G.R. No. L-2294; May 25, 1951
Filipinas Compañia de Seguros, petitioner, vs. Christern, Huenefeld and Co., Inc., respondent.

FACTS

On October 1, 1941, respondent Christern, Huenefeld and Co., Inc., a Philippine corporation, obtained a fire insurance policy from petitioner Filipinas Compañia de Seguros, a Philippine insurance company, covering merchandise in a Binondo, Manila building. The insured goods were burned on February 27, 1942, during the Japanese military occupation. The respondent filed a claim for the loss, fixed at P92,650 after salvage. The petitioner refused payment, arguing the policy ceased to be valid when the United States declared war against Germany on December 10, 1941, because the respondent corporation, though Philippine-incorporated, was controlled by German subjects, and the petitioner was under American jurisdiction when the policy was issued. However, pursuant to an order from the Director of the Bureau of Financing of the Philippine Executive Commission (which stated it was following an instruction from the Japanese Military Administration), the petitioner paid the P92,650 claim to the respondent on April 19, 1943. On August 6, 1946, the petitioner filed an action in the Court of First Instance of Manila to recover the paid sum, contending the policy was void due to the outbreak of war and that the payment was made under pressure. The trial court dismissed the action, and the Court of Appeals affirmed the dismissal.

ISSUE

Whether the fire insurance policy issued by the petitioner to the respondent corporation became null and void upon the declaration of war between the United States and Germany on December 10, 1941, thereby entitling the petitioner to recover the indemnity it paid under said policy during the enemy occupation.

RULING

Yes. The Supreme Court reversed the decision of the Court of Appeals. It ruled that the respondent corporation, although incorporated under Philippine laws, became an enemy corporation upon the outbreak of war between the United States and Germany because the majority of its stockholders were German subjects. Adopting the “control test” as established in the U.S. Supreme Court case of Clark vs. Uebersee Finanz Korporation, the Court held that the enemy character of a domestic corporation is determined by the nationality of its controlling stockholders. Consequently, under the Philippine Insurance Law (Act No. 2427), which provides that “anyone except a public enemy may be insured,” the insurance policy ceased to be valid and enforceable once the respondent became a public enemy on December 10, 1941. Since the loss occurred after this date, the respondent was not entitled to any indemnity. The payment made by the petitioner during the occupation was done under the compulsion of an order from the Japanese Military Administration via the Bureau of Financing. Therefore, the petitioner is entitled to recover the amount paid. However, the recovery is limited to the equivalent in actual Philippine currency of the P92,650 paid in 1943, according to the Ballantyne scale, which amounted to P77,208.33. The petitioner is also ordered to return to the respondent the proportionate premium for the unexpired term of the policy from December 11, 1941.