G.R. No. 139776 , August 1, 2002
PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, petitioner, vs. JUDGE LORE R. VALENCIA-BAGALACSA, Regional Trial Court of Libmanan, Camarines Sur, Branch 56, and EDUARDO Z. LUMANIOG, CELSO Z. LUMANIOG and RUBEN Z. LUMANIOG, respondents.

FACTS

On June 20, 1995, private respondents Eduardo, Celso, and Ruben Lumaniog, as heirs of their deceased father Faustino Lumaniog, filed a complaint for recovery of sum of money against petitioner Philippine American Life and General Insurance Company (Philamlife) before the Regional Trial Court (RTC) of Libmanan, Camarines Sur. They sought to claim the proceeds of Life Insurance Policy No. 1305486 with a face value of P50,000.00, alleging their father died on November 25, 1980, and that despite repeated demands since June 22, 1981, Philamlife refused their claim on February 14, 1995. Philamlife filed an Answer with Counterclaim and Motion to Dismiss, contending the cause of action had prescribed and that the claimants were guilty of laches. It asserted it had denied the claim in a letter dated March 12, 1982, on grounds of concealment by the insured, and reiterated this denial in a letter dated July 11, 1983, after private respondents requested reconsideration on May 25, 1983. More than ten years later, on December 1, 1994, a provincial board member reiterated the request, which Philamlife again denied on February 14, 1995. The RTC, in an Order dated June 7, 1996, denied the motion to dismiss, finding the matters raised were evidentiary and necessitated a trial. Upon Philamlife’s motion for reconsideration, the RTC, in an Order dated December 12, 1997, upheld private respondents’ position that the ten-year prescriptive period was “stopped” on May 25, 1983, and only began to run from the final denial on February 14, 1995. Philamlife filed a petition for certiorari with the Court of Appeals, which dismissed the petition and upheld both RTC Orders. Philamlife then elevated the case to the Supreme Court via a petition for review on certiorari.

ISSUE

Whether the RTC committed grave abuse of discretion in issuing its Order dated December 12, 1997, which ruled that the ten-year prescriptive period for filing the complaint had not yet lapsed, based solely on the explanation of private respondents’ counsel without requiring evidentiary proof.

RULING

The Supreme Court PARTLY GRANTED the petition. It held that the RTC’s Order dated June 7, 1996, which denied the motion to dismiss and set the case for trial because the issues were evidentiary, was correct under the then-prevailing rules. However, the RTC committed a grave abuse of discretion in its Order dated December 12, 1997, when it arbitrarily ruled on the merits of the prescription defense without receiving evidence, basing its finding solely on the explanation of private respondents’ counsel. The Court emphasized that due process required Philamlife be given the opportunity to prove its allegation that it had denied the claim via its July 11, 1983 letter, which was crucial to its defense that the action, filed in June 1995, was barred by the ten-year prescriptive period under Article 1144 of the Civil Code. The appellate court erred in upholding the December 12, 1997 Order. The Supreme Court reversed and set aside the Court of Appeals’ decision insofar as it upheld the December 12, 1997 Order, and entered a new judgment reversing and setting aside said RTC Order while affirming the June 7, 1996 Order. The RTC was directed to proceed with the trial of the case with dispatch.