FIRST DIVISION

REPUBLIC OF THE G.R. No. 156956

PHILIPPINES, Represented
by EDUARDO T. MALINIS, Present:
in His Capacity as Insurance
Commissioner, PANGANIBAN, CJ, Chairperson,
Petitioner, YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
- versus - CHICO-NAZARIO, JJ
DEL MONTE MOTORS, INC., Promulgated:
Respondent. October 9, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x

DECISION
PANGANIBAN, CJ:
The securities required by the Insurance Code to be deposited with
the Insurance Commissioner are intended to answer for the claims
of all policy holders in the event that the depositing insurance company
becomes insolvent or otherwise unable to satisfy their claims. The
security deposit must be ratably distributed among all the insured who
are entitled to their respective shares; it cannot be garnished or levied
upon by a single claimant, to the detriment of the others.
The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

seeking to reverse the January 16, 2003 Order[2] of the Regional Court
(RTC) ofQuezon City (Branch 221) in Civil Case No. Q-97-30412. The
RTC found Insurance Commissioner Eduardo T. Malinis guilty of
indirect contempt for refusing to comply with the December 18,
2002 Resolution[3] of the lower court. The January 16, 2003 Order states
in full:
On January 8, 2003, [respondent] filed a Motion to Cite
Commissioner Eduardo T. Malinis of the Office of the Insurance
Commission in Contempt of Court because of his failure and refusal
to obey the lawful order of this court embodied in a Resolution dated
December 18, 2002 directing him to allow the withdrawal of the
security deposit of Capital Insurance and Surety Co. (CISCO) in the
amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the
satisfaction of the Notice of Garnishment pursuant to a Decision of
this Court which has become final and executory.
During the hearing of the Motion set last January 10, 2003,
Commissioner Malinis or his counsel or his duly authorized
representative failed to appear despite notice in utter disregard of the
order of this Court. However, Commissioner Malinis filed on January
15, 2003 a written Comment reiterating the same grounds already
passed upon and rejected by this Court. This Court finds no lawful
justification or excuse for Commissioner Malinis refusal to implement
the lawful orders of this Court.
Wherefore, premises considered and after due hearing,
Commissioner Eduardo T. Malinis is hereby declared guilty of
Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the
1997 Rules of Civil Procedure for willfully disobeying and refusing to
implement and obey a lawful order of this Court.[4]

The Facts

On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria Villegas
and Maura Villegas) jointly and severally liable to pay Del Monte
Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liners
service contracts with respondent. The trial court further ordered the
execution
of
the
Decision
against
the counterbond posted
by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and
Surety Co., Inc. (CISCO).
On April 18, 2002, CISCO opposed the Motion for Execution filed by
respondent, claiming that the latter had no record or document regarding
the alleged issuance of the counterbond; thus, the bond was not valid and
enforceable.
On June 13, 2002, the RTC granted the Motion for Execution and issued
the corresponding Writ. Armed with this Writ, Sheriff Manuel
S. Paguyoproceeded to levy on the properties of CISCO. He also issued
a Notice of Garnishment on several depository banks of the insurance
company. Moreover, he served a similar notice on the Insurance
Commission, so as to enforce the Writ on the security deposit filed by
CISCO with the Commission in accordance with Section 203 of the
Insurance Code.
On December 18, 2002, after a hearing on all the pending Motions, the
RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on
the insurance commission was valid. The trial court added that the letter

and spirit of the law made the security deposit answerable for
contractual obligations incurred by CISCO under the insurance contracts
the latter had entered into. The RTC resolved thus:
Furthermore, the Commissioner of the Office of the Insurance
Commission is hereby ordered to comply with its obligations under
the Insurance Code by upholding the integrity and efficacy of bonds
validly issued by duly accredited Bonding and Insurance Companies;
and to safeguard the public interest by insuring the faithful
performance to enforce contractual obligations under existing
bonds. Accordingly said office is ordered to withdraw from the
security deposit of Capital Insurance & Surety Company, Inc. the
amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in
satisfaction of the Notice of Garnishment served on August 16, 2002.
[5]

On January 8, 2003, respondent moved to cite Insurance Commissioner

Eduardo T. Malinis in contempt of court for his refusal to obey the
December 18, 2002 Resolution of the trial court.

Ruling of the Trial Court

The RTC held Insurance Commissioner Malinis in contempt for his
refusal to implement its Order. It explained that the commissioner had
no legal justification for his refusal to allow the withdrawal
of CISCOs security deposit.

Hence, this Petition.[6]

Issues
Petitioner raises this sole issue for the Courts consideration:
Whether or not the security deposit held by the Insurance
Commissioner pursuant to Section 203 of the Insurance Code may be
levied or garnished in favor of only one insured.[7]

The Courts Ruling

The Petition is meritorious.
Preliminary Issue:
Propriety of Review
Before discussing the principal issue, the Court will first dispose of the
question of mootness.
Prior to the filing of the instant Petition, Insurance
Commissioner Malinis sent the treasurer of the Philippines a letter dated
March 26, 2003, stating that the former had no objection to the release of
the security deposit to Del Monte Motors. Portions of the fund were
consequently released to respondent in July, October, and December
2003. Thus, the issue arises: whether these circumstances render the case
moot.

Petitioner, however, contends that the partial releases should not be

construed as an abandonment of its stand that security deposits under
Section 203 of the Insurance Code are exempt from levy and
garnishment. The Republic claims that the releases were made pursuant
to the commissioners power of control over the fund, not to the lower
courts Order of garnishment. Petitioner further invokes the jurisdiction
of this Court to put to rest the principal issue of whether security
deposits made with the Insurance Commission may be levied and
garnished.
The issue is not totally moot. To stress, only a portion of respondents
claim was satisfied, and the Insurance Commission has required CISCO
to replenish the latters security deposit. Respondent, therefore, may one
day decide to further garnish the security deposit, once
replenished. Moreover, after the questioned Order of the lower court was
issued, similar claims on the security deposits of various insurance
companies have been made before the Insurance Commission. To set
aside the resolution of the issue will only postpone a task that is certain
to crop up in the future.
Besides, the business of insurance is imbued with public interest. It is
subject to regulation by the State, with respect not only to the relations
between the insurer and the insured, but also to the internal affairs of
insurance companies.[8] As this case is undeniably endowed with public
interest and involves a matter of public policy, this Court shall not shirk
from its duty to educate the bench and the bar by formulating guiding
and controlling principles, precepts, doctrines and rules.[9]

Principal Issue:
Exemption of Security Deposit
from Levy or Garnishment

Section 203 of the Insurance Code provides as follows:

Sec. 203. Every domestic insurance company shall, to the extent of an
amount equal in value to twenty-five per centum of the minimum
paid-up capital required under section one hundred eighty-eight,
invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of the Government of
the Philippines or its political subdivisions or instrumentalities, or of
government-owned or controlled corporations and entities, including
the Central Bank of the Philippines: Provided, That such investments
shall at all times be maintained free from any lien or encumbrance;
and Provided, further, That such securities shall be deposited with and
held by the Commissioner for the faithful performance by the
depositing insurer of all its obligations under its insurance
contracts. The provisions of section one hundred ninety-two shall, so
far as practicable, apply to the securities deposited under this section.
Except as otherwise provided in this Code, no judgment creditor or
other claimant shall have the right to levy upon any of the
securities of the insurer held on deposit pursuant to the
requirement of the Commissioner. (Emphasis supplied)

Respondent notes that Section 203 does not provide for an absolute
prohibition on the levy and garnishment of the security deposit. It
contends that the law requires the deposit, precisely to ensure faithful
performance of all the obligations of the depositing insurer under the
latters various insurance contracts. Hence, respondent claims that the

security deposit should be answerable for the counterbond issued by

CISCO.
The Court is not convinced. As worded, the law expressly and
clearly states that the security deposit shall be (1) answerable for all the
obligations of the depositing insurer under its insurance contracts; (2) at
all times free from any liens or encumbrance; and (3) exempt from levy
by any claimant.
To be sure, CISCO, though presently under conservatorship, has
valid outstanding policies. Its policy holders have a right under the law
to be equally protected by its security deposit. To allow the garnishment
of that deposit would impair the fund by decreasing it to less than the
percentage of paid-up capital that the law requires to be
maintained. Further, this move would create, in favor of respondent, a
preference of credit over the other policy holders and beneficiaries.
Our Insurance Code is patterned after that of California.[10] Thus,
the ruling of the states Supreme Court on a similar concept as that of the
security deposit is instructive. Engwicht v. Pacific States Life Assurance
Co.[11] held that the money required to be deposited by a mutual
assessment insurance company with the state treasurer was a trust fund
to be ratably distributed amongst all the claimants entitled to share in
it. Such a distribution cannot be had except in an action in the nature of a
creditors bill, upon the hearing of which, and with all the parties
interested in the fund before it, the court may make equitable

distribution of the fund, and appoint a receiver to carry that distribution

into effect.[12]
Basic is the statutory construction rule that provisions of a statute
should be construed in accordance with the purpose for which it was
enacted.[13]That is, the securities are held as a contingency fund to
answer for the claims against the insurance company by all its policy
holders and their beneficiaries.This step is taken in the event that the
company becomes insolvent or otherwise unable to satisfy the claims
against it. Thus, a single claimant may not lay stake on the securities to
the exclusion of all others. The other parties may have their own claims
against the insurance company under other insurance contracts it has
entered into.
Respondents Inchoate Right
The right to lay claim on the fund is dependent on the solvency of
the insurer and is subject to all other obligations of the company arising
from its insurance contracts. Thus, respondents interest is merely
inchoate. Being a mere expectancy, it has no attribute of property. At this
time, it is nonexistent and may never exist. [14] Hence, it would be
premature to make the security deposit answerable for CISCOs present
obligation to Del Monte Motors.
Moreover, since insolvency proceedings against CISCO have yet
to be conducted, it would be impossible to establish at this time which
claimants are entitled to the security deposit and in what pro-rated

amounts. Only after all other claimants under subsisting policies issued
by CISCO have been heard can respondents share be determined.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance
Commission with both regulatory and adjudicatory authority over
insurance matters.[15]
The general regulatory authority of the insurance commissioner is
described in Section 414 of the Code as follows:
Sec. 414. The Insurance Commissioner shall have the duty to
see that all laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code, and shall, notwithstanding any
existing laws to the contrary, have sole and exclusive authority to
regulate the issuance and sale of variable contracts as defined in
section two hundred thirty-two and to provide for the licensing of
persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.
The Commissioner may issue such rulings, instructions,
circulars, orders and decisions as he may deem necessary to secure
the enforcement of the provisions of this Code, subject to the approval
of the Secretary of Finance. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Finance. (Emphasis supplied)

Pursuant to these regulatory powers, the commissioner is

authorized to (1) issue (or to refuse to issue) certificates of authority to
persons or entities desiring to engage in insurance business in the

Philippines;[16] (2) revoke or suspend these certificates of authority upon

finding grounds for the revocation or suspension; [17] (3) impose upon
insurance companies, their directors and/or officers and/or agents
appropriate penalties -- fines, suspension or removal from office -- for
failing to comply with the Code or with any of the commissioners
orders, instructions, regulations or rulings, or for otherwise conducting
business in an unsafe or unsound manner.[18]
Included in the above regulatory responsibilities is the duty to hold the
security deposits under Sections 191[19] and 203 of the Code, for the
benefit and security of all policy holders. In relation to these provisions,
Section 192 of the Insurance Code states:
Sec. 192. The Commissioner shall hold the securities, deposited as
aforesaid, for the benefit and security of all the policyholders of the
company depositing the same, but shall as long as the company is
solvent, permit the company to collect the interest or dividends on the
securities so deposited, and, from time to time, with his assent, to
withdraw any of such securities, upon depositing with said
Commissioner other like securities, the market value of which shall be
equal to the market value of such as may be withdrawn. In the event
of any company ceasing to do business in the Philippines the
securities deposited as aforesaid shall be returned upon the companys
making application therefor and proving to the satisfaction of the
Commissioner that it has no further liability under any of its policies
in thePhilippines. (Emphasis supplied)

Undeniably, the insurance commissioner has been given a wide

latitude of discretion to regulate the insurance industry so as to protect
the insuring public. The law specifically confers custody over the
securities upon the commissioner, with whom these investments are
required to be deposited. An implied trust[20] is created by the law for the

benefit of all claimants under subsisting insurance contracts issued by

the insurance company.[21]
As the officer vested with custody of the security deposit, the
insurance commissioner is in the best position to determine if and when
it may be released without prejudicing the rights of other policy
holders. Before allowing the withdrawal or the release of the deposit, the
commissioner must be satisfied that the conditions contemplated by the
law are met and all policy holders protected.
Commissioners Actions
Entitled to Great Respect

In this case, Commissioner Malinis refused to release the security

deposit of CISCO. Believing that the funds were exempt from execution
as provided by law, he sought to protect other policy holders. His
interpretation of the provisions of the law carries great weight and
consideration,[22] as he is the head of a specialized body tasked with the
regulation of insurance matters and primarily charged with the
implementation of the Insurance Code.
The emergence of the multifarious needs of modern society
necessitates the establishment of diverse administrative agencies. In
addressing these needs, the administrative agencies charged with
applying and implementing particular statutes have accumulated
experience and specialized capabilities.Thus, in a long line of cases, this
Court has recognized that their construction of a statute is entitled to
great respect and should ordinarily be controlling, unless clearly shown

to be in sharp conflict with the governing statute or the Constitution and

other laws.[23]
Clearly, then, the trial court erred in issuing the Writ of
Garnishment against the security deposit of CISCO. It follows that
without the issuance of a valid order, the insurance commissioner could
not have been in contempt of court.[24]
WHEREFORE, the Petition is GRANTED and the assailed
Order SET ASIDE. No costs.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson, First Division

W E C O N C U R:
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

[1]

Rollo, pp. 20-50.

Id. at 70-71. Penned by Judge (now Court of Appeals Justice) Noel G. Tijam.
[3]
Id. at 54-69.
[4]
January 16, 2003 Order; rollo, pp. 70-71.
[5]
December 18, 2002 Resolution, pp. 15-16; rollo, pp. 68-69.
[6]
The case was deemed submitted for decision on February 8, 2005, upon receipt by this
Court of petitioners Memorandum signed by Assistant Solicitor General Karl B.
Miranda and Solicitor Marsha C. Recon. Respondents Memorandum, signed by
Atty. Eduardo E. Francisco, was received by the Court on November 26, 2004.
[7]
Petitioners Memorandum, p. 11. Uppercase in the original.
[8]
AFP Mutual Benefit Association, Inc. v. NLRC, 334 Phil. 712, January 28, 1997,
citing Insular Life Assurance Co., Ltd. v. NLRC, 179 SCRA 459, November 15,
1989.
[9]
ABS-CBN Broadcasting Corporation v. Commission on Elections, 380 Phil. 780,
January 28, 2000; Gonzales v. Chavez, 205 SCRA 816, February 4, 1992.
[10]
Maria Clara L. Campos, in her commentary on the Insurance Code of
the Philippines, traces the history of the present Insurance Code as follows:
[2]

The forerunner of this [Insurance] Code was the Insurance Act

which took effect on July 1, 1915, and which was copied
almost verbatim from the California Insurance Act, with the exception of
a few provisions which were adopted from the New York Law. x x x. The
first Insurance Code took effect on December 18, 1974 and besides
incorporating most of the provisions of the Insurance Act with a few
changes, it contained many new provisions mostly regulatory in
nature. After a number of these new provisions were rendered obsolete by
subsequent amendments, the Insurance Code of 1978 was promulgated by

Presidential Decree No. 1460, incorporating not only such amendments

but also additional changes deemed necessary in order to keep pace with
the changing needs and demands of the insurance industry. However, the
substantive provisions governing the contract of insurance itself remain
for the most part as they were under the Insurance Act.
(Campos, INSURANCE, [1983], pp. 8-9.)

The Court has held that rulings and general principles on insurance recognized in the
state of California have persuasive authority in the Philippines. (Ang Giok Chip v.
Springfield Fire and Marine Insurance Co., 56 Phil. 375, December 31, 1931
and Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, September 28,
1925).
[11]
153 Cal. 183, March 9, 1908, per curiam (citing San Francisco Savings Union v.
Long, 123 Cal. 107, December 20, 1898, per Temple, J.).
[12]
Id.
[13]
The United Harbor Pilots Association of the Philippines v. Association of
International Shipping Lines, Inc., 440 Phil. 188, November 13, 2002.
[14]
See J.L.T. Agro, Inc. v. Balansag, 453 SCRA 211, March 11, 2005.
[15]
Go v. Office of the Ombudsman, 413 SCRA 608, October 17, 2003; Almendras Mining
Corporation v. Office of the Insurance Commission, 160 SCRA 656, April 15,
1988.
[16]

INSURANCE CODE, Secs. 186-187; see Almendras Mining Corporation v. Office of

the Insurance Commission, supra.
[17]
Id., Secs. 241 and 247.
[18]
Id., Sec. 415.
[19]
Sec. 191. No insurance company organized or existing under the government or laws
other than those of the Philippines shall engage in business in the Philippines
unless possessed of paid-up unimpaired capital or assets and reserve not less than
that herein required of domestic insurance companies, nor until it shall have
deposited with the Commissioner for the benefit and security of the policyholders
and creditors of such company in the Philippines, securities satisfactory to the
Commissioner consisting of good securities of the Philippines, including new
issued of stock of registered enterprises, as this term is defined in Republic Act
No. 5186, otherwise known as the Investment Incentives Act, as amended, to the
actual market value of not less than the minimum paid-up capital required of
domestic insurance companies: Provided, That at least fifty per centum of such
securities shall consist of bonds or other evidences of debt of the Government of
the Philippines, its political subdivisions and instrumentalities, or of governmentowned or controlled corporations and entities, including the Central Bank. x x x.
[20]

Articles 1440 and 1441 of the Civil Code provide thus:

Art. 1440. A person who establishes a trust is called a trustor; one

in whom confidence is reposed as regards property for the benefit of
another person is known as the trustee; and the person for whose benefit
the trust has been created is referred to as the beneficiary.
Art. 1441 Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties. Implied trusts come
into being by operation of law.
[21]

Cesario P. Topiangco raises the issue of actual ownership and discusses the effects of
placing security deposits in the custody of the Insurance Commissioner as follows:
Doubt has arisen as to whether the government securities,
particularly Central Bank Certificates of Indebtedness, now in the
possession of insurance companies as part of their investment portfolio
are really owned by such companies. Placing these securities in the
custody of the Insurance Commissioner would minimize, if not entirely,
erase such doubt.Besides, an insurance company in the verge of
insolvency would find it difficult to dispose of such securities.
(Topiangco, COMMENTARIES AND JURISPRUDENCE ON THE
INSURANCE CODE OF THE PHILIPPINES, [1992], p. 167).

[22]

The United Harbor Pilots Association of the Philippines v. Association of

International Shipping Lines, Inc., supra note 13 at 202.
[23]
Union Bank of the Philippines v. Securities and Exchange Commission, 411 Phil. 94,
June 6, 2001; Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504,
November 13, 1991;Asturias Sugar Central, Inc. v. Commissioner of Customs, 140
Phil. 20, 1969.
[24]
Factoran, Jr. v. Court of Appeals, 378, Phil. 282, December 13, 1999.