Torres vs. Board of Trustees, GSIS

A deceased borrower's housing loan is not covered by Sales Redemption Insurance where the borrower neither paid the insurance premium nor underwent the requisite physical and medical examinations, but the heir of such borrower must nevertheless be afforded the opportunity to restructure the outstanding loan obligation under the GSIS Housing Loan Remedial and Restructuring Program (PPG No. 232-13), in light of the GSIS's socialized mandate, the transmissibility of patrimonial rights under the Civil Code, and the good faith demonstrated by both parties.

Second Lieutenant Dominador dela Cena Torres, Jr. was an active combat pilot for the Philippine Air Force who, in 1979, entered into a Deed of Conditional Sale with ARB Construction Co., Inc. for a low-cost housing unit in Soldiers' Hills Village, Muntinlupa City, financed by a secured housing loan from the Government Service Insurance System payable through salary deductions. The GSIS offered Sales Redemption Insurance, a decreasing term insurance policy designed to guarantee full settlement of the outstanding loan balance in the event of the borrower's premature death, thereby protecting the heirs of member-awardees from losing the awarded property due to unpaid amortizations. Petitioner Felimon C. Torres is Dominador's sibling and sole surviving heir: Dominador died intestate, single, and without issue, survived by his parents, who in turn died and were survived by petitioner, who inherited the patrimonial rights arising from the DCS.

In 1979, while still in active service as a combat pilot for the Philippine Air Force, Second Lieutenant Dominador dela Cena Torres, Jr. entered into a Deed of Conditional Sale with ARB Construction Co., Inc. over a low-cost housing unit located at Block 56, Lot 4, Soldiers' Hills Village, Muntinlupa City, for the price of PHP76,830.00, to be financed by a secured housing loan from the GSIS payable through salary deductions. Less than a year after taking out the housing loan, on September 2, 1980, Dominador was performing a ferry mission in Mindanao when the helicopter he was piloting crashed in Lanao del Sur, killing him, two of his gunners, and four rebel returnees. The LOA Status Board of the PAF ruled the crash "purely accidental." Dominador died intestate, single, and without issue, survived by his parents, Dominador Briones Torres, Sr. and Independencia dela Cena Torres. When both parents subsequently died on June 6, 1986 and April 30, 1997, respectively, they were in turn survived by Dominador's sibling, herein petitioner Felimon C. Torres.

Uninformed of Dominador's death, the GSIS sent several letters regarding his amortizations to his last address, and when these went unanswered, it issued a Notice of Foreclosure/Cancellation informing that it would undertake foreclosure proceedings on delinquent low-cost housing loan accounts. On December 12, 1988, the GSIS Quezon City Branch Office 1 – Military sent a Notice of Foreclosure of Dominador's DCS for failure to pay installments. Petitioner, through letters dated February 23 and April 17, 1989, and November 14, 1990, countered that ownership over the subject property should be consolidated in his name because, by virtue of the GSIS Sales Redemption Insurance policy, the monthly amortizations were deemed waived, the premiums therefor having already been deducted from Dominador's salary and paid for.

Despite petitioner's claims, the GSIS sent a letter anew on February 28, 2003, reminding the need to settle the outstanding obligations. On July 14, 2003, the GSIS countered that Dominador's DCS was not covered by the SRI policy since he had not submitted himself to the requisite physical and medical examinations, and consequently, it was incumbent upon his heirs to satisfy the outstanding monthly amortizations. Twenty-five years after Dominador's death, on September 15, 2005, the GSIS maintained its denial and issued a Notice of Cancellation of the DCS, as well as a final demand upon the occupants to vacate the subject property.

Petitioner filed a petition before the GSIS Board on February 3, 2006, docketed as GSIS Case No. 002-06, seeking consolidation of title over the subject property in his name, with an alternative prayer that, should the claim be denied and he be required to pay, the basis of payment be the original purchase price stated in the DCS. The GSIS Board dismissed the petition on March 8, 2012, finding that Dominador failed to submit to the requisite physical and medical examinations—a precondition to SRI issuance—and that there was no record of SRI premium payment under his account. Petitioner's motion for reconsideration was denied by the GSIS Board on July 10, 2014, though in the same resolution the Board noted the availability of restructuring under GSIS Resolution No. 48 approving PPG No. 232-13 on the Housing Loan Remedial and Restructuring Program. Petitioner appealed to the CA via Rule 43, but the CA dismissed the appeal on March 16, 2016, holding that no valid SRI policy existed and that equity could not prevail over statutory law, and denied reconsideration on July 20, 2016.

• Compulsory Nature of SRI: Petitioner argued that the SRI was already effective upon approval of Dominador's housing loan by virtue of the compulsory nature of the same under GSIS Resolution No. 206 dated March 31, 1978, which made SRI coverage a requirement in every award to member-awardees.
• Substantial Compliance with Medical Examinations: Petitioner maintained that Dominador's failure to undergo the GSIS-required physical and medical examinations should not bar SRI coverage, since Dominador's death was purely accidental and in line of duty as a PAF combat pilot, and was not due to any underlying illness that could have been detected by such examinations. Petitioner further contended that Dominador's profession as a military pilot, which required its own medical and physical examinations for flying fitness, constituted substantial compliance with the GSIS examination requirement.
• Liberal Interpretation: Petitioner submitted that the fact that Dominador died in active duty and in service to the nation merited the extension of a liberal interpretation of the insurance policy in his and his heir's favor.
• Alternative Prayer for Restructuring: Petitioner prayed that, in the event his SRI claim was denied and he was required to pay, the basis of payment be the original purchase price stated in the DCS, given the GSIS Housing Finance Service's failure to resolve his claim since it was formally brought in 1989.

• Non-Coverage of SRI: Respondent countered that Dominador's housing loan account was not covered by the SRI and that his death did not extinguish the obligation to pay amortizations on said loan.
• No Premium Payment: Respondent argued that there was no premium payment for the SRI, which negated any protection thereunder, citing the elementary principle in insurance law that payment of premium is required for insurance coverage.
• Finality of Quasi-Judicial Findings: Respondent maintained that the findings of quasi-judicial bodies such as the GSIS Board must be accorded respect and finality by appellate courts, absent any showing of grave abuse of discretion.

• SRI Coverage: Whether Dominador's Deed of Conditional Sale was covered by the Sales Redemption Insurance at the time of his death.
• Propriety of Cancellation: Whether the cancellation of the DCS and the demand to vacate the subject property were warranted by virtue of non-payment of amortizations.

• SRI Coverage: No. Dominador's DCS was not covered by the SRI, the borrower having neither paid the requisite premium nor undergone the mandatory physical and medical examinations prescribed by GSIS rules.
• Propriety of Cancellation: No. The cancellation of the DCS and the demand to vacate were unwarranted. Petitioner, as sole heir, must be allowed to avail of a restructuring of the outstanding amortizations under PPG No. 232-13, consistent with the GSIS's socialized mandate and the good faith demonstrated by both parties.

• SRI Coverage: The SRI is a decreasing term insurance policy designed to guarantee full settlement of the outstanding loan balance in the event of the borrower's premature death. GSIS Resolution No. 206 dated March 31, 1978 made SRI coverage compulsory for all member-awardees, but expressly conditioned such coverage on the member-awardee passing the required physical and medical examinations. As a type of insurance, the SRI is governed by Section 77 of the Insurance Code, which provides that no policy or contract of insurance is valid and binding unless and until the premium thereof has been paid. The following facts were undisputed: the SRI coverage required that the borrower previously submit to the necessary physical and medical examinations; the SRI required prior payment of the determined premium; and Dominador complied with neither. The GSIS Board and the CA both consistently found these facts to be the case. Petitioner's argument that Dominador's PAF medical and physical examinations constituted substantial compliance was rejected, as the PAF examinations were designed for a different purpose—assessing fitness for flying status—and not for the assessment and computation of SRI premiums. There being no equivocation in the applicable rules, there was no need for liberal interpretation of the terms pertaining to the DCS and the SRI.

• Propriety of Cancellation: Notwithstanding the absence of SRI coverage, the rights arising from the DCS in Dominador's name are patrimonial rights which, upon the death of Dominador's parents who previously survived him, were transmitted to petitioner as the parents' sole heir under Article 781 of the Civil Code. Two factors supported the transmissibility of these rights: the GSIS Board had not yet finally rescinded the DCS due to the pendency of the petition, and a remedial course of action remained available for heirs of deceased borrowers. Specifically, the GSIS Board itself issued GSIS Resolution No. 48, approving PPG No. 232-13 on the Housing Loan Remedial and Restructuring Program, which expressly allows legal heirs of deceased housing loan borrowers with remaining unpaid loan balances to avail of restructuring, subject to evaluation and approval by the HLRRP Committee. Although the implementation period of PPG No. 232-13 had lapsed (August 1, 2013 to March 13, 2014), the GSIS Board itself mentioned this remedy in its July 10, 2014 Resolution denying petitioner's motion for reconsideration, and the non-recourse to this remedy was through no fault of petitioner since his motion for reconsideration was still pending during the implementation period. The Court affirmed that, in view of the peculiar circumstances and the GSIS Board's own admission, the restructuring option should remain available to petitioner. This was consistent with the GSIS's original mandate under Presidential Decree No. 1146 to expand and improve social security and insurance programs for government employees and their dependents. Furthermore, the principle of good faith—implicit in all contracts under Articles 1159 and 1315 of the Civil Code and required in the exercise of rights and performance of duties under Article 19—underpinned both the GSIS Board's procedure in collecting outstanding payments and petitioner's efforts to settle the same. The GSIS Board exhibited institutional patience by waiting 25 years before issuing a Notice of Cancellation and offered a remedial course of action in its resolution denying reconsideration, while petitioner consistently expressed willingness to pay whatever was due should his SRI claim be rejected, having conveyed this intention at the earliest opportunity in his original petition before the GSIS Board. To afford petitioner the option of a restructure under PPG No. 232-13 was the only consequence consistent with the good faith both parties demonstrated toward the fulfillment of their reciprocal prestations.

• Payment of Premium as Operative Requisite for Insurance Coverage — Under Section 77 of the Insurance Code, no policy or contract of insurance is valid and binding unless and until the premium thereof has been paid, except in the case of a life or industrial life policy where the grace period provision applies. The Court applied this principle to hold that Dominador's DCS was not covered by the SRI because no premium had been paid, negating any insurance protection regardless of the compulsory nature of the SRI under GSIS rules.

• Good Faith as Implicit in All Contracts — Articles 1159 and 1315 of the Civil Code require that contracts be complied with in good faith, and that parties are bound not only to what has been expressly stipulated but also to all consequences which, according to their nature, are in keeping with good faith, usage, and law. Article 19 further requires every person, in the exercise of rights and performance of duties, to act with justice, give everyone their due, and observe honesty and good faith. The Court relied on this doctrine to hold that the good faith demonstrated by both the GSIS Board (through its institutional patience and offer of remedial measures) and petitioner (through his consistent willingness to settle the obligation) supported the resolution that petitioner must be afforded the opportunity to restructure the outstanding loan.

• Transmissibility of Patrimonial Rights — Under Article 781 of the Civil Code, the inheritance of a person includes not only property and transmissible rights and obligations existing at the time of death, but also those which have accrued thereto since the opening of the succession. The Court applied this principle to hold that the rights arising from Dominador's DCS were patrimonial rights transmitted first to his surviving parents and then to petitioner as the parents' sole heir.

• Socialized Mandate of the GSIS — Under Presidential Decree No. 1146 (the Revised Government Service Insurance Act of 1977), the GSIS is mandated to expand and improve social security and insurance programs for government employees, providing benefits responsive to their needs and those of their dependents in the event of sickness, disability, death, retirement, and other contingencies. The Court invoked this mandate to affirm that the GSIS Board must remain true to its original purpose of benefiting rather than prejudicing government employees, supporting the availability of restructuring remedies to heirs of deceased borrowers.

• "So that contractual good faith is not so much a superimposed duty on the parties in the event of dispute, but is instead unearthed to be its irreducible core." — This passage, from the decision's opening, articulates the Court's framing of good faith as inherent to the contractual relationship rather than an externally imposed obligation, setting the analytical framework for the ruling.

• "An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies." — This is Section 77 of the Insurance Code as quoted in the decision, establishing the operative requisite of premium payment that defeated petitioner's SRI coverage claim.

• "To afford petitioner the option of a restructure under PPG No. 232-13 is the only consequence that is consistent with the good faith that both parties have demonstrated towards the fulfillment of their reciprocal prestations to each other." — This passage states the Court's synthesis of the good faith doctrine as applied to the facts, linking the conduct of both parties to the equitable remedy of loan restructuring.

• Section 77, Insurance Code (Presidential Decree No. 612) — Provides that no policy or contract of insurance is valid and binding unless and until the premium thereof has been paid, except in the case of a life or industrial life policy where the grace period provision applies. Applied to hold that Dominador's DCS was not covered by the SRI because no premium was paid.

• Article 781, Civil Code — Provides that the inheritance of a person includes not only property and transmissible rights and obligations existing at the time of death, but also those which have accrued thereto since the opening of the succession. Applied to establish that the patrimonial rights arising from Dominador's DCS were transmitted to petitioner as sole heir.

• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Cited in support of the doctrine that good faith is implicit in all contracts.

• Article 1315, Civil Code — Provides that contracts are perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage, and law. Cited alongside Article 1159 to reinforce the requirement of good faith in contractual performance.

• Article 19, Civil Code — Provides that every person must, in the exercise of rights and performance of duties, act with justice, give everyone their due, and observe honesty and good faith. Applied as the all-embracing requirement of good faith and fair dealing underpinning both parties' conduct.

• Presidential Decree No. 1146 (Revised Government Service Insurance Act of 1977) — Established the GSIS mandate to expand and improve social security and insurance programs for government employees, providing benefits responsive to their needs and those of their dependents. Invoked to affirm that the GSIS Board must remain true to its original purpose of benefiting rather than prejudicing government employees.

• GSIS Resolution No. 206 dated March 31, 1978 — Made SRI coverage compulsory for all member-awardees who pass the requisite physical and medical examinations. Applied to establish that SRI coverage was conditional on passing the required examinations, a condition Dominador did not satisfy.

• GSIS Resolution No. 48 / PPG No. 232-13 (Housing Loan Remedial and Restructuring Program) — Approved the HLRRP, which provides legal heirs of deceased housing loan borrowers with remaining unpaid loan balances the opportunity to restructure their obligations by condoning penalties and offering discounts on unpaid interests. Applied as the basis for remanding the case to the GSIS Board for determination of loan restructuring in favor of petitioner.

Inting, Gaerlan, Dimaampao, and Singh, JJ., concurred.