LUZ PICAR, NANCY PICAR, JESSE PICAR AND CONSOLACION PICAR, ASSISTED BY THEIR MOTHER, CONSOLACION PICAR, PLAINTIFFS?APPELLANTS, VS. GOVERNMENT SERVICE INSURANCE SYSTEM, DEFENDANT…

Appeal on pure questions of law from the decision of the Court of First Instance of
Camarines Sur in its Civil Case No. 5673, dismissing the action instituted by the petitioners as designated
beneficiaries in the life insurance policy of one Napoleon F. Picar, a de­ceased government employee,
against the Government Ser­vice Insurance System, on the ground that due to the
failure of the said petitioners to submit a certificate of clearance
from the money and property accountabili­ties of the deceased, they have no
cause of action against the defendant
GSIS.

The
case was submitted by all the
parties for de­cision in the court below upon the following Stipulation of
Facts:

“1.    That Policy No. 170329 issued in favor of the late Napoleon
F. Picar, was, on September 13, 1961, in force;

“2.    That Napoleon F. Picar died on September 13,
1961;

“3.    That Consolacion J. Picar is the guardian of all the minors who are the
plaintiffs herein;

“4.    That
the beneficiaries in the insurance policy issued in favor of Napoleon F. Picar
are the following:  Nancy Picar, Jesse
Picar, Sylvia Picar, Luz Picar and Consolacion Picar;

“5.    That the administrator of the estate of the
late Napoleon F. Picar is the
Provincial Treasurer of Cama­rines Sur;

“6.    That
on September 30, 1961 a claim was presented to the G.S.I.S. for the proceeds of
the life insur­ance policy for relief or payment to the beneficiaries named
therein;

“7.    That the G.S.I.S. is withhold­ing payment of
the proceeds of the life insurance policy only on the ground that no clearance
was issued to the deceased by the employer of the deceased, the Provincial Trea­surer
of Camarines Sur;

“8.    That the Provincial Trea­surer filed a claim
for P9,746.07 to the intestate estate of the late Napoleon Picar;

“9.    That the basis of the go­vernment
represented by the Pro­vincial Treasurer of Camrines Sur in intervening in this
case (Civil Case No. 5673) is Section 26 of Commonwealth Act 186,
as a­mended;

“10.  That the plaintiffs are also withdrawing their
claim for moral damages as well as attor­ney’s fees, but insist on the in­terest due
from September 30, 1961 when the claim was made, up to the time the insurance policy is fully
paid;

“11.  That the plaintiffs secured the
services of counsel
to
claim this
insurance policy in the amount of P500.00.”

On the basis of these stipulated facts, the court a quo
on August 30, 1965, dismissed the aforesaid act­ion of the beneficiaries.  It ruled thus:

“The only issues to be decided in this case are:  (1) whether it is legally necessary for the
plaintiffs to present a clearance from money and property accountabilities of
the deceased to be issued by the
authorities concerned, and required by the defendant, GSIS, before the proceeds of the Policy No. 170329 is paid to
the beneficiaries desig­nated therein; and (2) whether the Republic of the
Philippines, as re­presented by the
Provincial Treasurer of
Camarines Sur, can legally lay claim to the proceeds of the policy in question.

“The contract of insurance enter­ed into by the insured,
Napoleon F. Picar and the Government Service Insurance System is governed by
Com­monwealth Act No. 186, the law creat­ing the said insurance system and not
by Act 2427 as contended by the plaintiffs. 
While Act 2427 governs the contract of insurance between Private
Insurance Companies and pri­vate persons Commonwealth Act No. 186 on the other
hand, governs the contract of insurance between the Government Service
Insurance System and employees of the Philippine Go­vernment.  The Government Service Insurance System was
created by Com­monwealth Act 186 for the sole pur­pose and benefit of government em­ployees, so much so,
that nobody can be insured with the Government Service Insurance System except
when he is a government employee.  Hence,
General Circular No. 52 of the General Auditing Office dated December 23, 1957
is applicable to the insurance contract between the deceased Napoleon F. Picar
and the defendant, Government Service In­surance System.  And due to the failure of the plaintiffs to
submit a certificate of clearance from the money and property accountabilities
of the deceased, Napoleon F. Picar, they have no cause of action against the
defendant, Government Service Insurance System.

“As to the claim of the intervenor, Republic of the
Philippines represent­ed by the Provincial Treasurer of Camarines Sur, the
court is of the opi­nion and so holds, that it being the employer of the
deceased, Napoleon F. Picar, it has the right to the proceeds of said insurance
to satisfy the indebtedness of said deceased to the government, pursuant to the
provision of Section 26 of Commonwealth Act 186.

“In view of all the
foregoing considerations, judgment is hereby rendered; (a) dismissing
the plaintiffs’ complaint with costs against them; and (b) declaring that the
intervenor is legally entitled to the
proceeds of the life insurance policy of the defendant, Napoleon F.
Picar.”

It is from this holding of the court below that, as earlier stated
in the opening paragraph of this decision,
the present appeal has been taken to this Court by the designated
beneficiaries in the life insurance policy here involved, the widow and the
minor children of the late Napoleon F. Picar. 
Said appellants here allege that
the lower court erred:  (a) in holding
that the plain­tiffs-appellants have no cause of action against the de­fendant-appellee
due to the failure of the plaintiffs-appellants to submit a certificate of clearance of
the deceased Napoleon F. Picar;
and (b) in holding that the
Republic of the Philippines is the entity legally enti­tled to the proceeds of
the policy of the life of Napoleon F. Picar.

Appellants vigorously contend that the proceeds of the life
insurance policy here involved – upon the
death of the insured employee during the endowment period – belonged
exclusively to the beneficiaries designated in the policy and not to the
estate of the insured; that, therefore, the said deceased’s employer – the
Provincial Treasurer of Camarines Sur or the Republic of the Philip­pines – cannot legally lay claim to the
proceeds of such life insurance, since it is not part of the estate of said deceased employee; and,
consequently, the appellee Government Service Insurance System acted without
legal authority when it made the presentation of a certificate of clearance
from money and property accountabilities
of the deceased to be secured from his employer as a condi­tion precedent to the
payment of the proceeds of the life insurance in question to the appellants who
are the designated beneficiaries in the policy. 
This contention is untenable.

It is true that
under general principles in the law of insurance, if a policy provides that the
proceeds shall be payable to the assured, if he lives to a cer­tain date, and,
in case of his death before that date, then they shall be payable to the
beneficiary designated, the benefit of the policy will inure to such
beneficiary in case the assured dies
before the end of the period de­signated in the policy,^[1] and, generally, that the proceeds of a life insurance in which a third
person is
named beneficiary belong
exclusively to such beneficiary as an individual, they are not the property of
the heirs of the insured, are not subject to administration, and cannot
properly be claimed or received by the administrator or other legal
representative of the insured as assets of his estate^[2] As correctly ruled by the lower court,
however, such general principles are not applicable to the life insurance herein involved which is governed by specific law.

The law in point is
Section 26 of Commonwealth Act 186 (the law creating the (Government Service
insurance System), as amended, which provides:

“Sec.
26.- Exemption from legal process
and liens.  – No policy of life insurance
issued under this Act, or the proceeds thereof, when paid to any member
thereunder, nor any other benefit granted under this Act, shall be liable to
attach­ment, garnishment, or other process, or to be seized,
taken, appropriated, or applied by any legal or equitable process or operation
of law to pay any debt or liability of such member, or his beneficiary, or any
other person who may have a right thereunder, either before or after
payment
nor shall the proceeds thereof,
when not made payable to a named beneficiary, constitute a part of the estate of the member for pay­ment
of his debt:  Provided, however, That
this section shall not apply when obligations or indebtedness to the System and
the employer ate con­cerned; nor when the retirement an­nuity is assigned to any person, corporation,
association or bank or other financial institution, which is hereby
authorized.”

The above-quoted provision is too clear to require the
application of any rule of statutory construction for purposes of showing the
weakness of the position ta­ken by herein appellants.  As may be seen, it recognizes the principles
relied upon by them, but at the same time, it expressly provides that
“this section shall not apply when obligations or indebtedness to the
System and the employer are concerned”. 
In other words, in life insur­ance policies issued by the GSIS in favor
of government employees, the proceeds – even if not made payable to named
beneficiaries and may, therefore, be payable to the estate of the insured –
shall not constitute part of the estate of the member (insured) for payment of
his debt; but such proceeds – whether or not made payable to named
beneficiaries – shall so constitute part of the estate of the insured for payment
of his debt and shall thereby be liable to attachment, garnishment and other
legal processes, when obligations or indebtedness to the GSIS and the employer,
that is, the government are con­cerned. 
There can be no doubt then that the appellee Government Service
Insurance System was right in re­quiring herein appellants to submit the
necessary clearance from money and property accountabilities of the de­ceased
government employee whose insurance policy is here involved, before paying them
the proceeds of the policy concerned; and the lower court did not err in holding that the appellants, for their
failure to submit the certificate of clearance required of them, have no cause
of action against the GSIS.  Similarly,
since it is not disputed by appellants that the Republic of the Philippines,
employer of the deceased employee in this cases is claiming the proceeds of his
insurance on the basis of the provisions of the law above-quoted, We agree with
the appellee GSIS that the court a quo was right in declaring
that the intervenor Republic of the Philippines is legally entitled to the
proceeds of the life insurance here put to question.

WHEREFORE, the decision appealed from is
affirmed.  On equitable considerations,
no pronouncement as to costs.

Concepcion, C.J., Reyes, Fernando, Teehankee, and Villamor, JJ., concur.

Dizon, Makalintal, and
Zaldivar, JJ., no part.

Castro, J., on official leave
of absence.

^[1]
Villanueva vs. Oro (Intestate estate of the late Espe­ranza J.
Villanueva), 81 Phil. 464, citing Couch, Cy­clopedia of insurance Law,
Vol. 2, sec. 343, p. 1023.

^[2]
37 C.J., Sec. 323, p. 566.