Philippine American Life and General Insurance Company vs. Valencia-Bagalacsa

A trial court commits grave abuse of discretion amounting to lack or excess of jurisdiction when it resolves the issue of prescription in a motion to dismiss based solely on the opposing party's counsel's explanation rather than on evidence on record, thereby depriving the movant of due process and rendering the order void.

Private respondents Eduardo Z. Lumaniog, Celso Z. Lumaniog, and Ruben Z. Lumaniog are the legitimate children and forced heirs of the late Faustino Lumaniog, who was insured by petitioner Philippine American Life and General Insurance Company under Life Insurance Policy No. 1305486 with a face value of ₱50,000. The dispute concerns whether the action filed by the heirs to recover the insurance proceeds has prescribed under Article 1144 of the Civil Code, which prescribes a ten-year period for actions upon a written contract, and, more specifically, from what date the prescriptive period should be reckoned.

Faustino Lumaniog was insured by petitioner Philippine American Life and General Insurance Company under Life Insurance Policy No. 1305486 with a face value of ₱50,000. In his application for insurance coverage, Faustino represented that he had not been treated for indications of "chest pain, palpitation, high blood pressure, rheumatic fever, heart murmur, heart attack or other disorder of the heart or blood vessel." Faustino died of "coronary thrombosis" on November 25, 1980.

On June 22, 1981, private respondents Eduardo Z. Lumaniog, Celso Z. Lumaniog, and Ruben Z. Lumaniog—as legitimate children and forced heirs of Faustino—claimed and continuously claimed the proceeds and interests under the life insurance policy in the amount of ₱641,000. Petitioner denied the claim in a letter dated March 12, 1982, signed by its then Assistant Vice President Amado Dimalanta, on the ground of concealment: Faustino had asserted in his application that he had not been treated for various heart and blood vessel disorders, when in fact he was a known hypertensive since 1974. Private respondents sent a letter dated May 25, 1983 requesting reconsideration of the denial. Petitioner reiterated its decision to deny the claim in a letter dated July 11, 1983.

More than ten years later, or on December 1, 1994, petitioner received a letter from Jose C. Claro, a provincial board member of Camarines Sur, reiterating the earlier request for reconsideration. Petitioner responded by letter dated December 20, 1994, stating that the company was reviewing the claim. On February 14, 1995, petitioner finally rejected the claim in a letter to counsel.

On June 20, 1995, private respondents filed a complaint for recovery of sum of money against petitioner before the Regional Trial Court of Libmanan, Camarines Sur, Branch 56, docketed as Civil Case No. L-787. Petitioner filed an Answer with Counterclaim and Motion to Dismiss, contending that the cause of action had prescribed and that private respondents were guilty of laches, specifically alleging that it had denied the claim per its letter dated July 11, 1983. The RTC issued an Order dated June 7, 1996 setting the case for hearing, finding that the matters in the pleadings were evidentiary in nature. On petitioner's motion for reconsideration, however, the RTC issued an Order dated December 12, 1997 ruling that the ten-year prescriptive period had not lapsed, reasoning that the period was "stopped" on May 25, 1983 when private respondents requested reconsideration, and commenced to run only on February 14, 1995 when the claim was finally denied. This ruling was based on the explanation of private respondents' counsel, not on evidence presented by the parties regarding whether private respondents had received the July 11, 1983 denial letter—a factual question central to petitioner's defense of prescription.

• Prescription of Action: Petitioner argued that private respondents' cause of action had prescribed, as it had denied the claim in a letter dated March 12, 1982 and reiterated the denial in a letter dated July 11, 1983, such that the ten-year prescriptive period under Article 1144 of the Civil Code had lapsed before the complaint was filed on June 20, 1995.
• Laches: Petitioner maintained that private respondents were guilty of laches, having waited more than ten years from the 1983 denial before reiterating their request for reconsideration through a third party in December 1994.
• Grave Abuse of Discretion: Petitioner contended that the RTC committed grave abuse of discretion in its Order dated December 12, 1997 by arbitrarily ruling that the prescriptive period commenced only on February 14, 1995, based on the mere explanation of private respondents' counsel rather than on evidence on record.
• Revival of Prescribed Action: Petitioner posed the question of whether an extrajudicial demand made after an action has prescribed shall cause the revival of the action.

• Accrual of Cause of Action: Respondents countered that their cause of action accrued only on February 14, 1995, when petitioner finally rejected their claim, and that the ten-year prescriptive period should be counted from that date, citing jurisprudence holding that a cause of action for insurance proceeds does not accrue until the claim is finally rejected by the insurer.
• Tolling of Prescription: Respondents argued that the running of the ten-year period was "stopped" on May 25, 1983, when they demanded compliance with the contract and reconsideration of the denial, and that the period commenced to run only upon petitioner's final decision on February 14, 1995.

• Prescription: Whether the complaint filed by private respondents for payment of life insurance proceeds is already barred by prescription of action.
• Revival of Action: Whether an extrajudicial demand made after an action has prescribed shall cause the revival of the action.
• Grave Abuse of Discretion: Whether the RTC committed grave abuse of discretion in issuing its Orders dated June 7, 1996 and December 12, 1997.

• Prescription: Not resolved on the merits. The Court found that the question of when the prescriptive period began to run depended on evidentiary matters—specifically, whether private respondents received the July 11, 1983 denial letter—which could not be resolved without trial.
• Revival of Action: Not reached, the Court having remanded the case for trial without ruling on whether the action had prescribed.
• Grave Abuse of Discretion (June 7, 1996 Order): No. The RTC correctly set the case for hearing, as the pleadings raised evidentiary matters necessitating a trial on the merits, pursuant to the then-prevailing Section 3, Rule 16 of the Rules of Court.
• Grave Abuse of Discretion (December 12, 1997 Order): Yes. The RTC committed grave abuse of discretion by arbitrarily ruling that the prescriptive period commenced on February 14, 1995, based solely on counsel's explanation and not on evidence presented by the parties, rendering the order void.

• Prescription: The Court did not resolve whether prescription had set in because the determination of the reckoning date depended on a factual question—whether private respondents received the July 11, 1983 denial letter—that could only be resolved through trial. Petitioner had specifically alleged in its Answer that it denied the claim per its letter dated July 11, 1983. Due process demanded that petitioner be given the opportunity to prove that private respondents had received that letter, which was crucial to its defense that the complaint filed in June 1995 was beyond the ten-year prescriptive period under Article 1144 of the Civil Code. Because the RTC prematurely and arbitrarily resolved this factual question without evidence, the Court could not rule on prescription.

• Revival of Action: This issue was not reached because the Court did not determine whether the action had prescribed. The question of whether an extrajudicial demand made after prescription could revive the action was rendered premature by the remand for trial.

• Grave Abuse of Discretion (June 7, 1996 Order): The RTC was initially correct in issuing the Order dated June 7, 1996 setting the case for hearing. The matters in the respective pleadings of the parties were evidentiary in nature, necessitating a trial on the merits. This was consistent with the then-prevailing Section 3, Rule 16 of the Rules of Court, which allowed the court to defer the hearing and determination of a motion to dismiss if the ground alleged did not appear indubitable. The Court affirmed this Order.

• Grave Abuse of Discretion (December 12, 1997 Order): The RTC committed grave abuse of discretion when, in resolving petitioner's motion for reconsideration, it arbitrarily ruled that the ten-year period had not lapsed. It based its finding on a mere explanation of private respondents' counsel and not on evidence presented by the parties as to the date from which to reckon the prescriptive period. The ruling was arbitrary and patently erroneous for not being founded on evidence on record, and was therefore void. The Court of Appeals committed reversible error in upholding this Order. Certiorari was an appropriate remedy to assail the interlocutory order because it was issued with grave abuse of discretion, was patently erroneous, and the remedy of appeal would not afford adequate and expeditious relief.

• Grave Abuse of Discretion in Interlocutory Orders — A trial court commits grave abuse of discretion amounting to lack or excess of jurisdiction when it resolves a motion to dismiss on grounds requiring factual determination—such as the date of receipt of a denial letter—without conducting a trial or receiving evidence, relying instead on the bare explanation of opposing counsel. Such an order is arbitrary, patently erroneous, and void for depriving the movant of due process. The Court applied this doctrine to the RTC's December 12, 1997 Order, which ruled on prescription based solely on counsel's representation rather than evidence.

• Certiorari as Remedy for Interlocutory Orders — Certiorari under Rule 65 is an appropriate remedy to assail an interlocutory order when (1) the tribunal issued the order without or in excess of jurisdiction or with grave abuse of discretion, and (2) the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief. The Court relied on J.L. Bernardo Construction vs. Court of Appeals to justify the certiorari petition assailing the RTC's December 12, 1997 Order.

• Accrual of Cause of Action in Insurance Claims — As cited by the Court of Appeals from Summit Guaranty and Insurance Co., Inc. vs. De Guzman and ACCFA vs. Alpha Insurance and Surety Co., a cause of action for insurance proceeds does not accrue until the claim is finally rejected by the insurer, because before such final rejection there is no real necessity for bringing suit. The Supreme Court did not rule on the applicability of this doctrine to the facts but noted that the CA had relied on it; the Court's reversal was based on the RTC's lack of evidentiary basis, not on rejection of this doctrine.

• "The ruling of the RTC that the cause of action of private respondents had not prescribed, is arbitrary and patently erroneous for not being founded on evidence on record, and therefore, the same is void." — This passage states the ratio decidendi: the RTC's ruling on prescription was void because it was not based on evidence, constituting grave abuse of discretion.

• "It is for the above reason that the RTC committed a grave abuse of discretion when, in resolving the motion for reconsideration of petitioner, it arbitrarily ruled in its Order dated December 12, 1997, that the period of ten (10) years had not yet lapsed. It based its finding on a mere explanation of the private respondents' counsel and not on evidence presented by the parties as to the date when to reckon the prescriptive period." — This passage defines the specific basis for finding grave abuse of discretion: the RTC relied on counsel's explanation rather than evidence, which is the canonical formulation of the defect in the RTC's order.

• "Due process demands that it be given the opportunity to prove that private respondents had received said letter, dated July 11, 1983. Said letter is crucial to petitioner's defense that the filing of the complaint for recovery of sum of money in June, 1995 is beyond the 10-year prescriptive period." — This passage identifies the central evidentiary question that the RTC should have allowed to be resolved at trial, anchoring the due process rationale for the Court's reversal.

• Summit Guaranty and Insurance Co., Inc. vs. De Guzman, 151 SCRA 389 — Cited by the Court of Appeals for the proposition that a cause of action for insurance proceeds accrues only upon final rejection by the insurer. The Supreme Court did not disturb this citation but reversed the CA on the ground that the RTC's finding was not supported by evidence.

• Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu — Cited within Summit Guaranty for the principle that a plaintiff's cause of action does not accrue until the claim is finally rejected by the insurance company, as there is no real necessity for bringing suit before such rejection.

• ACCFA vs. Alpha Insurance and Surety Co. — Cited by the Court of Appeals for the rule that a cause of action requires not only a legal right and correlative obligation but also an act or omission in violation of that right, such that the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty.

• Concepcion vs. Court of Appeals, 324 SCRA 85 (2000) — Cited in support of the proposition that an order not founded on evidence on record is arbitrary and void.

• J.L. Bernardo Construction vs. Court of Appeals, 324 SCRA 24 (2000) — Cited for the rule that certiorari is an appropriate remedy to assail an interlocutory order issued with grave abuse of discretion where the remedy of appeal would not afford adequate and expeditious relief.

• Article 1144, Civil Code — Provides that actions upon a written contract must be brought within ten years from the time the right of action accrues. The provision was central to petitioner's defense that the complaint, filed in June 1995, was beyond the ten-year period if reckoned from the July 11, 1983 denial. The Court did not rule on the provision's application, leaving the factual question of the reckoning date for trial.

• Section 3, Rule 16, Rules of Court (pre-1997 version) — Provided that after hearing, the court may deny or grant a motion to dismiss, allow amendment of the pleading, or defer the hearing and determination of the motion until trial if the ground alleged does not appear indubitable. The Court found the RTC's June 7, 1996 Order consistent with this provision, as the evidentiary nature of the pleadings justified setting the case for hearing.

• Section 3, Rule 16, 1997 Rules of Civil Procedure (amended) — The amended provision, effective July 1, 1997, provides that the court shall not defer resolution of a motion for the reason that the ground relied upon is not indubitable. The Court noted this amendment but applied the pre-amendment version to the June 7, 1996 Order, which was issued before the amendment took effect.

Chief Justice Davide, Jr. (Chairman), and Justices Vitug, Kapunan, and Ynares-Santiago concurred.