DELFIN NARIO and ALEJANDRA SANTOS-NARIO vs.THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY (G.R. No. L-22796, June 26, 1967)

FACTS: Mrs. Nario was issued by respondent Philamlife a life insurance policy. She designated her husband, Delfin and their unemancipated minor son, Ernesto, as her irrevocable beneficiaries. She applied for a loan on the policy for the school expenses of her son. The loan application bore the signature of Delfin as the father-guardian of minor son and as the legal administrator of the minor's properties. Philamlife denied the application because the written consent for the minor son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship proceeding. After the denial, Mrs. Nario decided to surrender her policy to Philamlife and demanded its cash value of then amounting to P520. Philamlife also denied the surrender of the policy, on the same ground, hence, Nario brought suit. Philamlife claims that under Articles 320 and 326 of the Civil Code, mere written consent given by the father-guardian, for and in behalf of the minor son, without any court authority, was insufficient, inasmuch as the policy loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, and said acts are not within the powers of the legal administrator. The lower court agreed with Philamlife and dismissed petitioner’s claim. It held that under the policy, the minor son, as one of the designated irrevocable beneficiaries, "acquired a vested right to all benefits accruing to the policy, including that of obtaining a policy loan to the extent stated in the schedule of values attached to the policy. On appeal to the SC, petitioner averred that the minor's interest amounted to only one-half of the policy's cash surrender value of P520; that payment of the ward's debts is within the powers of the guardian, where no realty is involved (Rule 96, Sec. 2 of the Revised Rules of Court); hence, father may validly agree to the proposed transaction on behalf of the minor without need of court authority.

ISSUE: Can an insurer refuse to grant the loan application (on a cash surrender value and not full face value) and the surrender of the policy claimed by a father-guardian in behalf of his minor son when it is without court authority?

HELD: Yes, the insurer can validly refuse. The vested interest or right of the beneficiaries in the policy should be measured on its full face

value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options, etc. and that said vested right under the policy cannot be divisible at any given time. As above noted, the full face value of the policy is P5,000 and the minor's vested interest therein, as one of the two irrevocable beneficiaries, consists of one-half (½) of said amount or P2,500.

The transactions in question (policy loan and surrender of policy) constitute acts of disposition or alienation of property rights and not merely of management or administration because they involve the incurring or termination of contractual obligations. Under Articles 320 and 326 of the Civil Code provide that the father, or in his absence the mother, is the legal administrator of their child’s property and when it is worth more than two thousand pesos, as in this case, he should have filed a formal application or petition for guardianship and bond.

As there was no such petition for guardianship and bond, the consent given by the father-guardian, was insufficient and ineffective, and defendant-appellee was justified in disapproving the proposed transactions in question. The result would be the same even if interest is worth less than P2,000. The parent's authority over the estate of the ward as a legal-guardian would not extend to acts of encumbrance or disposition, as distinguished from acts of management or administration. Since the law merely constitutes the parent as legal administrator of the child's property (which is a general power), the parent requires special authority for the acts above specified, and this authority can be given only by a court.