Saturday, March 03, 2012

The Manufacturers Life Insurance Co. vs. Meer

Facts: The plaintiff, the Manufacturer Life Insurance Company in a corporation duly organized in Canada with head office at Toronto. It is duly registered and licensed to engage in life insurance business in the Philippines, and maintains a branch office in Manila. It was engaged in such business in the Philippines for more than five years before and including the year 1941. But due to the exigencies of the war it closed the branch office at Manila during 1942 up to September 1945. 

In the course of its operations before the war, plaintiff issued a number of life insurance policies in the Philippines containing stipulations referred to as non-forfeiture clauses, as follows: 

8. Automatic Premium Loan. — This Policy shall not lapse for non-payment of any premium after it has been three full years in force, if, at the due date of such premium, the Cash Value of this Policy and of any bonus additions and dividends left on accumulation (after deducting any indebtedness to the Company and the interest accrued thereon) shall exceed the amount of said premium. In which event the company will, without further request, treat the premium then due as paid, and the amount of such premium, with interest from its actual due date at six per cent per annum, compounded yearly, and one per cent, compounded yearly, for expenses, shall be a first lien on this Policy in the Company's favour in priority to the claim of any assignee or any other person. The accumulated lien may at any time, while the Policy is in force, be paid in whole or in part. 

From January 1, 1942 to December 31, 1946 for failure of the insured under the above policies to pay the corresponding premiums for one or more years, the plaintiff's head office of Toronto, applied the provision of the automatic premium loan clauses; and the net amount of premiums so advanced or loaned totalled P1,069,254.98. On this sum the defendant Collector of Internal Revenue assessed P17,917.12 — which plaintiff paid supra protest 

It is the plaintiff's contention that when it made premium loans or premium advances, as above stated, by virtue of the non-forfeiture clauses, it did not collect premiums within the meaning of the above sections of the law, and therefore it is not amendable to the tax therein provided. 

Issue: Whether or not premium advances made by plaintiff-appellant under the automatic premium loan clause of its policies are "premium collected" by the Company subject to tax 

Held: The cash value or cash surrender value is therefore an amount which the insurance company holds in trust2 for the insured to be delivered to him upon demand. It is therefore a liability of the company to the insured. Now then, when the company's credit for advances is paid out of the cash value or cash surrender value, that value and the company's liability is thereby dismissed pro tanto. Consequently, the net assets of the insurance company increased corresponding; for it is plain mathematics that the decrease of a person's liabilities means a corresponding increase in his net assets. 

Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed no additional cash to the funds of the insurer. Yet it must be admitted that the insurer agreed to consider the premium paid on the strength of the automatic loan. The premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the taxis due because section 255 above quoted levies taxes according to the total premiums collected by the insurer "whether such premiums are paid in money, notes, credits or any substitutes for money 

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2 comments: on "The Manufacturers Life Insurance Co. vs. Meer"

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