, gift exhibitions, prize concerts, raffles at fairs, etc., and various forms of gambling. The three essential elements of a lottery are: First, consideration; second, prize; and third. chance (Horner vs. United States [1902] 147 U.S. 449; Public Clearing House vs. Coyne [1903] 194 U.S., 497; U.S. vs. Filart and Singson [1915] 30 Phil. 80; U.S. vs. Olsen and Marker [1917] 36 Phil. 395; U.S. Vs. Baguio [1919] 39 Phil. 962: Valhalla Hotel Construction Company vs. Carmona, p. 233,ante.) Thus, for lottery to exist, three elements must concur, namely: consideration, prize, and chance. Appellant maintains that all the elements are present in the "Grand Christmas Bonus Award" plan of the appellee, to wit: "(1)consideration, because to participate and win in the contest one must buy and resell (in case of sub-agents) or buy (in case of ticket buyers) only 'Manuel Uy' tickets; (2)prize, because of the goods to be awarded to the winners; and (3)chance, because the determination of the winners depends upon the results of the sweepstakes draw which is decidedly a game of chance."13With particular emphasis on the element of consideration, appellant likens this case to the "El Debate" case,supra, and paraphrasing the ruling therein says that "By analogy there is consideration with respect to persons who will buy 'Manuel Uy' tickets (in preference to tickets sold by other authorized agents, like Tagumpay, Pelagia Viray, Marcela Meer Millar, etc.) merely to win prizes in addition to the regular sweepstakes prizes (and it is to such persons that the scheme is directed); moreover, the persons patronizing the Manuel Uy Sweepstakes Agency do not all receive same amount and some may receive more than the value paid for their tickets through chance and the prizes awarded by the Philippine Charity Sweepstakes Office."14 As against this contention, appellee maintains that there is absence of the element of consideration because except for paying the authorized purchase price of the corresponding sweepstakes tickets, those entitled to participate in and to benefit from appellee's "Grand Christmas Bonus Award" plan do not part with any other consideration for the right to take part and benefit therefrom, which fact is admitted by the appellant.15Further, appellee contends that even under the test laid down in the "El Debate" case, the element of consideration is lacking because appellee's sub-agents would have continued to sell and the general public would have continued to buy 'Manuel Uy' tickets regardless of appellee's "Grand Christmas Bonus Award" plan.16Moreover, appellee advances the view that under another test adopted by American courts as shown by a review of comparative case law in the United States, there can be no consideration under the plan in question because the participants pay no money or its equivalent into a fund which pays for the prize.17 Speaking of the element of consideration, this Court in the aforementioned "El Debate" case, and quoted inCaltex (Phil.) Inc. vs. Postmaster General,18said: In respect to the last element of consideration, the law does not condemn the gratuitous distribution of property by chance, if no consideration is derived directly or indirectly from the party receiving the chance, but does condemn as criminal, schemes in which a valuable consideration of some kind is paid directly or indirectly for the chance to draw a prize. In the "Grand Christmas Bonus Award" plan of the appellee We do not see the presence of the element of consideration, that is, payment of something of value, or agreement to pay, for the chance to win the bonus or award offered. True, that to be a participant in said plan, one must have to buy a whole sweepstakes ticket (8 shares) sold by the Manuel Uy Sweepstakes Agency or by its sub-agents. But the payment for the price of the sweepstakes ticket is the consideration for the chance to win any of the prizes offered by the PCSO in the sweepstakes draw of December 15, 1963. Wholly or partly, said payment cannot be deemed as a consideration also for the chance to win the prizes offered by the appellee. For nothing is asked of, or received from, the buyer of the ticket more than the authorized price thereof, and which price appears on the face of the ticket. In fact, appellant admits that except for the price of the ticket, those entitled to participate and benefit from the plan do not part with any other consideration for the right to take part and benefit therefrom.19Indeed, as correctly observed by the lower court, "there is absolutely no separate consideration for the right to win any of the offered bonuses or awards." The analogy drawn by the appellant from the "El Debate" case is not persuasive. On the contrary, the "reason" or "inducement" test laid down in said case in determining the presence of the element of consideration seems to favor the appellee. Paraphrased, the test as expressed in the "El Debate" case is: if the reason for the subscription of the "El Debate" was the desire to subscribe regardless of any prize offered, then there was no consideration insofar as the prize plan is concerned; upon the other hand, if the reason for the subscription was to win the prize offered, then the payment of the subscription fee constituted a consideration for the chance to win the prize. In the instant case, there are two groups of participants, in appellee's plan, namely: the sub-agents and the ticket buyers. It cannot be denied that the sub-agents who, as stated in the stipulation of facts, are responsible for not less than 70% of appellee's total sales for every draw, would have continued to be appellee's sub-agents and would have sold "Manuel Uy" tickets regardless of the plan in question. Anyway, they stood to receive 50% of the agent's prize for any of the prize-winning ticket they could sell. Upon the other hand, the probability is that the general public would have purchased "Manuel Uy" tickets in their desire to win any of the prizes offered by the PCSO regardless of the inducement offered by the appellee to win additional prizes. This conclusion finds support from the admitted fact that the appellee has consistently sold the greatest number of tickets among the PCSO'S authorized agents.20And undoubtedly, every person who purchased sweepstakes tickets from the Manuel Uy Sweepstakes Agency for the December 15, 1963 draw must have been induced, not by the prizes offered by the appellee but by the substantial prizes offered by the PCSO to wit: First prize, P700,000.00; Second prize P350,000.00; and Third prize, P175,000.00. It may not be amiss to state at this juncture that the comparative case law in the United States indicates that there is another test for determining whether or not the element of consideration exists in a given scheme or plan so as to constitute the same a lottery under parallel antilottery legislation. InPost Publishing Co. vs. Murray,21it was held: The advertisement or scheme in question does not seem to be like any of the kinds or types of wrong against which the Act of Congress was directed. It did not presenta lottery scheme because a lottery involves a scheme for raising money by selling chances to share in the distribution of prizes a scheme for the distribution of prizes by chance among persons purchasing tickets. It was not a gift enterprise because a gift enterprise contemplates a scheme in which publishers or sellers give presents as inducements to members of the public to part with their money. (Emphasis supplied.) The more recent case ofGarden City Chamber of Commerce vs. Wagnet22laid down the test in more definitive terms, as follows: The examination of authorities made in the present case induces the belief that theconsideration requisite to a lottery is a contribution in kind to the fund or property to be distributed. (Emphasis supplied) The test indicated in the foregoing rulings simply means that unless the participants pay money or its equivalent into a fund which pays for the prizes, there is no lottery. Stated differently, there is consideration or price paid if it appears that the prizes offered, by whatever name they may be called, came out of the fund raised by the sale of chances among the participants in order to win the prizes. Conversely, if the prizes do not come out of the fund or contributions by the participants, no consideration has been paid, and consequently there is no lottery. In the instant case, as stated by the lower court, the prizes offered by the appellee were to be taken from his share in the agent's prize23, which was 10% of the amount of the prize won by each ticket sold.24Therefore, since none of the prizes (awards and bonuses) offered in appellee's plan were to come directly from the aggregate price of the sweepstakes tickets sold by appellee, as a part thereof, no consideration exists for the chance to win said prizes, there being no "contribution in kind to the fund or property to be distributed." Appellant, however, urges that the patronage of "Manuel Uy" tickets constitutes a consideration because from the increased sales, appellee would derive benefits in the form of "returns on his quite substantial investment." This suggestion is without merit. The question of consideration is not to be determined from the standpoint of the appellee, or the proponent of the scheme, but rather from that of the sub-agents and the ticket buyers. Said this Court in Caltex (Phil.) case,supra, on this point: Off-tangent, too, is the suggestion that the scheme, being admittedly for sales promotion, would naturally benefit the sponsor in the way of increased patronage by those who will be encouraged to prefer Caltex products "if only to get the chance to draw a prize by securing entry blanks". The required element of consideration does not consist of the benefit derived by the proponent of the contest. The true test, as laid down inPeople vs. Cardas28 P. 2d. 99, 137 Cal. App. (Supp.) 788, is whether the participant pays a valuable considerationfor the chance, and not whether those conducting the enterprise received something of value in return for the distribution of the prize. Perspective properly oriented, the standpoint of the contestant is all that matters, not that of the sponsor. The following, culled from Corpus Juris Secundum, should set the matter at rest: The fact that the holder of the drawing expects thereby to receive, some benefit in the way of patronage or otherwise, as a result of the drawing, does not supply the element of consideration. Griffith Amusement Co. v. Morgan, Tex. Civ App., 98 S.W. 2d., 844. (54 C.J.S., p. 849). Equally enlightening in this connection is the following dissertation of the court in the case of State vs. Hundling:25 The question is not whether the donor of the prize makes a profit in some remote and indirect way, but, rather, whether those who have a chance at the prize pay anything of value for that chance. Every scheme of advertising, including the giving away of premiums and prizes, naturally has for its objects, not purely a philanthropic purpose, but increased business. Even the corner grocer who gives candy to the children of the neighborhood may be prompted by that motive, but that does not make the gift unlawful. And if the grocery instead of giving candy to all the children, gives it only to some as determined by lot, that circumstance does not make the gift made unlawful by the further circumstance that the business of the grocer in the neighborhood may be thereby increased.Profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has the chance to win the prize must pay a valuable consideration therefor, in order to make the scheme a lottery. (Emphasis supplied.) Based on the foregoing rulings, therefore, it is clear that there is no consideration or price for the chance to win any of the prizes offered by the appellee in his "Grand Christmas Bonus Award" plan. There being no consideration, there is no lottery.26 Even in the light of the mischief or evil sought to be redressed by the Postal Law, or theratio legis, the appellee's scheme cannot be condemned as a lottery. It is merely a scheme set up to promote the sale of tickets for the Grand Christmas Sweepstakes Draw held on December 15, 1963. Should any question be raised it would be: whether or not sweepstakes draws cultivate or stimulate the gambling spirit among the people. It should be so, because it cannot be doubted that sweepstakes tickets purchasers are induced to buy said tickets because of the desire to win any of the substantial prizes offered by the PCSO. This question, however, is at once rendered moot and academic because sweepstakes draws are authorized by law. But appellant presents as an alternative argument the contention that even if assuming that "the element of consideration is lacking the scheme is still a gift enterprise which is also prohibited by the Postal Law." And in support of this contention or proposition, appellant relies solely on Opinion No. 217, series of 1953 of the Secretary of Justice, which, according to the appellant, "ruled that the elements of gift enterprise, as distinguished from the lottery, are only chance and prize." In the Caltex (Phil.) case,supra, this Court, rejecting a similar contention of the appellant, emphatically held: [W]e note that in the Postal Law the term in question (gift enterprise) is used in association with the word "lottery". With the meaning of lottery settled, and consonant to the well-known principle of legal hermeneuticsnoscitu a sociis which Opinion 217 aforesaid also relied upon although only in so far as the clement of chance is concerned it is only logical that the term under construction should be accorded no other meaning than that which is consistent with the nature of the word associated therewith. Hence, if lottery is prohibited only if it involves a consideration, so also must the term "gift enterprise" be so construed. Significantly, there is not in the law the slightest indicium of any intent to eliminate that element of consideration from the "gift enterprise" therein included. This conclusion firms up in the light of the mischief sought to be remedied by the law, resort to the determination thereof being an accepted extrinsic aid in statutory construction. Mail fraud orders, it is axiomatic, are designed to prevent the use of the mails as a medium for disseminating printed matters which on grounds of public policy are declared non-mailable. As applied to lotteries, gift enterprises and similar schemes, justification lies in the recognized necessity to suppress their tendency to inflame the gambling spirit and to corrupt public morals (Com. vs. Lund 15 A. 2d., 839, 143 Pa. Super. 208). Since in gambling it is inherent that something of value be hazarded for a chance to gain a larger amount, it follows ineluctably that where no consideration is paid by the contestant to participate, the reason behind the law can hardly be said to obtain. If, as it has been held Gratuitous distribution of property by lot or chance does not constitute "lottery", if it is not resorted to as a device to evade the law andno consideration is derived, directly or indirectly, from the party receiving the chance,gambling spirit not being cultivated or stimulated thereby. (City of Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258.') (25 Words and Phrases, perm. ed., p. 695, emphasis) We find no obstacle in saying the same respecting a gift enterprise. In the end, we are persuaded to hold that, under the prohibitive provisions of the Postal Law which we have heretofore examined, gift enterprise and similar schemps therein contemplated are condemnable only if, like lotteries, they involve the element of consideration.... Considered in the light of the foregoing elucidations the conclusion is irresistible that since in the instant case the element of consideration is lacking, the plan or scheme in question is also not a "gift enterprise" or a "similar scheme" proscribed by the Postal Law. Not being a lottery, gift enterprise or similar scheme, appellee's "Grand Christmas Bonus Award" plan can be considered a scheme for the gratuitous distribution of personal property by chance which the Postal Law does not condemn. Thus, in labelling said scheme as a lottery or gift enterprise when it is not, appellant not only committed a palpable error of law but also exceeded his statutory authority in issuing the fraud order in question. The power of the appellant to issue a fraud order under the Postal Law is dependent upon the existence of a lottery, gift enterprise or similar scheme. Accordingly, the lower court did not err in declaring the fraud order in question