Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5715 December 20, 1910
E. M. BACHRACH, plaintiff-appellee,
vs.
BRITISH AMERICAN ASSURANCE COMPANY, a
corporation, defendant-appellant.
Haussermann, Ortigas, Cohn and Fisher, for appellant
Kincaid & Hurd and Thomas L. Hartigan, for appellee.
JOHNSON, J.:
On the 13th of July, 1908, the plaintiff commenced
an action against the defendant to recover the sum of
P9,841.50, the amount due, deducting the salvage,
upon the following fire insurance policy issued by the
defendant to the plaintiff:
[Fire policy No. 3007499.]
This policy of insurance witnesseth, that E.
M. Bachrach, esq., Manila (hereinafter called
the insured), having paid to the undersigned,
as authorized agent of the British American
Assurance Company (hereinafter called the
company), the sum of two thousand pesos
Philippine currency, for insuring against loss
or damage by fire, as hereinafter mentioned,
the property hereinafter described, in the
sum of several sums following, viz:
Ten thousand pesos Philippine currency, on
goods, belonging to a general furniture
store, such as iron and brass bedsteads,
toilet tables, chairs, ice boxes, bureaus,
washstands, mirrors, and sea-grass furniture
(in accordance with warranty "D" of the tariff
attached hereto) the property of the
assured, in trust, on commission or for which
he is responsible, whilst stored in the ground
floor and first story of house and dwelling
No. 16 Calle Martinez, district 3, block 70,
Manila, built, ground floor of stone and or
brick, first story of hard wood and roofed
with galvanized iron bounded in the front
by the said calle, on one side by Calle David
and on the other two sides by buildings of
similar construction and occupation.
Co-insurance allowed, particulars of which
to be declared in the event of loss or claim.
The company hereby agrees with the insured
(but subject to the conditions on the back
hereof, which are to be taken as a part of
this policy) that if the property above
described, or any part thereof, shall be
destroyed or damaged by fire, at any time
between the 21st day of February, 1908, and
4 o'clock in the afternoon of the 21st day of
February, 1909, or (in case of the renewal of
this policy) at any time afterwards, so long
as, and during the period in respect of which
the insured shall have paid to the company,
and they shall have accepted, the sum
required for the renewal of this policy, the
company will, out of their capital stock, and
funds, pay or make good to the insured the
value of the property so destroyed, or the
amount of such damage thereto, to any
amount not exceeding, in respect of each or
any of the several matters above specified,
the sum set opposite thereto, respectively,
and not exceeding in the whole the sum of
ten thousand pesos, and also not exceeding,
in any case, the amount of the insurable
interest therein of the insured at the time of
the happening of such fire.
In witness whereof, the British American
Assurance Company has accused these
presents to be signed this 21st day of
February, in the year of our Lord 1908.
For the company.
W. F. STEVENSON & Co. LTD.,
"By...............................................,
"Manager Agents."
And indorsed on the back the following:
The within policy and includes a
"Calalac" automobile to the extent
of (P1,250) twelve hundred and
fifty pesos Philippine currency.
Memo: Permission is hereby granted
for the use of gasoline not to
exceed 10 gallons for the above
automobile, but only whilst
contained in the reservoir of the
car. It is further warranted that the
car be neither filled nor emptied in
the within-described building or
this policy be null and void.
 Manila, 27th February, 1908.
"W. F. STEVENSON & Co. LTD.,
"By..................................................
.....,
"Manager Agents."
The defendant answered the complaint, admitting
some of the facts alleged by the plaintiff and denying
others. The defendant also alleged certain facts
under which it claimed that it was released from all
obligations whatever under said policy. These special
facts are as follows:
First. That the plaintiff maintained a paint and
varnish shop in the said building where the goods
which were insured were stored.
Second. That the plaintiff transferred his interest in
and to the property covered by the policy to H. W.
Peabody & Co. to secure certain indebtedness due and
owing to said company, and also that the plaintiff had
transferred his interest in certain of the goods
covered by the said policy to one Macke, to secure
certain obligations assumed by the said Macke for and
on behalf of the insured. That the sanction of the said
defendant had not been obtained by the plaintiff, as
required by the said policy.
Third. That the plaintiff, on the 18th of April, 1908,
and immediately preceding the outbreak of the
alleged fire, willfully placed a gasoline can containing
10 gallons of gasoline in the upper story of said
building in close proximity to a portion of said goods,
wares, and merchandise, which can was so placed by
the plaintiff as to permit the gasoline to run on the
floor of said second story, and after so placing said
gasoline, he, the plaintiff, placed in close proximity
to said escaping gasoline a lighted lamp containing
alcohol, thereby greatly increasing the risk of fire.
Fourth. That the plaintiff made no proof of the loss
within the time required by condition five of said
policy, nor did the insured file a statement with he
municipal or any other judge or court of the goods
alleged to have been in said building at the time of
the alleged fire, nor of the goods saved, nor the loss
suffered.
The plaintiff, after denying nearly all of the facts set
out in the special answer of the defendant, alleged:
First. That he had been acquitted in a criminal action
against him, after a trial duly and regularly had, upon
a charge of arson, based upon the same alleged facts
set out in the answer of the defendant.
Second. That her had made no proof of the loss set up
in his complaint for the reason that immediately after
he had, on the 20th of April, 1908, given the
defendant due notice in writing of said loss, the
defendant, on the 21st of April, 1908, and thereafter
on other occasions, had waived all right to require
proof of said loss by denying all liability under the
policy and by declaring said policy to be null and void.
After hearing the evidence adduced during the trial of
the cause, the lower court found that the defendant
was liable to the plaintiff and rendered a judgment
against the defendant for the sum of P9,841.50, with
interest for a period of one year at 6 per cent, making
a total of P10,431.99, with costs.
From that decision the defendant appealed and made
the following assignments of error:
1. The court erred in failing to hold that the use of
the building, No. 16 Calle Martinez, as a paint and
varnish shop annulled the policy of insurance.
2. The court erred in failing to hold the execution of
the chattel mortgages without the knowledge and
consent of the insurance company annulled the policy
of insurance.
3. The court erred in holding that the keeping of
gasoline and alcohol not in bottles in the building No.
16 Calle Martinez was not such a violation of the
conditions of the policy as to render the same null and
void.
4. The court erred in failing to find as a fact that E.
M. Bachrach, the insured, willfully placed a gasoline
can containing about 10 gallons of gasoline in the
upper story of said building, No. 16 Calle Martinez, in
close proximity to a portion of the goods, wares, and
merchandise stored therein, and that said can was so
placed by said Bachrach as to permit the gasoline to
run on the floor of said second story.
5. The court erred in failing to find as a fact that E.
M. Bachrach, after placing said gasoline can in close
proximity to the goods, wares, and merchandise
covered by the policy of insurance, the he (Bachrach)
placed in close proximity to said escaping gasoline a
lighted lamp containing alcohol, thereby greatly
increasing the risk of fire.
6. The court erred in holding that the policy of
insurance was in force at the time of said fire, and
that the acts or omissions on the part of the insured
which cause, or tended to cause, the forfeiture of the
policy, were waived by the defendant.
7. The court erred in holding the defendant liable for
the loss under the policy.lawphil.net
8. The court erred in refusing to deduct from the loss
sustained by Bachrach the value of the automobile,
which was saved without damage.
9. The court erred in refusing to grant the motion for
a new trial.
10. The court erred in refusing to enter judgment in
favor of the defendant and against the plaintiff.
With reference to the first above assignment of error,
the lower court in its decision said:
It is claimed that either gasoline or alcohol
was kept in violation of the policy in the
bodega containing the insured property. The
testimony on this point is somewhat
conflicting, but conceding all of the
defendant's claims, the construction given to
this claim by American courts would not
justify the forfeiture of the policy on that
ground. The property insured consisted
mainly of household furniture kept for the
purpose of sale. The preservation of the
furniture in a salable condition by retouching
or otherwise was incidental to the business.
The evidence offered by the plaintiff is to
the effect that alcohol was used in preparing
varnish for the purpose of retouching, though
he also says that the alcohol was kept in
store and not in the bodega where the
furniture was. It is well settled that the
keeping of inflammable oils on the premises,
though prohibited by the policy, does not
void it if such keeping is incidental to the
business. Thus, where a furniture factory
keeps benzine for the purposes of operation
(Davis vs. Pioneer Furniture Company, 78 N.
W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where
it is used for the cleaning machinery (Mears
vs. Humboldt Insurance Company, 92 Pa. St.,
15; 37 Am. Rep., 647), the insurer can not on
that ground avoid payment of loss, though
the keeping of the benzine on the premises
is expressly prohibited. These authorities
also appear sufficient to answer the
objection that the insured automobile
contained gasoline and that the plaintiff on
one occasion was seen in the bodega with a
lighted lamp. The first was incidental to the
use of the insured article and the second
being a single instance falls within the
doctrine of the case last cited.
It may be added that there was no provision in the
policy prohibiting the keeping of paints and varnishes
upon the premises where the insured property was
stored. If the company intended to rely upon a
condition of that character, it ought to have been
plainly expressed in the policy.
With reference to the second above assignment of
error, the defendant and appellant contends that the
lower court erred in failing to hold that the execution
of the said chattel mortgage, without the knowledge
and consent of the insurance company and without
receiving the sanction of said company, annulled the
said policy of insurance.
With reference to this assignment of error, upon
reading the policy of insurance issued by the
defendant to the plaintiff, it will be noted that there
is no provision in said policy prohibiting the plaintiff
from placing a mortgage upon the property insured,
but, admitting that such a provision was intended, we
think the lower court has completely answered this
contention of the defendant. He said, in passing upon
this question as it was presented:
It is claimed that the execution of a chattel
mortgage on the insured property violated
what is known as the "alienation clause,"
which is now found in most policies, and
which is expressed in the policies involved in
cases 6496 and 6497 by a purchase imposing
forfeiture if the interest in the property pass
from the insured. (Cases 6496 and 6497, in
which are involved other action against other
insurance companies for the same loss as in
the present action.)
This clause has been the subject of a vast
number of judicial decisions (13 Am. & Eng.
Encyc. of Law, 2d ed., pp. 239 et seq.), and
it is held by the great weight of authority
that the interest in property insured does not
pass by the mere execution of a chattel
mortgage and that while a chattel mortgage
is a conditional sale, there is no alienation
within the meaning of the insurance law until
the mortgage acquires a right to take
possession by default under the terms of the
mortgage. No such right is claimed to have
accrued in the case at bar, and the
alienation clause is therefore inapplicable.
With reference to the third assignment of error above
noted, upon a reading of the decision of the lower
court it will be found that there is nothing in the
decision of the lower court relating to the facts stated
in this assignment of error, neither is there any
provision in the policy relating to the facts alleged in
said assignment of error.
Assignment of error numbers 4 and 5 above noted may
be considered together.
The record discloses that some time prior to the
commencement of this present action, a criminal
action was commenced against the plaintiff herein in
the Court of First Instance of the city of Manila, in
which he was charged with willfully and maliciously
burning the property covered by the policy in the
present case. At the conclusion of the criminal action
and after hearing the evidence adduced during the
trial, the lower court, with the assistance of two
assessors, found that the evidence was insufficient to
show beyond peradventure of doubt that the
defendant was guilty of the crime. The evidence
adduced during the trial of the criminal cause was
introduced as evidence in the present cause. While
the evidence shows some very peculiar and suspicious
circumstances concerning the burning of the goods
covered by the said policy, yet, nevertheless, in view
of the findings of the lower court and in view of the
apparent conflict in the testimony, we can not find
that there is a preponderance of evidence showing
that the plaintiff did actually set fire or cause fire to
be set to the goods in question. The lower court, in
discussing this question, said:
As to the claim that the loss occurred
through the voluntary act of the insured, we
consider it unnecessary to review the
evidence in detail. That was done by another
branch of this court in disposing of the
criminal prosecution brought against the
insured, on the same ground, based mainly
on the same evidence. And regardless of
whether or not the judgment in that
proceeding is res adjudicata as to anything
here, we are at least of the opinion that the
evidence to establish this defense should not
be materially less convincing than that
required in order to convict the insured of
the crime of arson. (Turtell vs. Beamount, 25
Rev. Rep., 644.) In order to find that the
defense of incendiarism was established
here, we would be obliged, therefore, in
effect to set aside the findings of the judge
and assessors in the criminal cause, and this
we would be loath to do even though the
evidence now produced were much stronger
than it is.
With reference to the sixth assignment of error above
noted, to wit:itc@alf That the court erred in holding
that the policy of insurance was in force at the time
of said fire and that the acts or omissions on the part
of the insured which caused or tended to cause a
forfeiture of the policy were waived by the
defendant, the lower court, in discussing this
question, said:
Regardless of the question whether the
plaintiff's letter of April 20 (Exhibit B) was a
sufficient compliance with the requirement
that he furnish notice of loss, the fact
remains that on the following day the
insurers replied by a letter (Exhibit C)
declaring that the "policies were null and
void," and in effect denying liability. It is
well settled by a preponderance of
authorities that such a denial is a waiver of
notice of loss, because if the "policies are
null and void," the furnishing of such notice
would be vain and useless. (13 Am. & Eng.
Encyc. of Law, 347, 348, 349.) Besides,
"immediate notice" is construed to mean only
within a reasonable time.
Much the same may be said as to the
objection that the insured failed to furnish
to the insurers his books and papers or to
present a detailed statement to the "juez
municipal," in accordance with article 404 of
the Code of Commerce. The last-named
provision is similar to one appearing in many
American policies requiring a certificate
from a magistrate nearest the loss regarding
the circumstance thereof. A denial of
liability on other grounds waives this
requirement (O'Niel vs. Buffalo Fire
Insurance Company, 3 N. Y., 122; Peoria
Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as
well as that relating to the production of
books and papers (Ga. Home Ins. Co. vs.
Goode & Co., 95 Va., 751; 66 Jur. Civ., 16).
Besides, the insured might have had
difficulty in attempting to comply with this
clause, for there is no longer an official here
with the title of "juez municipal."
Besides the foregoing reasons, it may be added that
there was no requirement in the policy in question
that such notice be given.
With reference to the assignments of error numbers
7, 9, and 10, they are too general in their character
to merit consideration.
With reference to the eight assignment of error above
noted, the defendant and appellant contends that he
was entitled to have the amount of his responsibility
reduced by the full value (P1,250) of the said
automobile.
It does not positively appear of record that the
automobile in question was not included in the other
policies. It does appear that the automobile was
saved and was considered as a part of the salvaged. It
is alleged that the salvage amounted to P4,000,
including the automobile. This amount (P4,000) was
distributed among the different insurers and the
amount of their responsibility was proportionately
reduced. The defendant and appellant in the present
case made no objection at any time in the lower court
to that distribution of the salvage. The claim is now
made for the first time. No reason is given why the
objection was not made at the time of the distribution
of the salvage, including the automobile, among all of
the insurers. The lower court had no opportunity to
pass upon the question now presented for the first
time. The defendant stood by and allowed the other
insurers to share in the salvage, which he claims now
wholly belonged to him. We think it is now too late to
raise the question.
For all the foregoing reasons, we are of the opinion
that the judgment of the lower court should be
affirmed, and it is hereby ordered that judgment be
entered against the defendant and in favor of the
plaintiff for the sum of P9,841.50, with interest at the
rate of 6 per cent from the 13th of July, 1908, with
costs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24899 March 19, 1928
BERNARDO ARGENTE, plaintiff-appellant,
vs.
WEST COAST LIFE INSURANCE CO., defendant-
appellee.
Abad Santos, Camus, Delgado & Recto for appellant.
Gibbs & McDonough and Roman Ozaeta for appellee.
MALCOLM, J.:
This is an action upon a joint life insurance policy for
P15,000 issued by the defendant, the West Coast Life
Insurance Co., on May 15, 1925, in favor of the
plaintiff, Bernardo Argente, and his wife, Vicenta de
Ocampo, the latter having died on November 18,
1925. Fraud in obtaining the policy was pleaded by
way of special defense. On the issue thus suggested,
the court adopted the theory of the defendant, and
held the insurance policy null and void, with the result
that the complaint was dismissed, with costs.
On February 9, 1925, Bernardo Argente signed an
application for joint insurance with his wife in the
sum of P2,000. The wife, Vicenta de Ocampo, signed
a like application for the same policy. Both
applications, with the exception of the names and the
signatures of the applicants, were written by Jose
Geronimo del Rosario, an agent for the West Coast
Life Insurance Co. But all the information contained
in the applications was furnished the agent by
Bernardo Argente.
Pursuant to his application, Bernardo Argente was
examined by Dr. Cesareo Sta. Ana, a medical
examiner for the West Coast Life Insurance Co., on
February 10, 1925, in the office of the Customs House.
The result of such examination was recorded in the
Medical Examiner's Report, and with the exception of
the signature of Bernardo Argente, was in the hand-
writing of Doctor Sta. Ana. But the information or
answers to the questions contained on the face of the
Medical Examiner's Report were furnished the doctor
by the applicant, Bernardo Argente.
Pursuant to her application, Vicenta de Ocampo, wife
of the plaintiff, was examined by Dr. Cesareo Sta. Ana
on February 10, 1925, at her residence in Manila. The
result of the medical examination, including among
other things, the answers given by Vicenta de Ocampo
to the questions propounded to her by the physician,
appears in the Medical Examiner's Report.
On May 9, 1925, Bernardo Argente and his wife
submitted to the West Coast Life Insurance Co. an
amended application for insurance, increasing the
amount thereof to P15,000, and asked that the policy
be dated May 15, 1925. The amended application was
accompanied by the documents entitled "Short Form
Medical Report." In both of these documents appear
certain questions and answers.
A temporary policy for P15,000 was issued to Bernardo
Argente and his wife as of May 15, but it was not
delivered to Bernardo Argente until July 2, 1925,
when the first quarterly premium on the policy was
paid. In view of the fact that more than thirty days
had elapsed since the applicants were examined by
the company's physician, each of them was required
to file a certificate of health before the policy was
delivered to them.
On November 18, 1925, Vicenta de Ocampo died of
cerebral apoplexy. Thereafter Bernardo Argente
presented a claim in due form to the West Coast Life
Insurance Co. for the payment of the sum of P15,000
the amount of the joint life Insurance policy.
Following investigation conducted by the Manager of
the Manila office of the insurance company, it was
apparently disclosed that the answers given by the
insured in their medical examinations with regard to
their health and previous illness and medical
attendance were untrue. For that reason, the West
Coast Life Insurance Co. refused to pay the claim of
Bernardo Argente, and on May 25, 1926, wrote him to
the effect that the claim was rejected because the
insurance was obtained through fraud and
misrepresentation.
It is admitted that it appears in the Medical Examiner's
Report that Bernardo Argente, in response to the
question asked by the medical examiner, "Have you
ever consulted a physician for, or have you ever
suffered from any ailment or disease of, the brain or
nervous system?" answered "No." To the question,
"Have you consulted a physician for any ailment or
disease not included in your above answer," answered
"Yes. Nature of Ailment, Disease or Injury. Scabies,
Number of attacks 1, Date 1911. Duration 1 month,
Severity Fair, results and, if within five years, name
and address of every physician consulted. Dr. P.
Guazon. Cured. Dr. Guazon is dead now." And to the
question, "What physician or physicians, if any, not
named above, have you consulted or been treated by,
within the last five years and for what illness or
ailment? (If none, so state)" answered "No." It is,
however, not disputed that on January 10, 11, and 13,
1923, Bernardo Argente was confined in the Philippine
General Hospital where he was treated by Dr. Agerico
B. M. Sison for cerebral congestion and Bell's Palsy.
It is further admitted that it appears in the Medical
Examiner's Report that Vicenta de Ocampo, in
response to the question asked by the medical
examiner, "How frequently, if at all, and in what
quantity do you use beer, wine, spirits or other
intoxicants?" answered "Beer only in small quantities
occasionally." To the question, "Have you ever
consulted a physician for or have you ever suffered
from any ailment or disease of the brain or nervous
system?" answered "No." To the question, "What
physician or physicians, if any, not named above, have
you consulted or been treated by, within the last five
years and for what illness or ailment? (If none, so
state)" answered "None." And to the question, "Are
you in good health as far as you know and believe?"
answered "Yes." It is, however, not disputed that
Vicenta de Ocampo was taken by a patrolman, at the
request of her husband, Bernardo Argente, on May 19,
1924, to the Meisic police station, and from there was
transferred to the San Lazaro Hospital. In San Lazaro
Hospital, her case was diagnosed by the admitting
physician as "alcoholism," but later Doctor Domingo
made a diagnosis of probable "manic-depressive
psychosis," and still, later in Mary Chiles Hospital,
made a final diagnosis of "phycho-neurosis."
The plaintiff, Bernardo Argente, while readily
conceding most of the facts herein narrated, yet
alleges that both he and his wife revealed to the
company's physician. Doctor Sta. Ana, all the facts
concerning the previous illnesses and medical
attendance, but that Doctor Sta. Ana, presumably
acting in collusion, with the insurance agent, Jose
Geronimo del Rosario, failed to record them in the
medical reports. The evidence on these points
consists of the testimony of the plaintiff and his
subordinate clerk, Apolonio Espiritu, on the one hand,
and of the testimony of Doctor Sta. Ana and Jose
Geronimo del Rosario on the other. On the question
of fact thus raised, the trial judge found with the
insurance company. In so doing, we believe that His
Honor gave proper inclination to the weight of the
proof. There appears no motive whatever on the part
of Doctor Sta. Ana to falsify the Medical Examiner's
Reports and thereby not only jeopardize his career as
a physician, but also gravely implicate himself
criminally.
What has heretofore been stated in this decision is
gleaned to a great extent the carefully prepared
decision of the trial judge, the Honorable George R.
Harvey. The court found from the evidence that the
representations made by Bernardo Argente and his
wife in their applications to the defendant for life
insurance were false with respect to their estate of
health during the period of five years preceding the
date of such applications, and that they knew the
representations made by them in their applications
were false. The court further found from the evidence
that the answers given by Bernardo Argente and his
wife at the time of the medical examination by Doctor
Sta. Ana were false with respect to the condition of
their health at that time and for a period of several
years prior thereto. Based on these findings which
must here be accepted since the stenographic
transcript is incomplete, the question arises as to the
estate of the law in relation thereto.
One ground for the rescission of a contract of
insurance under the Insurance Act is "a concealment,"
which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to
communicate." Appellant argues that the alleged
concealment was immaterial and insufficient to avoid
the policy. We cannot agree. In an action on a life
insurance policy where the evidence conclusively
shows that the answers to questions concerning
diseases were untrue, the truth of falsity of the
answers become the determining factor. In the policy
was procured by fraudulent representations, the
contract of insurance apparently set forth therein was
never legally existent. It can fairly be assumed that
had the true facts been disclosed by the assured, the
insurance would never have been granted.
In Joyce, The Law of Insurance, second edition,
volume 3, Chapter LV, is found the following:
Concealment exists where the assured has
knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires
that he should communicate it to the
assured, but he designated and intentionally
with holds the same.
Another rule is that if the assured undertakes
to state all the circumstances affecting the
risk, a full and fair statement of all is
required.
It is also held that the concealment must, in
the absence of inquiries, be not only
material, but fraudulent, or the fact must
have been intentionally withheld; so it is
held under English law that if no inquiries are
made and no fraud or design to conceal
enters into the concealment the contract is
not avoided. And it is determined that even
though silence may constitute
misrepresentation or concealment it is not
itself necessarily so as it is a question of fact.
Nor is there a concealment justifying a
forfeiture where the fact of insanity is not
disclosed no questions being asked
concerning the same. . . .
But it would seem that if a material fact is
actually known to the assured, its
concealment must of itself necessarily be a
fraud, and if the fact is one which the
assured ought to know, or is presumed to
know, the presumption of knowledge ought
to place the assured in the same position as
in the former case with relation to material
facts; and if the jury in such cases find the
fact material, and one tending to increase
the risk, it is difficult to see how the
inference of a fraudulent intent or
intentional concealment can be avoided.
And it is declared that if a material fact
concealed by assured it is equivalent to a
false representation that it does not exist
and that the essentials are the truth of the
representations whether they were intended
to mislead and did insurer accept them as
true and act upon them to his prejudice. So
it is decided that under a stipulation voiding
the policy for concealment or
misrepresentation of any material fact or if
his interest is not truly stated or is either
than the sole and unconditional ownership
the facts are unimportant that insured did
not intend to deceive or withhold
information as to encumbrances even though
no questions were asked. And if insured
while being examined for life insurance and
knowing that she had heart disease, falsely
stated that she was in good health, and
though she could not read the application, it
was explained to her and the questions asked
through an interpreter, and the application
like the policy contained and provision that
no liability should be incurred unless the
policy was delivered while the insured was in
good health, the court properly directed a
verdict for the insurer, though a witness who
was present at the examination testified that
the insured was not asked whether she had
heart disease.
xxx xxx xxx
The basis of the rule vitiating the contract in
case of concealment is that it misleads or
deceives the insurer into accepting the risk,
or accepting it at the rate of premium agreed
upon. The insurer, relying upon the belief
that the assured will disclose every material
within his actual or presumed knowledge, is
misled into a belief that the circumstance
withheld does not exist, and he is thereby
induced to estimate the risk upon a false
basis that it does not exist. The principal
question, therefore, must be, Was the
assurer misled or deceived into entering a
contract obligation or in fixing the premium
of insurance by a withholding of material
information of facts within the assured's
knowledge or presumed knowledge?
It therefore follows that the assurer in
assuming a risk is entitled to know every
material fact of which the assured has
exclusive or peculiar knowledge, as well as
all material facts which directly tend to
increase the hazard or risk which are known
by the assured, or which ought to be or are
presumed to be known by him. And a
concealment of such facts vitiates the
policy. "It does not seem to be necessary . .
. that the . . . suppression of the truth should
have been willful." If it were but an
inadvertent omission, yet if it were material
to the risk and such as the plaintiff should
have known to be so, it would render the
policy void. But it is held that if untrue or
false answers are given in response to
inquiries and they relate to material facts
the policy is avoided without regard to the
knowledge or fraud of assured, although
under the statute statements are
representations which must be fraudulent to
avoid the policy. So under certain codes the
important inquiries are whether the
concealment was willful and related to a
matter material to the risk.
xxx xxx xxx
If the assured has exclusive knowledge of
material facts, he should fully and fairly
disclose the same, whether he believes them
material or not. But notwithstanding this
general rule it will not infrequently happen,
especially in life risks, that the assured may
have a knowledge actual or presumed of
material facts, and yet entertain an honest
belief that they are not material. . . . The
determination of the point whether there
has or has not been a material concealment
must rest largely in all cases upon the form
of the questions propounded and the exact
 terms of the contract. Thus, where in
addition to specifically named diseases the
insured was asked whether he had any
sickness within ten years, to which he
answered "No," and it was proven that within
that period he had a slight of pharyngitis, it
was held a question properly for the jury
whether such an inflammation of the throat
was a "sickness" within the intent of the
inquiry, and the court remarked on the
appeal decision that if it could be held as a
matter of law that the policy was thereby
avoided, then it was a mere device on the
part of insurance companies to obtain money
without rendering themselves liable under
the policy. . . .
. . . The question should be left to the jury
whether the assured truly represented the
state of his health so as not mislead or
deceive the insurer; and if he did not deal a
good faith with insurer in that matter, that
the inquiry should be made, Did he know the
state of his health so as to be able to furnish
a proper answer to such questions as are
propounded? A Massachusetts case, if
construed as it is frequently cited, would be
opposed to the above conclusion; but, on the
contrary, it sustains it, for the reason that
symptoms of consumption had so far
developed themselves within a few months
prior to effecting the insurance as to induce
a reasonable belief that the applicant had
that fatal disease, and we should further
construe this case as establishing the rule
that such a matter cannot rest alone upon
the assured's belief irrespective of what is a
reasonable belief, but that it ought to be
judged by the criterion whether the belief is
one fairly warranted by the circumstances. A
case in Indiana, however, holds that if the
assured has some affection or ailment of one
or more of the organs inquired about so well-
defined and marked as to materially derange
for a time the functions of such organ, as in
the case of Bright's disease, the policy will
be avoided by a nondisclosure, irrespective
of the fact whether the assured knew of such
ailment or not. . . .
Lastly, appellant contends that even if the insurance
company had a right to rescind the contract, such
right cannot now be enforced in view of the provisions
of section 47 of the Insurance Act providing
"Whenever a right to rescind a contract of insurance
is given to their insurer by provision of this chapter,
such right must be exercised previous to the
commencement of an action on the contract." This
section was derived from section 2583 of the
California Civil Code, but in contrast thereto, makes
use of the imperative "must" instead of the permissive
"may." Nevertheless, there are two answers to the
problem as propounded. The first is that the
California law as construed by the code examiners, at
whose recommendation it was adopted, conceded
that "A failure to exercise the right (of rescission),
cannot, of course, prejudice any defense to the action
which the concealment may furnish." (Codes of
California annotated; Tan Chay Heng vs. West Coast
Life Insurance Company [1927], p. 80, ante.) The
second answer is that the insurance company more
than one month previous to the commencement of
the present action wrote the plaintiff and informed
him that the insurance contract was void because it
had been procured through fraudulent
representations, and offered to refund to the plaintiff
the premium which the latter had paid upon the
return of the policy for cancellation. As held in
California as to a fire insurance policy, where any of
the material representations are false, the insurer's
tender of the premium and notice that the policy is
canceled, before the commencement of suit thereon,
operate to rescind the contract of insurance. (Rankin
vs. Amazon Insurance Co. [1891], 89 Cal., 203.)
We are content to rest our judgment on the findings
of the trial court, and on the law governing those
facts, with the result that the various assignments of
error are found to be without persuasive merit.
Judgment affirmed, with the costs of this instance
against the appellant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12465 May 29, 1959
YU PANG CHENG alias YU PANG CHING, petitioner,
vs.
THE COURT OF APPEALS, ET AL., respondents.
M. de la Rosa and Yuseco, Abdon, Yuseco and Narvasa
for petitioner.
Perkin and Ponce Enrile for respondents.
BAUTISTA ANGELO, J.:
Plaintiff brought this action to collect from defendant
the sum of P10,000.00, value of an insurance policy
taken upon the life of one Yu Pang Eng, plus interest
thereon at the legal rate, the sum of P10,000.00 as
moral damages the further sum of P3,000.00 as
attorney's fees, and the costs of action.
Defendant, in its answer, set up the defense that the
insured was guilty of misrepresentation and
concealment of material facts in that he gave false
and untruthful answers to certain questions asked him
in his application for insurance which were material
to the risk insured against and have the effect of
avoiding the insurance policy.
After trial, the court rendered judgment ordering
defendant to pay plaintiff the sum of P10,000.00,
with legal interest thereon from the filing of the
complaint, plus the sum of P2,000.00 as attorney's
fees, and the costs of suit. On appeal, the Court of
Appeals reversed the decision of the trial court,
holding that the insured was guilty of concealment of
material facts which relieves defendant from liability.
Hence the present petition for review.
On September 5, 1950, Yu Pang Eng submitted parts
II and III of his application for insurance consisting of
the medical declaration made by him to the medical
examiner of defendant and the medical examiner's
report. On September 7, he submitted part I of his
application which is the declaration made by him to
an agent of defendant, and on September 8, based on
said application, and upon payment of the first
premium in the sum of P591.70, defendant issued to
the insured Policy No. 812858.
On December 27, 1950, the insured entered St. Luke's
Hospital for medical treatment but he died on
February 27, 1951. According to the death certificate,
he died of "infiltrating medullary carcinoma, Grade 4,
advanced cardiac and of lesser curvature, stomach
metastases spleen." Plaintiff, brother and beneficiary
of the insured, demanded from the defendant the
payment of the proceeds of the insurance policy and
when the demand was refused, he brought the
present action.
The issue to be determined is whether the insured is
guilty of concealment of some facts material to the
risk insured against which has the effect of avoiding
the policy as found by respondent court.
The insured, in his application for insurance,
particularly in his declarations to the examining
physician, stated the following in answering the
questions propounded to him:
14. Have you ever had any of the following
diseases or symptoms? Each question must be
read and answered "Yes" or "No".
xxx xxx xxx
Gastritis, Ulcer of the Stomach or any
disease of that organ? No.
Vertigo, Dizziness, Fainting-spells or
Unconscious? No.
Cancer, Tumors or Ulcers of any kind? No.
15. Have you ever consulted any physician
not included in any of the above answers?
Give names and address or physicians list
ailments or accidents and date. No.
It appears that the insured entered the Chinese
General Hospital for medical treatment on January
29, 1950 having stayed there up to February 11, 1950.
Upon entering the hospital, he complained of
dizziness, anemia, abdominal pains and tarry stools,
and in the evening of his admission he had several
abdominal pains and his discharges were with black
tarry stools and felt dizzy and weak. The history of his
illness shows that the same "started a year ago as
frequent dizziness." An X-Ray picture of his stomach
was taken and the diagnosis made of him by his
doctors showed that his illness was "peptic ulcer,
bleeding."
It should be noted that the insured's confinement in
the Chinese General Hospital took place from January
29, 1950 to February 11, 1950, whereas his
application for insurance wherein he stated his
answer to the questions propounded to him by the
examining physician of defendant was submitted to
defendant on September 5, 1950. It is apparent that
when the insured gave his answers regarding his
previous ailment, particularly with regard to
"Gastritis, Ulcer of the Stomach or any disease of that
organ" and "Vertigo, Dizziness, Fainting-spells or
Unconsciousness", he concealed the ailment of which
he was treated in the Chinese General, Hospital which
precisely has direct connection with the subject of
the questions propounded. The negative answers
given by the insured regarding his previous ailment,
or his concealment of the fact that he was
hospitalized and treated for sometime of peptic ulcer
and had suffered from "dizziness, anemia, abdominal
pains and tarry stools", deprived defendant of the
opportunity to make the necessary inquiry as to the
nature of his past illness so that as it may form its
estimate relative to the approval of his application.
Had defendant been given such opportunity,
considering the previous illness of the insured as
disclosed by the record of the Chinese General
Hospital, defendant would probably had never
consented to the issuance of the policy in question. In
fact, according to the death certificate, the insured
died of "infiltrating medullary carcinoma, Grade 4,
advanced cardiac and of lesser curvature, stomach
metastases spleen", which may have direct
connection with his previous illness.
Our Insurance law provides that " A neglect to
communicate that which a party knows and ought to
communicate, is called concealment" (Section 25, Act
No. 2427). Whether intentional or unintentional, the
concealment entitles the insurer to rescind the
contract of insurance (Section 26). Our law even
requires the insured to communicate to the insurer all
facts within his knowledge which are material to the
contract and which the other party has not the means
of ascertaining (Section 27), and the materiality is to
be determined not by the event but solely by the
probable and reasonable influence of the facts upon
the party to whom the communication is due (Section
30).
In the case of Argente vs. West Coast Life Insurance
Co., 51 Phil., 725 this Court said:
One ground for the rescission of a contract
of insurance under the insurance Act is "a
concealment", which in section 25 is defined
"A neglect to communicate that which a
party knows and ought to communicate."
Appellant argues that the concealment was
immaterial and insufficient to avoid the
policy. We cannot agree. In an action on a
life insurance policy where the evidence
conclusively shows that the answers to
questions concerning diseases were untrue,
the truth or falsity of the answers become
the determining factor. If the policy was
procured by fraudulent representations, the
contract of insurance apparently set forth
therein was never legally existent. It can
fairly be assumed that had the true facts
been disclosed by the assured, the insurance
would never have been granted.
Upon the foregoing reasons, we are persuaded to
conclude that respondent court did err in declaring
the policy ineffective on the ground of concealment
and in relieving appellee from liability thereunder.
Wherefore, the decision appealed from is affirmed,
with costs against petitioner-appellant.
Henson v. Philamlife - Concealment
56 OG 7328
Facts:
> Celestino Henson was insured by Philamlife in 1954
upon his application or a 20-yr endowment life policy.
> In 1955, the policy lapsed due to non-payment of
the premiums.
> Upon payment of the premiums due, the policy was
reinstated, but in the application for reinstatement,
Henson did not disclose the fact that he had been
previously diagnosed for pyelonephritis, enlarged
liver and hernia. He also did not disclose that he had
been examined by a physician.
> In 1956, Henson died, and his beneficiaries claim
was rejected by Philamlife on the ground of
concealment.
> The company then filed for
rescission. Beneficiaries contend that the intent to
conceal must be proven to warrant rescission.
Issue:
Whether or not there is need to prove intent to
conceal to warrant rescission.
Held:
NO.
Sec. 26 provides that a concealment whether
intentional or unintentional entitles the injured
party to rescind the contract of insurance. And
aside from this, intent, being a state of the mind is
hard to prove.
According to Sec. 30 of the Insurance
Code: Materiality is to be determined not by the
event, but solely by the probable and reasonable
influence of the facts upon the party to whom the
communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making
his inquiries. In essence therefore, the insured need
not have died of the very diseases he had failed to
reveal to the insurance company. It is sufficient that
his non-revelation had misled the insurer in forming
its estimate of the disadvantages of the proposed
policy reinstatement or in making its inquiries, in
order to entitle the latter to rescind the contract.
SECOND DIVISION
G.R. No. 176652, June 04, 2014
AUGUSTO C. SOLIMAN, Petitioner, v. JUANITO C.
FERNANDEZ, IN HIS CAPACITY AS RECEIVER OF SMC
PNEUMATICS (PHILS.), INC., Respondent.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on
Certiorari1 under Rule 45 of the Rules of Court
assailing the 27 July 2006 Decision 2 and the 12
February 2007 Resolution of the Sixteenth Division of
the Court of Appeals (CA) in CA-G.R. CV No. 84983.
The Decision reversed the Orders of the Regional Trial
Court (RTC) of Quezon City, Branch 83, dated 31
January 20053 and 22 April 2005,4 which dismissed the
complaint filed by Juanito C. Fernandez (respondent)
against Augusto C. Soliman (petitioner) in Civil Case
No.Q-04-52183 and denied respondents motion for
reconsideration.
Culled from the records are the following antecedent
facts:chanroblesvirtuallawlibrary
On 10 March 2003, SMC Pneumatics Philippines, Inc.
(SMC Pneumatics) filed a Motion for Appointment of
Management Committee before the RTC (Special
Commercial Court) of Calamba City, Branch 34,
docketed as RTC SEC Case No. 44-2003-C.5 It was
consolidated with SEC Case No. 50-2003-C and SEC No.
49-2003. The latter two cases refer to the involuntary
dissolution cases filed by SMC Pneumatics.6 As a
result, the RTC issued an Order7 appointing
respondent as the Receiver pending the hearing on
the composition and appointment of the members of
the Management Committee.8
All the assets, affairs and operations of SMC
Pneumatics were placed under receivership. 9
Respondent discovered that two (2) of the vehicles
owned by the SMC Pneumatics are still in the
possession of the petitioner. Respondent demanded
that the petitioner return the vehicles. For failure of
petitioner to surrender possession, respondent filed a
Complaint for Recovery of Personal Properties with
Writ of Replevin10 before the RTC-QC Branch 83.
The lower court issued a Writ of Replevin and
subsequently, a Writ of Seizure11 was issued.
Petitioner filed a Motion for Extension of Time to File
Answer.12 Thereafter, he filed an Urgent Motion to
Admit Answer.13 The Answer was admitted in an
Order14 dated 20 August 2004.
In his Answer, petitioner maintained that the receiver
is not entitled to the possession of the subject
vehicles. As president of SMC Pneumatics he insisted
that he is entitled to the possession and use thereof.
On 31 January 2005, the RTC issued the following
Order:chanroblesvirtuallawlibrary
Per Order dated August 20, 2004, [petitioners]
Urgent Motion Admit Answer dated June 10, 2004 was
granted and the Answer attached thereto was
admitted. Said Order was received by counsel for the
[respondent] on September 21, 2004 but to date, said
counsel has not taken any step for the further
prosecution of this case.
WHEREFORE, for failure to prosecute let this case be,
as it is hereby DISMISSED.15cralawlawlibrary
Respondent filed a Motion for Reconsideration16 but it
was denied by the trial court in its 22 April 2005
Order. Respondent filed a Notice of Appeal17 seeking
the reversal of the Orders of the RTC.
In his Brief,18 respondent argued that it is the duty of
the Branch Clerk of Court to set a case for pre-trial.
Respondent hinged this argument on the Supreme
Court Resolution entitled Guidelines to be Observed
by Trial Court Judges and Clerks of Court in the
Conduct of Pre-Trial and Use of Deposition-Discovery
Measures,19 wherein the Court ruled
that:chanroblesvirtuallawlibrary
Within five (5) days from the date of filing of reply,
the plaintiff must promptly move ex parte that the
case be set for pre-trial conference. If the plaintiff
fails to file said motion within the given period, the
Branch COC shall issue a notice of pre-trial.
Respondent contended that the Guidelines set by the
Supreme Court has effectively relaxed Rule 18,
Section 1 of the Revised Rules of Court, which states
that it shall be the duty of the plaintiff to promptly
move ex parte that the case be set for pre-trial.
Finding merit in the contentions advanced by
respondent, the appellate court held that the lower
court need not immediately dismiss the case for
failure of respondent to file a motion to set the case
for pre-trial because the Branch Clerk of Court should
have issued a Notice of Pre-Trial. The dispositive
portion of the assailed Decision of the CA
read:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the appeal is
GRANTED. The assailed Orders are hereby REVERSED
and SET ASIDE. Let this case be REMANDED to the
Regional Trial Court of Quezon City, Branch 83 for
further proceedings.20cralawlawlibrary
Aggrieved by the Decision, petitioner filed with the
CA a Motion for Reconsideration of the 27 July 2006
Decision.21 Petitioners Motion for Reconsideration
was denied in a Resolution22 of the CA dated 12
February 2007. Petitioner elevated the case to this
Court by filing the present Petition for Review on
Certiorari.
Petitioner raised in issue the CA jurisdiction to
entertain respondents appeal from the order of
dismissal of the RTC. He contends that since the
respondents appeal from the RTC order of dismissal
raised a question purely of law, the same was within
the exclusive appellate jurisdiction of the Supreme
Court.23 He maintained that the Decision of the CA
should therefore be deemed null and void ab initio.
Respondent, on the other hand, emphasized that
petitioner cannot raise the issue of jurisdiction in the
present Petition for Review on Certiorari under Rule
45 of the Rules of Court. He argued that petitioner
should have filed instead a special civil action under
Rule 65. For such error, he insisted that the instant
petition should be dismissed outright. Respondent
further pointed out that petitioner never questioned
the jurisdiction of the CA while the case was pending
before the appellate court. He even invoked its
jurisdiction when it prayed for the reconsideration of
the assailed decision. Petitioner should not be
allowed to assail the CAs jurisdiction after he failed
to get what he wanted.
We deem it unnecessary to pass upon these questions
thoroughly because, whether we deal with the
proceedings before us as one for review on certiorari
of the Decision of the CA, or as a direct appeal from
the order of dismissal of the RTC, the result is the
same.24
We find it proper to delve into the more important
issue to be resolved, that is, whether the trial court
was correct in dismissing the complaint of the
plaintiff for failure to prosecute. We do so to avoid
the invocation of procedural rules for observance of
yet another rule on technicality.
It has long been established and settled that the
question of whether a case should be dismissed for
failure to prosecute is mainly addressed to the sound
discretion of the trial court.25 Pursuant to Rule 17,
Section 3 of the Rules of Court, a court can dismiss a
case on the ground of failure to prosecute. The true
test for the exercise of such power is whether, under
the prevailing circumstances, the plaintiff is culpable
for want of due diligence in failing to proceed with
reasonable promptitude.26 As to what constitutes
unreasonable length of time, this Court has ruled
that it depends on the circumstances of each
particular case and that the sound discretion of the
court in the determination of the said question will
not be disturbed, in the absence of patent abuse.27
The Court, however, in the case of Belonio v.
Rodriguez,28 held that:chanroblesvirtuallawlibrary
The power of the trial court to dismiss an action for
non-prosequitur is not without its limits. If a pattern
or scheme to delay the disposition of the case or a
wanton failure to observe the mandatory requirement
of the rules on the part of the plaintiff is not present,
as in this case, courts should not wield their authority
to dismiss. Indeed, while the dismissal rests on the
prerogative of the trial court, it must soundly be
exercised and not be abused, as there must be
sufficient reason to justify its extinctive effect on the
plaintiffs cause of action. Deferment of proceedings
may be tolerated so that the court, aimed at a just
and inexpensive determination of the action, may
adjudge cases only after a full and free presentation
of all the evidence by both parties. In this regard,
courts are reminded to exert earnest efforts to
resolve the matters before them on the merits, and
adjudicate the case in accord with the relief sought
by the parties so that appeals may be discouraged;
otherwise, in hastening the proceedings, they further
delay the final settlement of the case.
Petitioner argued that the appellate court mistakenly
concluded that the trial court need not immediately
dismiss the case for failure of the respondent to file a
motion to set the case for pre-trial. He alleged that a
closer reading of the Regional Trial Court Order29
would reveal that the Order simply stated that
respondent did not take any step for the further
prosecution of the case. He noted that any step for
the further prosecution of the case is not necessarily
limited to the setting of the case for pre-trial. The
phrase may include an equally significant, available
remedy and course of action such as a motion for a
judgment on the pleadings or for summary judgment.
He maintained that the failure to take any of the
three (3) available courses of action prompted the
trial court to conclude that the respondent has not
taken any step for the further prosecution of the case
and to dismiss the same for failure to prosecute.
Such contention is speculative. We cannot presume
that the respondent had the intention of availing of
the remedies of motion for judgment on the pleadings
or summary judgment but failed to file the same. The
fact remains that the respondent had the option to
move for pre-trial and if he fails to do so as he did,
the branch clerk of court had the duty to have the
case set for pre-trial. Moreover, the period of more
than four (4) months or from 21 September 2004 up
to 31 January 2005 may not be considered an
unreasonable length of time to warrant the terminal
consequence of dismissal of the case.
To be sure, the dismissal of the case cannot be for
respondents failing to take any step for further
prosecution of this case because the further step is
not his, but for the clerk of court, to take.
In Malayan Insurance Co, Inc. v. Ipil International,
Inc.,30 this Court held that the failure of a plaintiff to
prosecute the action without any justifiable cause
within a reasonable period of time will give rise to the
presumption that he is no longer interested to obtain
from the court the relief prayed for in the complaint.
The presumption is not, by any means, conclusive
because the plaintiff, on a motion for reconsideration
of the order of dismissal, may allege and establish a
justifiable cause for such failure.

We also note that in the trial court, petitioner as
defendant was in delay in filing his answer yet the
court showed some leniency in admitting his answer
despite of the delay. We find no reason why
respondent as plaintiff should not be granted the
same leniency for his failure to move for pre-trial. For
after all, and to underscore the point, the resolution
of the Court in A.M. No. 03-1-09-SC31 provides that:
Within five (5) days from date of filing of the reply,
the plaintiff must move ex parte that the case be set
for pre-trial conference. If the plaintiff fails to file
said motion within the given period, the Branch Clerk
of Court shall issue a notice of pre-trial. Dismissal of
the case for failure to prosecute is not the result
stated in the rule. The trial court is required to
proceed to pre-trial through the notice of pre-trial
and setting the case for pre-trial by the Branch Clerk
of Court.
On a final note, we emphasize that in the absence of
a pattern or scheme to delay the disposition of the
case or a wanton failure to observe the mandatory
requirement of the rules on the part of the plaintiff,
as in the case at bar, courts should decide to dispense
with rather than wield their authority to dismiss.32
This is in line with the time-honoured principle that
cases should be decided only after giving all parties
the chance to argue their causes and defenses.
Technicality and procedural imperfections should
thus not serve as basis of decisions.33
WHEREFORE, in light of the foregoing, the instant
Petition for Review on Certiorari is DENIED. The 27
July 2006 Decision of the Court of Appeals in CA-G.R.
CV No. 84983 and its 12 February 2007 Resolution
denying petitioners Motion for Reconsideration are
hereby AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14373 January 30, 1960
GENERAL INSURANCE AND SURETY CORPORATION,
petitioner,
vs.
NG HUA, respondent.
Jose P. Bengzon, Guido Advincula and Potenciano
Villegas, Jr., petitioner.
Crispin D. Baizas for respondent.
BENGZON, J.:
Suit to recover on a fire insurance policy. The insurer
presented several defenses in the Manila court of first
instance. After trial, it was required to pay.
On appeal to the Courts of Appeal, the judgment was
affirmed.
This is now a revision on certiorari, upon the insurer's
insistence on two of its main defenses: prescription
and breach of warranty.
The principal of facts on which adjudication may rest
are these:
On April 15, 1952, the defendant General Insurance
and Surety Corporation issued its insurance Policy No.
471, insuring against fire, for one year, the stock in
trade of the Central Pomade Factory owned by Ng
Hua, the court insured. The next day, the Pomade
factory building burned, resulting in destruction by
fire of the insured properties. Ng Hua claimed
indemnity from the insurer. The policy covered
damages up to P10,000.00; but after some
negotiations and upon suggestion of the Manila
Adjustment Company, he reduced the claim of
P5,000.00. Nevertheless, the defendant insurer
refused to pay for various reasons, namely (a) action
was not filed in time; (b) violation of warranty; (c)
submission of fraudulent claim; and (f) failure to pay
the premium.
The aforesaid Policy No. 471 contains this stipulation
on the back thereof;.
3. The insured shall give notice to the
company of any insurance or insurances
already affected, or which may subsequently
be effected, covering any of the property
hereby insured, and unless such notice be
given and the particulars of such insurance
or insurances be stated in or endorsed on this
Policy by or on behalf of the Company before
the occurrence of any loss or damage, all
benefits under the policy shall be forfeited.
(Emphasis ours.)
The face of the policy bore the annotation: "Co-
Insurance Declared NIL"
It is undenied that Ng Hua had obtained fire insurance
on the same goods, for the same period of time, in
the amount of P20,000.00 from General Indemnity Co.
However, the Court of Appeals referring to the
annotation and overruling the defense, held that
there was no violation of the above clause, inasmuch
as "co-insurance exists when a condition of the policy
requires the insured to bear ratable proportion of the
loss when the value of the insured property exceeds
the face value of the policy," hence there is no co-
insurance here.
Discussion Undoubtedly, co-insurance exists under
the condition described by the appellate court. But
that is one kind of co-insurance. It is not the only
situation where co-insurance exists. Other insurers of
the same property against the same hazard are
sometimes referred as co-insurers and the ensuing
combination as co-insurance.1 And considering the
terms of the policy which required the insured to
declare other insurances, the statement in question
must be deemed to be a statement (warranty) binding
on both insurer and insured, that there were no other
insurance on the property. Remember it runs "Co-
Insurance declared"; emphasis on the last word. If
"Co-Insurance" means that the Court of Appeals says,
the annotation served no purpose. It would even be
contrary to the policy itself, which in its clause No.
17 made the insured a co-insurer for the excess of the
value of the property over the amount of the policy.
The annotation then, must be deemed to be a
warranty that the property was not insured by any
other policy. Violation thereof entitles the insurer to
rescind. (Sec. 69. Insurance Act) Such
misrepresentation is fatal in the light of our views in
Santa Ana vs. Commercial Union Assurance Company,
Ltd., 55 Phil., 329. The materiality of non-disclosure
of other insurance policies is not open to doubt.
Furthermore, even if the annotations were
overlooked, the defendant insurer would still be free
from liability because there is no question that the
policy issued by General Indemnity had not been
stated in nor endorsed on Policy No. 471 of
defendant. And as stipulated in the above-quoted
provisions of such policy "all benefit under this policy
shall be forfeited."2
To avoid the dissastrous effect of the
misrepresentation or concealment of the other
insurance policy, Ng Hua alleges "actual knowledge"
on the part of General insurance of the fact that he
had taken out additional insurance with General
Indemnity. He does not say when such knowledge was
acquired or imparted. If General Insurance know
before issuing its policy or before the fire, such
knowledge might overcome the insurer's defense.3
However, the Court of Appeals found no evidence of
such knowledge. We have read the pages of the
stenographic notes cited by Ng Hua and we all gather
is evidence of the existence of the Insurance General
Indemnity Company. As to knowledge of General
Insurance before issuance of its policy or the fire,
there was none.
Indeed, this concealment and violation was expressly
set up as a special defense in the answer. Yet plaintiff
did not, in avoidance, reply nor assert such
knowledge. And it is doubtful whether the evidence
on the point would be admissible under the pleadings.
(See Rule 11, sec. 1.)
All the above considerations lead to the conclusion
that the defendant insurer successfully established its
defense of warranty breach or concealment of the
other insurance and/or violation of the provision of
the policy above-mentioned.
Having reached the conclusion, we deem it
unnecessary to discuss the other defenses.
Wherefore, the judgment under review will be
revoked, and the defendant insurer (herein
petitioner) acquitted from all the liability under the
policy. Costs against respondent. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr.
Wilfredo B. Claudio and was diagnosed as suffering
from "sinus tachycardia." The doctor prescribed the
following fro him: Trazepam, a tranquilizer; and
Aptin, a beta-blocker drug. Mr. Canilang consulted
the same doctor again on 3 August 1982 and this time
was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied
for a "non-medical" insurance policy with respondent
Great Pacific Life Assurance Company ("Great
Pacific") naming his wife, Thelma Canilang, as his
beneficiary.1 Jaime Canilang was issued ordinary life
insurance Policy No. 345163, with the face value of
P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive
heart failure," "anemia," and "chronic anemia."2
Petitioner, widow and beneficiary of the insured,
filed a claim with Great Pacific which the insurer
denied on 5 December 1983 upon the ground that the
insured had concealed material information from it.
Petitioner then filed a complaint against Great
Pacific with the Insurance Commission for recovery of
the insurance proceeds. During the hearing called by
the Insurance Commissioner, petitioner testified that
she was not aware of any serious illness suffered by
her late husband3 and that, as far as she knew, her
husband had died because of a kidney disorder.4 A
deposition given by Dr. Wilfredo Claudio was
presented by petitioner. There Dr. Claudio stated
that he was the family physician of the deceased
Jaime Canilang5 and that he had previously treated
him for "sinus tachycardia" and "acute bronchitis."6
Great Pacific for its part presented Dr. Esperanza
Quismorio, a physician
and a medical underwriter working for Great
Pacific.7 She testified that the deceased's insurance
application had been approved on the basis of his
medical declaration.8 She explained that as a rule,
medical examinations are required only in cases
where the applicant has indicated in his application
for insurance coverage that he has previously
undergone medical consultation and
hospitalization.9
In a decision dated 5 November 1985, Insurance
Commissioner Armando Ansaldo ordered Great
Pacific to pay P19,700 plus legal interest and
P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang
was not so serious that, even if it
had been disclosed, it would not
have affected Great Pacific's
decision to insure him;
2. Great Pacific had waived its right
to inquire into the health condition
of the applicant by the issuance of
the policy despite the lack of
answers to "some of the pertinent
questions" in the insurance
application;
3. there was no intentional
concealment on the part of the
insured Jaime Canilang as he had
thought that he was merely
suffering from a minor ailment and
simple cold; 10 and
4. Batas Pambansa Blg. 847 which
voids an insurance contract,
whether or not concealment was
intentionally made, was not
applicable to Canilang's case as that
law became effective only on 1
June 1985.
On appeal by Great Pacific, the Court of Appeals
reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's
complaint and Great Pacific's counterclaim. The
Court of Appealed found that the use of the word
"intentionally" by the Insurance Commissioner in
defining and resolving the issue agreed upon by the
parties at pre-trial before the Insurance
Commissioner was not supported by the evidence;
that the issue agreed upon by the parties had been
whether the deceased insured, Jaime Canilang, made
a material concealment as the state of his health at
the time of the filing of insurance application,
justifying respondent's denial of the claim. The Court
of Appeals also found that the failure of Jaime
Canilang to disclose previous medical consultation
and treatment constituted material information
which should have been communicated to Great
Pacific to enable the latter to make proper inquiries.
The Court of Appeals finally held that the Ng Gan Zee
case which had involved misrepresentation was not
applicable in respect of the case at bar which involves
concealment.
Petitioner Thelma Canilang is now before this Court
on a Petition for Review on Certiorari alleging that:
1. . . . the Honorable Court of
Appeals, speaking with due
respect, erred in not holding that
the issue in the case agreed upon
between the parties before the
Insurance Commission is whether or
not Jaime Canilang "intentionally"
made material concealment in
stating his state of health;
2. . . . at any rate, the non-
disclosure of certain facts about his
previous health conditions does not
amount to fraud and private
respondent is deemed to have
waived inquiry thereto. 11
The medical declaration which was set out in the
application for insurance executed by Jaime Canilang
read as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any
hospital, sanitarium or infirmary,
nor receive any medical or surgical
advice/attention within the last
five (5) years.

(2) I have never been treated nor

consulted a physician for a heart
condition, high blood pressure,
cancer, diabetes, lung, kidney,
stomach disorder, or any other
physical impairment.

(3) I am, to the best of my

knowledge, in good health.

EXCEPTIONS:

______________________________
______________________________
____________________

GENERAL DECLARATION

I hereby declare that all the

foregoing answers and statements
are complete, true and correct. I
hereby agree that if there be any
fraud or misrepresentation in the
above statements material to the
risk, the INSURANCE COMPANY
upon discovery within two (2) years
from the effective date of
insurance shall have the right to
declare such insurance null and
void. That the liabilities of the
Company under the said
Policy/TA/Certificate shall accrue
and begin only from the date of
commencement of risk stated in
the Policy/TA/Certificate,
provided that the first premium is
paid and the Policy/TA/Certificate
is delivered to, and accepted by me
in person, when I am in actual good
health.
Signed at Manila his 4th day of
August, 1992.
We note that in addition to the negative statements
made by Mr. Canilang in paragraph 1 and 2 of the
medical declaration, he failed to disclose in the
appropriate space, under the caption "Exceptions,"
that he had twice consulted Dr. Wilfredo B. Claudio
who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the
time Great Pacific issued the contract of insurance
and at the time Jaime Canilang died, are set out in
P.D. No. 1460, also known as the Insurance Code of
1978, which went into effect on 11 June 1978. These
provisions read as follows:
Sec. 26. A neglect to communicate
that which a party knows and ought
to communicate, is called a
concealment. I
l
l
xxx xxx xxx e
g
Sec. 28. Each party to a contract of i
insurance must communicate to the b
other, in good faith, all factors l
within his knowledge which are e
 material to the contract and as to
which he makes no warranty, and
which the other has not the means
of ascertaining. (Emphasis
supplied)
Under the foregoing provisions, the information
concealed must be information which the concealing
party knew and "ought to [have] communicate[d],"
that is to say, information which was "material to the
contract." The test of materiality is contained in
Section 31 of the Insurance Code of 1978 which reads:
Sec. 31. Materially is to be
determined not by the event, but
solely by the probable and
reasonable influence of the facts
upon the party to whom the
communication is due, in forming
his estimate of the disadvantages
of the proposed contract, or in
making his inquiries. (Emphasis
supplied)
"Sinus tachycardia" is considered present "when the
heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the
chest and sometimes faintness and weakness of the
person affected. The following elaboration was
offered by Great Pacific and set out by the Court of
Appeals in its Decision:
Sinus tachycardia is defined as
sinus-initiated; heart rate faster
than 100 beats per minute.
(Harrison' s Principles of Internal
Medicine, 8th ed. [1978], p. 1193.)
It is, among others, a common
reaction to heart disease, including
myocardial infarction, and heart
failure per se. (Henry J.L. Marriot,
M.D., Electrocardiography, 6th ed.,
[1977], p. 127.) The medication
prescribed by Dr. Claudio for
treatment of Canilang's ailment on
June 18, 1982, indicates the
condition that said physician was
trying to manage. Thus, he
prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS),
Vol. 14, No. 3, Dec. 1985, p. 112)
which is anti-anxiety, anti-
convulsant, muscle-relaxant; and
Aptin, (Idem, p. 36) a cardiac drug,
for palpitations and nervous heart.
Such treatment could have been a
very material information to the
insurer in determining the action to
be take on Canilang's application
for life insurance coverage. 14
We agree with the Court of Appeals that the
information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject
of life insurance. Had Canilang disclosed his visits to
his doctor, the diagnosis made and medicines
prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would
have probably refused to issue a non-medical
insurance policy or, at the very least, required a
higher premium for the same coverage. 15 The
materiality of the information withheld by Great
Pacific did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective
belief is not capable of proof in our judicial process,
except through proof of external acts or failure to
act from which inferences as to his subjective belief
may be reasonably drawn. Neither does materiality
depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable
and reasonable influence of the facts" upon the party
to whom the communication should have been made,
in assessing the risk involved in making or omitting to
make further inquiries and in accepting the
application for insurance; that "probable and
reasonable influence of the facts" concealed must, of
course, be determined objectively, by the judge
ultimately.
The insurance Great Pacific applied for was a "non-
medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, 16 this Court held
that:
. . . if anything, the waiver of
medical examination [in a non-
medical insurance contract]
renders even more material the
information required of the
applicant concerning previous
condition of health and diseases
suffered, for such information
necessarily constitutes an
important factor which the insurer
takes into consideration in deciding
whether to issue the policy or not .
. . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the
failure of Great Pacific to convey certain information
to the insurer was not "intentional" in nature, for the
reason that Jaime Canilang believed that he was
suffering from minor ailment like a common cold.
Section 27 of the Insurance Code of 1978 as it existed
from 1974 up to 1985, that is, throughout the time
range material for present purposes, provided that:
 Sec. 27. A concealment entitles the
injured party to rescind a contract
of insurance.
The preceding statute, Act No. 2427, as it
stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether
intentional or unintentional,
entitles the injured party to
rescind a contract of insurance.
(Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of
1978 was amended by
B.P. Blg. 874. This subsequent statute modified
Section 27 of the Insurance Code of 1978 so as to read
as follows:
Sec. 27. A concealment whether
intentional or unintentional
entitles the injured party to
rescind a contract of insurance.
(Emphasis supplied)
The unspoken theory of the Insurance Commissioner
appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of
1978 (prior to its amendment by B.P. Blg. 874)
intended to limit the kinds of concealment which
generate a right to rescind on the part of the injured
party to "intentional concealments." This argument is
not persuasive. As a simple matter of grammar, it
may be noted that "intentional" and "unintentional"
cancel each other out. The net result therefore of the
phrase "whether intentional or unitentional" is
precisely to leave unqualified the term
"concealment." Thus, Section 27 of the Insurance
Code of 1978 is properly read as referring to "any
concealment" without regard to whether such
concealment is intentional or unintentional. The
phrase "whether intentional or unintentional" was in
fact superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the
effect of imposing an affirmative requirement that a
concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914
to 1985), the statute did not require proof that
concealment must be "intentional" in order to
authorize rescission by the injured party.
In any case, in the case at bar, the nature of the facts
not conveyed to the insurer was such that the failure
to communicate must have been intentional rather
than merely inadvertent. For Jaime Canilang could
not have been unaware that his heart beat would at
times rise to high and alarming levels and that he had
consulted a doctor twice in the two (2) months before
applying for non-medical insurance. Indeed, the last
medical consultation took place just the day before
the insurance application was filed. In all probability,
Jaime Canilang went to visit his doctor precisely
because of the discomfort and concern brought about
by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument
that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy
notwithstanding Canilang's failure to set out answers
to some of the questions in the insurance application.
Such failure precisely constituted concealment on the
part of Canilang. Petitioner's argument, if accepted,
would obviously erase Section 27 from the Insurance
Code of 1978.
It remains only to note that the Court of Appeals
finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant
issue was whether or not Jaime Canilang had
intentionally concealed material information from
the insurer, was supported by the evidence of record,
i.e., the Pre-trial Order itself dated 17 October 1984
and the Minutes of the Pre-trial Conference dated 15
October 1984, which "readily shows that the word
"intentional" does not appear in the statement or
definition of the issue in the said Order and Minutes."
18
WHEREFORE, the Petition for Review is DENIED for
lack of merit and the Decision of the Court of Appeals
dated 16 October 1989 in C.A.-G.R. SP No. 08696 is
hereby AFFIRMED. No pronouncement as to the costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA,
petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses
ROLANDO and BERNARDA BACANI, respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule o
45 of the Revised Rules of Court to reverse and set o
aside the Decision dated February 21, 1992 of the d
Court of Appeals in CA-G.R. CV No. 29068, and its t
Resolution dated April 22, 1992, denying e
reconsideration thereof. s
t
We grant the petition. s
?
o
I t
h
On April 15, 1986, Robert John B. Bacani procured a e
life insurance contract for himself from petitioner. He r
was issued Policy No. 3-903-766-X valued at t
P100,000.00, with double indemnity in case of e
accidental death. The designated beneficiary was his s
mother, respondent Bernarda Bacani. t
s
On June 26, 1987, the insured died in a plane crash. ?
Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance c) attended or
policy taken by her son. Petitioner conducted an been admitted to
investigation and its findings prompted it to reject the any hospital or
claim. other medical
facility?
In its letter, petitioner informed respondent Bernarda
Bacani, that the insured did not disclose material 6. Have you ever had or sought
facts relevant to the issuance of the policy, thus advice for:
rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount xxx xxx xxx
of P10,172.00 was attached to said letter.
b) urine, kidney or bladder
Petitioner claimed that the insured gave false disorder? (Rollo, p. 53)
statements in his application when he answered the
following questions:
The deceased answered question No. 5(a) in the
affirmative but limited his answer to a consultation
5. Within the past 5 years have you: with a certain Dr. Reinaldo D. Raymundo of the
Chinese General Hospital on February 1986, for cough
a) consulted any and flu complications. The other questions were
doctor or other answered in the negative (Rollo, p. 53).
health
practitioner? Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined
b) submitted to: and confined at the Lung Center of the Philippines,
where he was diagnosed for renal failure. During his
E confinement, the deceased was subjected to
G urinalysis, ultra-sonography and hematology tests.
G
? On November 17, 1988, respondent Bernarda Bacani
X and her husband, respondent Rolando Bacani, filed an
- action for specific performance against petitioner
r with the Regional Trial Court, Branch 191,
a Valenzuela, Metro Manila. Petitioner filed its answer
y with counterclaim and a list of exhibits consisting of
s medical records furnished by the Lung Center of the
? Philippines.
b
l
On January 14, 1990, private respondents filed a
"Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no
evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of
his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to
the authenticity and due execution of several
documents as well as allegations regarding the health
of the insured. Private respondents failed to oppose
said request or reply thereto, thereby rendering an
admission of the matters alleged.
Petitioner then moved for a summary judgment and
the trial court decided in favor of private
respondents. The dispositive portion of the decision is
reproduced as follows:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiffs
and against the defendant,
condemning the latter to pay the
former the amount of One Hundred
Thousand Pesos (P100,000.00) the
face value of insured's Insurance
Policy No. 3903766, and the
Accidental Death Benefit in the
amount of One Hundred Thousand
Pesos (P100,000.00) and further
sum of P5,000.00 in the concept of
reasonable attorney's fees and costs
of suit.
Defendant's counterclaim is hereby
Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court
concluded that the facts concealed by the insured
were made in good faith and under a belief that they
need not be disclosed. Moreover, it held that the
health history of the insured was immaterial since the
insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which
affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation
by claiming concealment because the cause of death
was unrelated to the facts concealed by the insured.
It also sustained the finding of the trial court that
matters relating to the health history of the insured
were irrelevant since petitioner waived the medical
examination prior to the approval and issuance of the
insurance policy. Moreover, the appellate court
agreed with the trial court that the policy was "non-
medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied;
hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and
the appellate court are binding on this Court is not
absolute and admits of exceptions, such as when the
judgment is based on a misappreciation of the facts
(Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court
concluded that indeed there was concealment and
misrepresentation, however, the same was made in
"good faith" and the facts concealed or
misrepresented were irrelevant since the policy was
"non-medical". We disagree.
Section 26 of The Insurance Code is explicit in
requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts
within his knowledge which are material to the
contract and as to which he makes no warranty, and
which the other has no means of ascertaining. Said
Section provides:
A neglect to communicate that
which a party knows and ought to
communicate, is called
concealment.
Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom communication is due,
in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (The
Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose
were material and relevant to the approval and
issuance of the insurance policy. The matters
concealed would have definitely affected petitioner's
action on his application, either by approving it with
the corresponding adjustment for a higher premium
or rejecting the same. Moreover, a disclosure may
have warranted a medical examination of the insured
by petitioner in order for it to reasonably assess the
risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443
(1993), we held that materiality of the information
withheld does not depend on the state of mind of the
insured. Neither does it depend on the actual or
physical events which ensue.
Thus, "goad faith" is no defense in concealment. The
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was
deliberate on his part.
The argument, that petitioner's waiver of the medical
examination of the insured debunks the materiality of
the facts concealed, is untenable. We reiterate our
ruling in Saturnino v. Philippine American Life
Insurance Company, 7 SCRA 316 (1963), that " . . . the
waiver of a medical examination [in a non-medical
insurance contract] renders even more material the
information required of the applicant concerning
previous condition of health and diseases suffered, for
such information necessarily constitutes an important
factor which the insurer takes into consideration in
deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents
would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of
insurance where there is concealment, ineffective
(See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no
bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease
he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised
its right to rescind the contract of insurance by reason
of the concealment employed by the insured. It must
be emphasized that rescission was exercised within
the two-year contestability period as recognized in
Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the
Decision of the Court of Appeals is REVERSED and SET
ASIDE.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24833 September 23, 1968
FIELDMEN'S INSURANCE CO., INC., petitioner,
vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and
COURT OF APPEALS, respondents.
Jose S. Suarez for petitioner.
Eligio G. Lagman for respondents.
FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance
Co., Inc., was not allowed to escape liability under a
common carrier insurance policy on the pretext that
what was insured, not once but twice, was a private
vehicle and not a common carrier, the policy being
issued upon the insistence of its agent who discounted
fears of the insured that his privately owned vehicle
might not fall within its terms, the insured moreover
being "a man of scant education," finishing only the
first grade. So it was held in a decision of the lower
court thereafter affirmed by respondent Court of
Appeals. Petitioner in seeking the review of the above
decision of respondent Court of Appeals cannot be so
sanguine as to entertain the belief that a different
outcome could be expected. To be more explicit, we
sustain the Court of Appeals.
The facts as found by respondent Court of Appeals,
binding upon us, follow: "This is a peculiar case.
Federico Songco of Floridablanca, Pampanga, a man
of scant education being only a first grader ..., owned
a private jeepney with Plate No. 41-289 for the year
1960. On September 15, 1960, as such private vehicle
owner, he was induced by Fieldmen's Insurance
Company Pampanga agent Benjamin Sambat to apply
for a Common Carrier's Liability Insurance Policy
covering his motor vehicle ... Upon paying an annual
premium of P16.50, defendant Fieldmen's Insurance
Company, Inc. issued on September 19, 1960,
Common Carriers Accident Insurance Policy No. 45-
HO- 4254 ... the duration of which will be for one (1)
year, effective September 15, 1960 to September 15,
1961. On September 22, 1961, the defendant
company, upon payment of the corresponding
premium, renewed the policy by extending the
coverage from October 15, 1961 to October 15, 1962.
This time Federico Songco's private jeepney carried
Plate No. J-68136-Pampanga-1961. ... On October 29,
1961, during the effectivity of the renewed policy,
the insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico
(the vehicle owner) collided with a car in the
municipality of Calumpit, province of Bulacan, as a
result of which mishap Federico Songco (father) and
Rodolfo Songco (son) died, Carlos Songco (another
son), the latter's wife, Angelita Songco, and a family
friend by the name of Jose Manuel sustained physical
injuries of varying degree." 1
It was further shown according to the decision of
respondent Court of Appeals: "Amor Songco, 42-year-
old son of deceased Federico Songco, testifying as
witness, declared that when insurance agent
Benjamin Sambat was inducing his father to insure his
vehicle, he butted in saying: 'That cannot be, Mr.
Sambat, because our vehicle is an "owner" private
vehicle and not for passengers,' to which agent
Sambat replied: 'whether our vehicle was an "owner"
type or for passengers it could be insured because
their company is not owned by the Government and
the Government has nothing to do with their
company. So they could do what they please
whenever they believe a vehicle is insurable' ... In
spite of the fact that the present case was filed and
tried in the CFI of Pampanga, the defendant company
did not even care to rebut Amor Songco's testimony
by calling on the witness-stand agent Benjamin
Sambat, its Pampanga Field Representative." 2
The plaintiffs in the lower court, likewise respondents
here, were the surviving widow and children of the
deceased Federico Songco as well as the injured
passenger Jose Manuel. On the above facts they
prevailed, as had been mentioned, in the lower court
and in the respondent Court of Appeals.1awphl.nt
The basis for the favorable judgment is the doctrine
announced in Qua Chee Gan v. Law Union and Rock
Insurance Co., Ltd., 3 with Justice J. B. L. Reyes
speaking for the Court. It is now beyond question that
where inequitable conduct is shown by an insurance
firm, it is "estopped from enforcing forfeitures in its
favor, in order to forestall fraud or imposition on the
insured." 4
As much, if not much more so than the Qua Chee Gan
decision, this is a case where the doctrine of estoppel
undeniably calls for application. After petitioner
Fieldmen's Insurance Co., Inc. had led the insured
Federico Songco to believe that he could qualify
under the common carrier liability insurance policy,
and to enter into contract of insurance paying the
premiums due, it could not, thereafter, in any
litigation arising out of such representation, be
permitted to change its stand to the detriment of the
heirs of the insured. As estoppel is primarily based on
the doctrine of good faith and the avoidance of harm
that will befall the innocent party due to its injurious
reliance, the failure to apply it in this case would
result in a gross travesty of justice.
That is all that needs be said insofar as the first
alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-
reasonable plea that estoppel could not be invoked by
the heirs of the insured as a bar to the alleged breach
of warranty and condition in the policy. lt would now
rely on the fact that the insured owned a private
vehicle, not a common carrier, something which it
knew all along when not once but twice its agent, no
doubt without any objection in its part, exerted the
utmost pressure on the insured, a man of scant
education, to enter into such a contract.
Nor is there any merit to the second alleged error of
respondent Court that no legal liability was incurred
under the policy by petitioner. Why liability under the
terms of the policy 5 was inescapable was set forth in
the decision of respondent Court of Appeals. Thus:
"Since some of the conditions contained in the policy
issued by the defendant-appellant were impossible to
comply with under the existing conditions at the time
and 'inconsistent with the known facts,' the insurer 'is
estopped from asserting breach of such conditions.'
From this jurisprudence, we find no valid reason to
deviate and consequently hold that the decision
appealed from should be affirmed. The injured
parties, to wit, Carlos Songco, Angelito Songco and
Jose Manuel, for whose hospital and medical expenses
the defendant company was being made liable, were
passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial
expenses the defendant company was also being
made liable was the driver of the vehicle in question.
Except for the fact, that they were not fare paying
passengers, their status as beneficiaries under the
policy is recognized therein." 6
Even if it be assumed that there was an ambiguity, an
excerpt from the Qua Chee Gan decision would reveal
anew the weakness of petitioner's contention. Thus:
"Moreover, taking into account the well known rule
that ambiguities or obscurities must be strictly
interpreted against the party that caused them, the
'memo of warranty' invoked by appellant bars the
latter from questioning the existence of the
appliances called for in the insured premises, since its
initial expression, 'the undernoted appliances for the
extinction of fire being kept on the premises insured
hereby, ... it is hereby warranted ...,' admits of
interpretation as an admission of the existence of
such appliances which appellant cannot now
contradict, should the parol evidence rule apply." 7
To the same effect is the following citation from the
same leading case: "This rigid application of the rule
on ambiguities has become necessary in view of
current business practices. The courts cannot ignore
that nowadays monopolies, cartels and concentration
of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with
them cunningly prepared 'agreements' that the
weaker party may not change one whit, his
participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since
Raymond Saleilles 'contracts by adherence' (contrats
d'adhesion), in contrast to those entered into by
parties bargaining on an equal footing, such contracts
(of which policies of insurance and international bills
of lading are prime examples) obviously call for
greater strictness and vigilance on the part of courts
of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their
becoming traps for the unwary (New Civil Code.
Article 24; Sent. of Supreme Court of Spain, 13 Dec.
1934, 27 February 1942)." 8
The last error assigned which would find fault with
the decision of respondent Court of Appeals insofar as
it affirmed the lower court award for exemplary
damages as well as attorney's fees is, on its face, of
no persuasive force at all.
The conclusion that inescapably emerges from the
above is the correctness of the decision of respondent
Court of Appeals sought to be reviewed. For, to
borrow once again from the language of the Qua Chee
Gan opinion: "The contract of insurance is one of
perfect good faith (uberima fides) not for the insured
alone,but equally so for the insurer; in fact, it is more
so for the latter, since its dominant bargaining
position carries with it stricter responsibility." 9
This is merely to stress that while the morality of the
business world is not the morality of institutions of
rectitude like the pulpit and the academe, it cannot
descend so low as to be another name for guile or
deception. Moreover, should it happen thus, no court
of justice should allow itself to lend its approval and
support.1awphl.nt
We have no choice but to recognize the monetary
responsibility of petitioner Fieldmen's Insurance Co.,
Inc. It did not succeed in its persistent effort to avoid
complying with its obligation in the lower court and
the Court of Appeals. Much less should it find any
receptivity from us for its unwarranted and
unjustified plea to escape from its liability.
WHEREFORE, the decision of respondent Court of
Appeals of July 20, 1965, is affirmed in its entirety.
Costs against petitioner Fieldmen's Insurance Co., Inc.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 September 13, 1941
THE INSULAR LIFE ASSURANCE CO., LTD.,
petitioner,
vs.
SERAFIN D. FELICIANO and ANGEL, FLORENDA,
EUGENIO, HERMINIO and LETICIA, all surnamed
FELICIANO, represented by their guardian ad litem
SERAFIN D. FELICIANO, respondents.
Araneta, Zaragosa, Araneta & Bautista for petitioner.
Delfin Joven for respondents.
LAUREL, J.:
One Evaristo Feliciano filed an application for
insurance with the herein petitioner upon the
solicitation of one of its agents. Two insurance
policies to the aggregate amount of P25,000 were
issued to him. Feliciano died on September 29, 1935.
The defendant company refused to pay on the ground
that the policies were fraudulently obtained, the
insured having given false answers and statements in
the application as well as in the medical report. The
present action was brought to recover on said
policies. The lower court rendered judgment in favor
of the plaintiffs. The lower court found that at the
time Feliciano filed his application and at the time he
was subjected to physical examination by the medical
examiner of the herein petitioner, he was already
suffering from tuberculosis. This fact appears in the
negative both in the application and in the medical
report. The lower court, after an exhaustive
examination of the conflicting testimonies, also found
that Feliciano was made to sign the application and
the examiner's report in blank, and that afterwards
the blank spaces therein were filled in by the agent
and the medical examiner, who made it appear
therein that Feliciano was a fit subject for insurance.
The lower court also held that neither the insured nor
any member of his family concealed the real state of
health of the insured. That as a matter of fact the
insured, as well as the members of his family, told the
agent and the medical examiner that the applicant
had been sick and coughing for sometime and that he
had also gone three times to the Santol Sanatarium.
On appeal, this finding of facts of the lower court was
sustained by the Court of Appeals. This concludes the
controversy over the facts in so far as this Court is
concerned.
The first assignment of error of the petitioner raises
the question we are now called upon to decide:
The Court of Appeals erred in holding that an
insurance company has no right to avoid a policy
where its agent knowingly and intentionally wrote
down the answers in the application differing from
those made by the insured, in disregard of the
exception that when the agent, instead of serving the
interests of his principal, acts in his own or another's
interest and adversely to that of his principal, the said
principal is not bound by said acts of the agent."
On the proposition thus presented, there are two
main avenues of approach indicated: one leading to
the validation of a policy where its agent, without
fraud, collusion or bad faith on the part of the
insured, falsified the answers given by the insured;
and the other, leading to the avoidance of the policy
under the circumstances. We see no need for an
extended discussion of the conflicting authorities.
Whenever courts are given the choice between two
conflicting principles, the determinative fact which
should sway them is the conformity of its
contemplated course to reason and to "the common
sense of the situation." The life of the law is not only
logic but experience.
The phenomenal growth of insurance from almost
nothing a hundred years ago to its present gigantic
proportion is not of the outstanding marvels of
present-day business life. The demand for economic
security, the growing need for social stability, and the
clamor for protection against the hazards of cruel-
crippling calamities and sudden economic shocks,
have made insurance one of the felt necessities of
modern life. Insurance is no longer a rich man's
monopoly. Upon it are heaped the assured hopes of
many families of modest means. It is woven, as it
were, into the very warp and woof of national
economy. It touches the holiest and most sacred ties
in the life of man-love of parents, love of wives and
love of children. It is of common knowledge that the
selling of insurance today is subjected to the
whilrlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to
their agents to solicit and procure applications. These
agents are to be found all over the length and breadth
of the land. They are stimulated to more active
efforts by contests and by the keen competition
offered by other rival insurance companies. They are
supplied with blank applications and paid large
commissions on the policies secured by them. All
transactions are generally done through these agents.
They act, in fact and in theory, as the general
representatives of the insurance companies. They
supply all the information , prepare and answer the
applications, submit the applications to their
companies, conclude the transactions, and otherwise
smooth out all difficulties. The agents, in short, do
what the company set them to do.
In the present case, the agent knew all the time the
true state of health of the insured. The insurer's
medical examiner approve the application knowing
full well that the applicant was sick. The situation is
one in which one of two innocent parties must bear a
loss for his reliance upon a third person. In this case,
it was the insurer who gave the agent authority to
deal with the applicant. It was the one who selected
the agent, thus implying that the insured could put
his trust on him. It was the one who drafted and
accepted the policy and consummated the contract.
It seems reasonable that as between the two of them,
the one who employed and gave character to the third
person as its agent should be the one to bear the loss.
The company received the money of the applicant as
the price of the risk to be taken by it. If the policy
should be avoided, it must be because it was void
from the very beginning, and the result would be that
the insurer, while it received the money, never
assumed any risk. The result would be, in the
language of one of the cases, "to place every simple
or uneducated person seeking insurance at the mercy
of the insurer who could, through its agent, insert in
every application, unknown to the applicant and over
his signature, some false statements which would
enable him to avoid all liability while retaining the
price paid for the supposes insurance." (State
Insurance Company v. Taylor, 14 Colo. 499, 24 Pac.
333.) The weight of authority is that if an agent of the
insurer, after obtaining from an applicant for
insurance a correct and truthful answer to
interrogatories contained in the application for
insurance, without knowledge of the applicant fills in
false answers, either fraudulently or otherwise, the
insurer cannot assert the falsity of such answers as a
defense to liability on the policy, and this is true
generally without regard to the subject matter of the
answers or the nature of the agent's duties or
limitations on his authority, at least if not brought to
the attention of the applicant.
The fact that the insured did not read the application
which he signed, is not indicative of bad faith. It has
been held that it is not negligence for the insured to
sign an application without first reading it if the
insurer by its conduct in appointing the agent
influenced the insured to place trust and confidence
in the agent. (Den Hartog v. Home Nat. Ins. Asso., 197
Iowa, 143 196 N. W. 944.) As the court said in the case
of Germania L. Ins. Co. v. Lunkebiemer, 127 Ind. 538,
26 N. E. 1082, "Nor can it be said that the assured,
who has fully, frankly, truthfully, and in good faith
answered all the required questions, is guilty of
negligence in signing, without reading, the
application which is thereupon prepared by the agent.
He is justified in assuming that the agent has, with
equal good faith, truthfully recorded the answers
given him. He may well say to the company: "You
accredited this man to me as your representative and
I signed the application thus prepared by him, relying
upon the character which you gave him when you
commissioned him to come to me as your agent. If he
acted dishonestly in the matter, you and not I must
suffer the consequences.' ..." In the instant case, it
has been proved that the insured could not read
English, the language in which the application was
written, and that after the contract was signed, it was
kept by his mother. As a consequence, the insured had
no opportunity to read or correct any misstatement
therein. (Bill of Exceptions, pp. 60-61.)
We have not been insensible to the appeal that the
course we have followed may lead to fraud and work
hardship on insurance companies, for it would be easy
for insurance agents and applicants to insert false
answers in their applicants to insert false answers in
their applications for insurance. This means that it is
to the particular interest of these companies to
exercise greater care in the selection of their agents
and examiners. Their protection is still in their own
hands and which may be achieved by other means.
Withal, the attainment of a common good may involve
impairment and even sacrifice of beneficial interests
of a particular group, but in life, compromise is
inevitable until the hour of doom strikes.
The petition is hereby dismissed and the judgment
sought to be reviewed is affirmed with costs against
the petitioner. So ordered.
Abad Santos, Diaz, and Horrilleno, JJ., concur.
Separate Opinions
OZAETA, J., with whom concur AVANCEA, C.J.,
and MORAN, J., dissenting:
Altho a dissenting opinion is but a voice in the
wilderness, we have to write it because the
Constitution so requires.
The material facts are not disputed in this instance,
but they are not adequately stated in the majority
opinion, and we apprehend that the significance of
those not stated therein may have been overlooked
by the majority of the Court.
This is a suit on two life insurance policies issued by
the petitioner (hereinafter referred to as the
Company) to Evaristo Feliciano as of October 1 and
November 1, 1934, for P20,000 and P5,000,
respectively. The application for the first policy was
signed on October 12, and that for the second policy,
on October 28, 1934. On those dates Feliciano "had an
advanced disease of the lungs ... He was breathless,
having difficulty in breathing, and he had the
appearance of one with high fever." As a matter of
fact, on October 12, 1934, the very day the insured
signed the first applications, after the last X-ray
examination of his lungs had been made at the Santol
Sanatorium by Doctor Trepp, the latter informed the
respondent Serafin D. Feliciano, brother of the
insured, of the result of the X-ray examination and
told him that in his opinion his brother "was already
in a very serious and practically hopeless condition."
(Trial court's decision, P.27, B. of E.) After the first
application for insurance of P20,000 had been
approved and the corresponding policy issued, the
insured applied on October 28, 1934, for another
insurance of P5,000, and the policy therefor was
issued as of November 1, 1934. Less than one year
later, to wit, on September 29, 1935, the insured died
of the same malady he had been suffering-pulmonary
tuberculosis.
The Court of Appeals found in effect that the
Company's soliciting agent Romulo M. David, in
conclusion with the medical examiner Dr. Gregorio
Valdez, knowingly wrote false answers to the question
contained in the applications and in the medical
examiner's reports which they had made the
applicant sign in blank in order to secure the
Company's approval thereof and have the
corresponding policies credited to the agent in
connection with the interprovincial contest which the
Company was then holding among its soliciting agents
to boost the sales of its policies. The Court of Appeals
intimates that Agent David bribed Medical Examiner
Valdez with money which the former borrowed from
the applicant's mother by way of advanced payment
on the premium. In this connection, it may be
mentioned that the premium paid on the first policy
was P1,111.20, and that on the second policy,
P277.80, or a total of P1,389, which the Company
offers to refund.
The Court of Appeals also found that before the
insured signed the first application and medical
examiner's report, he and the members of his family
told the agent and the medical examiner that he had
been sick and coughing for some time and that he had
gone three times to the Santol Sanatorium and had X-
ray pictures of his lungs taken; but that in spite of
such information the agent and the medical examiner
told them that the applicant was a fit subject for
insurance.
Each of the policies sued upon contains the following
stipulations:
This policy and the application therefor
constitute the entire contract between the
parties hereto. ... Only the President, or the
Manager, acting jointly with the Secretary of
Assistant Secretary (and then only in writing
signed by them) have power in behalf of the
Company to issue permits or to modify this
or any contract, or to extend the time for
making any premium payment, and the
Company shall not be bound by any promise
or representation heretofore or hereafter
given by any person other than the above-
named officials, and by them only in writing
and signed conjointly as stated.
The application referred to in and made a part of the
policy contains, among others, the following
statements:
18. I [the applicant] hereby declare that
all the above statements and answers as well
 as those that I may make to the Company's
Medical Examiner in continuation of this
application, to be complete, true and
correct to the best of my knowledge and
belief, and I hereby agree as follows:
1. That this declaration, with the answers to
be given by me to the Medical Examiner,
shall be the basis of the policy and from part
of same.
xxx xxx xxx
3. That the said policy shall not take effect
until the first premium has been paid and the
policy has been delivered to and accepted by
me, while I am in good health.
4. That the agent taking this application has
no authority to make, modify or discharge
contracts, or to waive any of the company's
rights or requirements.
xxx xxx xxx
Upon the facts above set forth, we are of the opinion
that respondents are not entitled to recover the
amounts of the policies in question but only the
premiums paid thereon, for the following reasons:
1. Under the very terms of the policies sued upon
there is no valid contract of insurance here. The
policies were issued on the basis of the statement
subscribed to by the applicant to the effect that he
was and had been in good health. The basis being
false, there was no real meeting of the minds of the
parties. The agents had no authority to bind the
company thru oral representations, and less so when
such representations were false and fraudulent.
2. The insured and the members of his family who are
the respondents herein were not entirely innocent of
bad faith. They were not candid, unsophisticated
rustics. They were well to do and well educated. They
were not ignorant of the practices in the life
insurance business. In 1924, the insured had taken an
insurance policy of P10,000 from the Sun Life
Insurance Company, which, however, he allowed to
lapse. The insured was a "proprietor and agriculturist"
(see policy Exhibit E). The respondent Serafin D.
Feliciano, brother of the insured, is a physician who
for some years had worked in the Santol Sanatorium
with Doctor Trepp (Exhibit B, p. 16). The most
charitable view that one could take of the insured's
part in the transaction is that he, with the approval
of his relatives, particularly his mother who furnished
the money with which to pay the premiums and who
was named beneficiary to the extent of P12,000,
allowed himself to be used as instrument in the
wrongful issuance of the policies in question by the
Company to defraud the latter. It is difficult to
believe that in so doing he and his relatives were not
actuated by the desire for lucre. They knew that a
person in bad health let alone one who was "in a
very serious and practically hopeless condition" was
not insurable. So they must also have known, or at
least they had good reason to suspect, that Agent
David and Medical Examiner Valdez were not acting in
good faith when they made the applicant sign the
application in blank and told him (the hopelessly sick
man) that he was fit of insurance. If the applicant and
his relatives were acting in good faith, they would
have been curious enough to scrutinize the
application and the medical examiner's report
contained in the first policy upon receipt of it, to see
whether the medical examiner had correctly stated
therein the state of the applicant's health. It is
significant that shortly after they had received the
first policy of P20,000, the insured applied for and
secured another policy of P5,000. As held by the
Supreme Court of the United States in the analogous
case on New York Life Insurance company v. Fletcher,
117 U. S. 519: "He could not hold the policy without
approving the action of the agents and thus becoming
a participant in the fraud committed. The retention
of the policy was an approval of the application and
of its statements. The consequences of that approval
cannot after his death be avoided."
3. Life insurance is a savings institution; it is not a
gambling scheme. The premiums paid by the insured,
plus a participation in the profits realized by the life
insurance company from the investment of those
premiums, are returned to him if he survives the
policy. If, contrary to the life expectancy of the
insured, he dies before the policy matures, the full
amount of the insurance is paid to his beneficiary. The
insured is not expected to lose, but neither is he
supposed to expect a windfall or an inordinate gain.
That is elemental in every sound business. The life
insurance business is a co-operative enterprise in the
sense that the policy-holders as well as the company
are interested in making profits and in avoiding
unnecessary or bad losses. The company is, to a
certain extent, a trustee of the funds paid to it by its
policyholders. No insurance company which would
issue policies indiscriminately could expect to survive
or, for that matter, be licensed by the Government to
do business. That is fundamental. Every fraud
perpetrated upon the company affects the policy-
holders because their share in the profits is thereby
unduly minimized. That is why the Government, thru
the Insurance Commissioner, closely supervises the
insurance business (see section 169 et seq., The
Insurance Act). We think it is bad law to hold valid a
policy procured thru fraud on the life of a person who
was almost on the brink of his grave. Avaricious
persons, with the connivance of unscrupulous agents
of insurance companies, could make money on the
lives of their relatives who were expected to die soon,
by fraudulently insuring them, and could get away
with it, as in the instant case. The real or ultimate
victim is not the company alone but also its numerous
policyholders who have put their savings in it.
It is suggested that the remedy is for the insurance
companies to exercise greater care in the selection of
their agents and examiners. As a matter of fact, under
the law no one may act as soliciting agent of an
insurance company without authority or license from
the Insurance Commissioner(section 189, The
Insurance Act); and the Insurance Commissioner
makes a careful, confidential investigation of the
conduct and reputation of the applicant for such
license before issuing the same. But no amount of
care taken by both the company and the Insurance
Commissioner in the selection of soliciting agents and
medical examiners can insure the company against
bad faithly and the cupidity of the evil-minded. The
company would have to exact a huge bond of every
one of its numerous agents and medical examiners to
guarantee his fidelity, and that would be too
expensive to make the insurance business profitable.
In other words, the suggested remedy is, we believe,
impracticable. The only safe and sound policy is, not
to condone but to condemn fraud under any and all
circumstances.
4. If we are to be guided and persuaded by cases
adjudicated in other jurisdictions as the Court of
Appeals was in deciding this case, we should follow
that decided by the Supreme Court of the United
States upon facts similar or analogous to those
obtaining in the instant case, instead of adopting
doctrines laid down by the state supreme courts and
inferior federal courts in cases the facts of which bear
little or no anology to those of the case at bar. The
case squarely in point, but which the Court of Appeals
rejected, is New York Life Insurance Company v.
Fletcher, supra. In that case it was stated in the
application for insurance that the applicant never had
a disease of the kidneys or any serious disease, and
had never been seriously ill, and had no regular
medical attendant, whereas he had been afflicted
with diabetes, which is a serious disease of the
kidneys, and had been under medical treatment for
it, and he actually died of that disease. The plaintiff
therein, however, alleged, and adduced evidence to
show:
. . . That two agents of the company at St. Louis, who
were personally acquainted with the assured and
knew his past and then physical condition, had
solicited him on different occasions to take out a
policy in the company; that he told each of them on
those occasions that he did not believe he was
insurable; that they knew he had been in bad health
and had been under medical treatment for diabetes,
though he thought he was then well; that they assured
him that he was insurable, that the fact that he had
the disease made no difference, and that if he would
take out a policy and pay the premiums required he
would have no trouble; that finally, about the 18th of
December, 1877, he consented to take a policy; that
they then told him it would be necessary for him to
answer certain questions as a matter of form; that
one of them thereupon read to him certain questions
from a printed blank, and as he answered them the
other pretended to take down and write in the blank
the substance of the answers as given, not reading
over to the assured what he had written, nor
consulting him about it, nor informing him what it
was, but saying that what he did was a mere
formality; that when he was asked with respect to his
having any disease of the kidneys he replied that his
condition was well known to the agents, who were
aware that he had been sick and under treatment by
Doctor Brokaw for diabetes, and that the doctor's
office was opposite, and they could go there and find
out everything they wanted to know; that the assured
had faithfully answered all the questions, but the
agents inserted in the blanks false answers; that he
had no reason to suppose that the answers were taken
down differently from those given; that after
answering all their question he was asked to sign his
name to the paper to identify him as the party for
whose benefit the policy was to be issued, and for
that purpose he signed the paper twice, without
reading it or the written answers; that the agents did
not read to him any part of the application except the
questions, and did not read the clause set forth in the
defendant's answer, nor call the attention to the fact
that his signatures were intended as an acceptance or
assent to that clause; that when the policy was
delivered to him he neither read it nor the copy of the
application attached to it, that the agent who
delivered it informed him that it was right, and he
was insured, and he gave no further attention to the
matter; that the annual premiums, as they fell due,
were paid to said agent, who received them with full
knowledge of all the facts; and that, therefore, the
company was estopped form pretending that any of
the answers as written rendered the policy void." (117
U.S. 521-523.)
In reversing the judgment rendered by the trial court
in favor of the plaintiff, the Federal Supreme Court
held "that the agent had no authority from the
company to falsify the answers," and that "the assured
could acquire no right by virtue of his falsified
answers." The Court further said:
. . . Both he and the company were deceived
by the fraudulent conduct of the agent. The
assured was placed in the position of making
false representations in order to secure a
valuable contract which, upon a truthful
report of his condition, could not have been
obtained. By them the company was imposed
upon and induced to enter into the contract.
In such a case, assuming that both parties
acted in good faith, justice would require
that the contract be cancelled and the
premiums returned. As the present action is
not for such a cancellation, the only recovery
which the plaintiff could properly have upon
the facts he asserts, taken in connection
with the limitation upon the powers of the
agent, is for the amount of the premiums
paid, and to that only would he be entitled
by virtue of the statute of Missouri.
But the case as presented by the record is by
no means as favorable to him as we have
assumed. It was his duty to read the
application he signed. He knew that upon it
the policy would be issued, if issued at all. It
would introduce great uncertainty in all
business transactions, if a party making
written proposals for a contract, with
representations to induce its execution,
should be allowed to show, after it had been
obtained, that he did not know the contents
of his proposals, and to enforce it,
notwithstanding their falsity as to matters
essential to its obligation and validity.
Contracts could not be made, or business
fairly conducted, if such a rule should
prevail; and there is no reason why it should
be applied merely to contract of insurance.
There is nothing in their nature which
distinguishes them in this particular from
others. But here the right is asserted to
prove not only that the assured did not make
the statements contained in his answers, but
that he never read the application, and to
recover upon a contract obtained by
representations admitted to be false, just as
though they were true. If he had read even
the printed lines of his application, he would
have seen that it stipulated that the rights of
the company could in no respect be affected
by his verbal statements, or by those of its
agents, unless the same were reduced to
writing and forwarded with his application to
the home office. The company, like any
other principal, could limit the authority of
its agents, and thus bind all parties dealing
with them with knowledge of the limitation.
It must be presumed that he read the
application, and was cognizant of the
limitations thereon expressed.
xxx xxx xxx
There is another view of this case equally
fatal to a recovery. Assuming that the
answers of the assured were falsified, as
alleged, the fact would be at once disclosed
by the copy of the application, annexed to
the policy, to which his attention was called.
He would have discovered by inspection that
a fraud had been perpetrated, not only upon
himself but upon the company, and it would
have been his duty to make the fact known
to the company. He could not hold the policy
without approving the action of the agents
and thus becoming a participant in the fraud
committed. The retention of the policy was
an approval of the application and of its
statements. The consequences of that
approval cannot after his death be avoided.
. . . No one can claim the benefit of an
executory contract fraudulently obtained,
after the discovery of the fraud, without
approving and sanctioning it. (117 U. S. 529-
530, 534, 535.)
Our attention has been called to al later case
Continental Life Insurance Company v. Chamberlain,
132 U. S. 304 in which the court held the company
liable upon a policy of insurance of the life of one
Richard Stevens issued under the following
circumstances, as stated in the decision:
The application for insurance was taken in
Iowa by one Boak, a district agent of the
company in certain named counties of the
States, fourteen in number, having written
authority "to prosecute the business of
soliciting and procuring applications for life
insurance policies within and throughout said
territory."
Among the numerous questions propounded
in the application was the following: "Has the
said party [the applicant] any other
insurance on his life; if so, where and for
what amounts?" The answer, as it appears in
the application, is: "No other." That answer,
as were all the answers to questions
propounded to the applicant, was written by
the company's agent, Boak. In reference to
the above question and answer, the latter
testified: "I asked him [Stevens] the question
if he had any other insurance, as printed in
the application and as we ask every
applicant, and he told me he had certain
certificates of membership with certain
cooperative societies, and he enumerated
different ones, and said he did not know
whether I would consider them insurance or
not. I told him emphatically that I did not
consider them insurance and we had
considerable conversation about it. He
wanted to know my authority for saying I did
not consider them insurance. I gave him my
authority give him my reasons and he
agreed with me that these cooperative
societies were in no sense insurance
 companies, and in that light I answered the
question "No" after he had stated the facts?
A. I did. Q. Who wrote the answer in there?
A. I did."
xxx xxx xxx
It was admitted on the trial that at the date
of Stevens' application he had insurance in
cooperative companies to the amount of
$12,000. (132 U. S. 306, 308.)
The court, after quoting the pertinent provision of the
statute of Iowa, observed that "by force of the
statute, he was the agent of the company in soliciting
and procuring the application. He could not, by any
of his, shake of the character of agent for the
company. Nor could the company by any provision in
the application or policy convert him into an agent of
the assured." Referring to the incorrectness
propounded by him to the applicant in relation to the
stipulation in the policy that the terms thereof could
not be varied except in writing signed by the
president or the secretary of the company, the court
said:
. . . The purport of the word "insurance" in
the question, "Has the said party any other
insurance on his life?" is not so absolutely
certain as, in an action upon the policy, to
preclude proof as to what kind of life
insurance the contracting parties had in
mind when that question was answered.
Such proof does not necessarily contradict
the written contract. Consequently, the
above clause, printed on the back of the
policy, is to be interpreted in the light of the
statute and of the understanding reached
between the assured and the company by its
agent when the application was completed,
namely, that the particular kind of insurance
inquired about did not include insurance in
cooperative societies. In view of the statute
and of that understanding, upon the faith of
which the assured made his application, paid
the first premium, and accepted the policy,
the company is estopped, by every principle
of justice, from saying that its question
embraced insurance in cooperative
associations. The answer of "No other" having
been written by its own agent, invested with
authority to solicit and procure applications,
to deliver policies, and, under certain
limitations, to receive premiums, should be
held as properly interpreting both the
question and the answer as to other
insurance. (132 U. S. 311-312.)
There is no conflict between the two cases. They
were decided differently because the facts were
different. Suffice it for us to say that the facts of the
instant case are analogous to those of the Fletcher
case and different from those of the Chamberlain
case.
We have examined the three cases cited in the
majority opinion, from the supreme courts of
Colorado, Iowa, and Indiana, respectively, and we
find that the facts of each and everyone of them bear
no analogy to those of the present case.
5. The majority opinion says: "The situation is one in
which one of two innocent parties must bear a loss for
his reliance upon a third person." We cannot subscribe
to this proposition (1) because, as we have pointed
out above, the insured and his relatives, the herein
respondents, were not innocent of bad faith and (2)
because, even if the policies in question should be
held invalid, the respondents would not suffer any
loss since the Company has offered to return the
premiums paid, and it could be ordered to make such
refund with legal interest. By such judgment neither
party would be permitted to enrich himself at the
expense of the other. This, we feel, is urged by
justice, reason, and "the common sense of the
situation."
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD.,
petitioner,
vs.
SERAFIN D. FELICIANO ET AL., respondents.
OZAETA, J.:
In a four-to-three decision promulgated on September
13, 1941, 1 this Court affirmed the judgment of the
Court of Appeals in favor of the respondents and
against the petitioner for the sum of P25,000,
representing the value of two insurance policies
issued by the petitioner on the life of Evaristo
Feliciano. A motion to reconsider and set aside said
decision has been filed by the petitioner, and both
parties have submitted exhaustive and luminous
written arguments in support of their respective
contentions.
The facts of the case are set forth in the majority and
dissenting opinions heretofore handed down by this
Court, the salient points of which may be briefly
restated as follows:
Evaristo Feliciano, who died on September 29, 1935,
was suffering with advanced pulmonary tuberculosis
when he signed his applications for insurance with the
petitioner on October 12, 1934. On that same date
Doctor Trepp, who had taken X-ray pictures of his
lungs, informed the respondent Dr. Serafin D.
Feliciano, brother of Evaristo, that the latter "was
already in a very serious ad practically hopeless
condition." Nevertheless the question contained in
the application "Have you ever suffered from any
ailment or disease of the lungs, pleurisy, pneumonia
or asthma?" appears to have been answered , "No"
And above the signature of the applicant, following
the answers to the various questions propounded to
him, is the following printed statement:1awphil.net
I declare on behalf of myself and of any
person who shall have or claim any interest
in any policy issued hereunder, that each of
the above answers is full, complete and true,
and that to the best of my knowledge and
belief I am a proper subject for life
insurance. (Exhibit K.)
The false answer above referred to, as well as the
others, was written by the Company's soliciting agent
Romulo M. David, in collusion with the medical
examiner Dr. Gregorio Valdez, for the purpose of
securing the Company's approval of the application so
that the policy to be issued thereon might be credited
to said agent in connection with the inter-provincial
contest which the Company was then holding among
its soliciting agents to boost the sales of its policies.
Agent David bribed Medical Examiner Valdez with
money which the former borrowed from the
applicant's mother by way of advanced payment on
the premium, according to the finding of the Court of
Appeals. Said court also found that before the insured
signed the application he, as well as the members of
his family, told the agent and the medical examiner
that he had been sick and coughing for some time and
that he had gone three times to the Santol Sanatorium
and had X-ray pictures of his lungs taken; but that in
spite of such information the agent and the medical
examiner told them that the applicant was a fit
subject for insurance.
Each of the policies sued upon contains the following
stipulations:
This policy and the application herefor
constitute the entire contract between the
parties hereto. . . . Only the President, or
the Manager, acting jointly with the
Secretary or Assistant Secretary (and then
only in writing signed by them) have power
in behalf of the Company to issue permits, or
to modify this or any contract, or to extend
the same time for making any premium
payment, and the Company shall not be
bound by any promise or representation
heretofore or hereafter given by any person
other than the above-named officials, and
by them only in writing and signed conjointly
as stated.
The application contains, among others, the following
statements:
18. I [the applicant] hereby declare that
all the above statements and answers as well
as all those that I may make to the Company's
Medical Examiner in continuation of this
application, to be complete, true and
correct to the best of my knowledge and
belief, and I hereby agree as follows:
1. That his declaration, with the answers to
be given by me to the Medical Examiner,
shall be the basis of the policy and form part
of same.
xxx xxx xxx
3. That the said policy shall not take effect
until the first premium has been paid and the
policy has been delivered to and accepted by
me, while I am in good health.
4. That the agent taking this application has
no authority to make, modify or discharge
contracts, or to waive any of the Company's
rights or requirements.
5. My acceptance of any policy issued on this
application will constitute a ratification by
me of any corrections in or additions to this
application made by the Company in the
space provided "For Home Office Corrections
or Additions Only." I agree that photographic
copy of this applications as corrected or
added to shall constitute sufficient notice to
me of the changes made. (Emphasis added.)
The petitioner insists that upon the facts of the case
the policies in question are null and void ab initio and
that all that the respondents are entitled to is the
refund of the premiums paid thereon. After a careful
re-examination of the facts and the law, we are
persuaded that petitioner's contention is correct. To
the reasons adduced in the dissenting opinion
heretofore published, we only desire to add the
following considerations:
When Evaristo Feliciano, the applicant for insurance,
signed the application in blank and authorized the
soliciting agent and/or medical examiner of the
Company to write the answers for him, he made them
his own agents for that purpose, and he was
responsible for their acts in that connection. If they
falsified the answers for him, he could not evade the
responsibility for he falsification. He was not
supposed to sign the application in blank. He knew
that the answers to the questions therein contained
would be "the basis of the policy," and for that every
reason he was required with his signature to vouch for
truth thereof.
Moreover, from the facts of the case we cannot
escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical
examiner of the Company in accepting the policies in
question. Above the signature of the applicant is the
printed statement or representation: " . . . I am a
proper subject for life insurance." In another sheet of
the same application and above another signature of
the applicant was also printed this statement: "That
the said policy shall not take effect until he first
premium has been paid and the policy as been
delivered to and accepted by me, while I am in good
health." When the applicant signed the application he
was "having difficulty in breathing, . . . with a very
high fever." He had gone three times to the Santol
Sanatorium and had X-ray pictures taken of his lungs.
He therefore knew that he was not "a proper subject
for life insurance." When he accepted the policy, he
knew that he was not in good health. Nevertheless,
he not only accepted the first policy of P20,000 but
then and there applied for and later accepted another
policy of P5,000.
We cannot bring ourselves to believe that the insured
did not take the trouble to read the answers
contained in the photostatic copy of the application
attached to and made a part of the policy before he
accepted it and paid the premium thereon. He must
have notice that the answers to the questions therein
asked concerning his clinical history were false, and
yet he accepted the first policy and applied for
another. In any event, he obligated himself to read
the policy when he subscribed to this statement: "My
acceptance of any policy issued on this application
will constitute a ratification by me of any corrections
in or additions to this application made by the
Company . . ." By accepting the policy he became
charged with knowledge of its contents, whether he
actually read it or not. He could not ostrich-like hide
his head from it in order to avoid his part of the
bargain and at the same time claim the benefit
thereof. He knew, or was chargeable with knowledge,
from the very terms of the two policies sued upon
(one of which is printed in English and the other in
Spanish) that the soliciting agent and the medical
examiner had no power to bind the Company by any
verbal promise or oral representation. The insured,
therefore, had no right to rely and we cannot
believe he relied in good faith upon the oral
representation. The insured, therefore, had no right
to rely and we cannot believe he relied in good faith
upon the oral representation of said agent and
medical examiner that he (the applicant) was a fit
subject for insurance notwithstanding that he had
been and was still suffering with advanced pulmonary
tuberculosis.
From all the facts and circumstances of this case, we
are constrained to conclude that the insured was a
coparticipant, and coresponsible with Agent David
and Medical Examiner Valdez, in the fraudulent
procurement of the policies in question and that by
reason thereof said policies are void ab initio.
Wheretofore, the motion for reconsideration is
sustained and the judgment of the Court of Appeals is
hereby reversed. Let another judgment be entered in
favor of the respondents and against the petitioner
for the refund of the premiums amounting to P1,389,
with legal interest thereon from the date of the
complaint, and without any finding as to costs.
Insular Life v. Feliciano - Concealment
73 PHIL 201
Facts:
> Evaristo Feliciano filed an application with Insular
Life upon the solicitation of one of its agents.
> It appears that during that time, Evaristo was
already suffering from tuberculosis. Such fact
appeared during the medical exam, but the examiner
and the companys agent ignored it.
> After that, Evaristo was made to sign an application
form and thereafter the blank spaces were filled by
the medical examiner and the agent making it appear
that Evaristo was a fit subject of insurance. (Evaristo
could not read and understand English)
> When Evaristo died, Insular life refused to pay the
proceeds because of concealment.
Issue:
Whether or not Insular Life was bound by their agents
acts.
Held:
Yes.
The insurance business has grown so vast and
lucrative within the past century. Nowadays, even
people of modest means enter into insurance
contracts. Agents who solicit contracts are paid large
commissions on the policies secured by them. They
act as general representatives of insurance
companies.
IN the case at bar, the true state of health of the
insured was concealed by the agents of the
insurer. The insurers medical examiner approved
the application knowing fully well that the applicant
was sick. The situation is one in which of two
innocent parties must bear a loss for his reliance upon
a third person. In this case, it is the one who drafted
and accepted the policy and consummated the
contract. It seems reasonable that as between the
two of them, the one who employed and gave
character to the third person as its agent should be
the one to bear the loss. Hence, Insular is liable to
the beneficiaries.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30685 May 30, 1983
NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION,
defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. A lidio for defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of
First Instance of Manila, ordering the appellant Asian-
Crusader Life Assurance Corporation to pay the face
value of an insurance policy issued on the life of
Kwong Nam the deceased husband of appellee Ng Gan
Zee. Misrepresentation and concealment of material
facts in obtaining the policy were pleaded to avoid
the policy. The lower court rejected the appellant's
theory and ordered the latter to pay appellee "the
amount of P 20,000.00, with interest at the legal rate
from July 24, 1964, the date of the filing of the
complaint, until paid, and the costs. "
The Court of Appeals certified this appeal to Us, as
the same involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year
endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as
beneficiary. On the same date, appellant, upon
receipt of the required premium from the insured,
approved the application and issued the
corresponding policy. On December 6, 1963, Kwong
Nam died of cancer of the liver with metastasis. All
premiums had been religiously paid at the time of his
death.
On January 10, 1964, his widow Ng Gan Zee presented
a claim in due form to appellant for payment of the
face value of the policy. On the same date, she
submitted the required proof of death of the insured.
Appellant denied the claim on the ground that the
answers given by the insured to the questions
appealing in his application for life insurance were
untrue.
Appellee brought the matter to the attention of the
Insurance Commissioner, the Hon. Francisco Y.
Mandamus, and the latter, after conducting an
investigation, wrote the appellant that he had found
no material concealment on the part of the insured
and that, therefore, appellee should be paid the full
face value of the policy. This opinion of the Insurance
Commissioner notwithstanding, appellant refused to
settle its obligation.
Appellant alleged that the insured was guilty of
misrepresentation when he answered "No" to the
following question appearing in the application for
life insurance-
Has any life insurance company
ever refused your application for
insurance or for reinstatement of a
lapsed policy or offered you a policy
different from that applied for? If,
so, name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing
summary of the essential facts in
this case, the insured had in
January, 1962, applied for
reinstatement of his lapsed life
insurance policy with the Insular
Life Insurance Co., Ltd, but this was
declined by the insurance company,
although later on approved for
reinstatement with a very high
premium as a result of his medical
examination. Thus notwithstanding
 the said insured answered 'No' to
the [above] question propounded to
him. ... 1
The lower court found the argument bereft of factual
basis; and We quote with approval its disquisition on
the matter-
On the first question there is no
evidence that the Insular Life
Assurance Co., Ltd. ever refused
any application of Kwong Nam for
insurance. Neither is there any
evidence that any other insurance
company has refused any
application of Kwong Nam for
insurance.
... The evidence shows that the
Insular Life Assurance Co., Ltd.
approved Kwong Nam's request for
reinstatement and amendment of
his lapsed insurance policy on April
24, 1962 [Exh. L-2 Stipulation of
Facts, Sept. 22, 1965). The Court
notes from said application for
reinstatement and amendment,
Exh. 'L', that the amount applied for
was P20,000.00 only and not for
P50,000.00 as it was in the lapsed
policy. The amount of the
reinstated and amended policy was
also for P20,000.00. It results,
therefore, that when on May 12,
1962 Kwong Nam answered 'No' to
the question whether any life
insurance company ever refused his
application for reinstatement of a
lapsed policy he did not
misrepresent any fact.
... the evidence shows that the
application of Kwong Nam with the
Insular Life Assurance Co., Ltd. was
for the reinstatement and
amendment of his lapsed insurance
policy-Policy No. 369531 -not an
application for a 'new insurance
policy. The Insular Life Assurance
Co., Ltd. approved the said
application on April 24, 1962. Policy
No. 369531 was reinstated for the
amount of P20,000.00 as applied for
by Kwong Nam [Exhs. 'L', 'L-l' and 'L-
2']. No new policy was issued by the
Insular Life Assurance Co., Ltd. to
Kwong Nam in connection with said
application for reinstatement and
amendment. Such being the case,
the Court finds that there is no
misrepresentation on this matter. 2
Appellant further maintains that when the insured
was examined in connection with his application for
life insurance, he gave the appellant's medical
examiner false and misleading information as to his
ailment and previous operation. The alleged false
statements given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma]
of the stomach. Claims that Tumor
has been associated with ulcer of
stomach. Tumor taken out was hard
and of a hen's egg size. Operation
was two [2] years ago in Chinese
General Hospital by Dr. Yap. Now,
claims he is completely recovered.
To demonstrate the insured's misrepresentation,
appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who
treated Kwong Nam at the Chinese General Hospital
on May 22, 1960, i.e., about 2 years before he applied
for an insurance policy on May 12, 1962. According to
said report, Dr. Fu Sun Yuan had diagnosed the
patient's ailment as 'peptic ulcer' for which, an
operation, known as a 'sub-total gastric resection was
performed on the patient by Dr. Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias
Pantangco showing that the specimen removed from
the patient's body was 'a portion of the stomach
measuring 12 cm. and 19 cm. along the lesser
curvature with a diameter of 15 cm. along the
greatest dimension.
On the bases of the above undisputed medical data
showing that the insured was operated on for peptic
ulcer", involving the excision of a portion of the
stomach, appellant argues that the insured's
statement in his application that a tumor, "hard and
of a hen's egg size," was removed during said
operation, constituted material concealment.
The question to be resolved may be propounded thus:
Was appellant, because of insured's aforesaid
representation, misled or deceived into entering the
contract or in accepting the risk at the rate of
premium agreed upon?
The lower court answered this question in the
negative, and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
 Sec. 27. Such party a contract of
insurance must communicate to the
other, in good faith, all facts within
his knowledge which are material to
the contract, and which the other
has not the means of ascertaining,
and as to which he makes no
warranty. 3
Thus, "concealment exists where the assured had
knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should
communicate it to the assurer, but he designedly and
intentionally withholds the same." 4
It has also been held "that the concealment must, in
the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally
withheld." 5
Assuming that the aforesaid answer given by the
insured is false, as claimed by the appellant. Sec. 27
of the Insurance Law, above-quoted, nevertheless
requires that fraudulent intent on the part of the
insured be established to entitle the insurer to rescind
the contract. And as correctly observed by the lower
court, "misrepresentation as a defense of the insurer
to avoid liability is an 'affirmative' defense. The duty
to establish such a defense by satisfactory and
convincing evidence rests upon the defendant. The
evidence before the Court does not clearly and
satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the
appellant's medical examiner that the tumor for
which he was operated on was "associated with ulcer
of the stomach." In the absence of evidence that the
insured had sufficient medical knowledge as to enable
him to distinguish between "peptic ulcer" and "a
tumor", his statement that said tumor was "associated
with ulcer of the stomach, " should be construed as an
expression made in good faith of his belief as to the
nature of his ailment and operation. Indeed, such
statement must be presumed to have been made by
him without knowledge of its incorrectness and
without any deliberate intent on his part to mislead
the appellant.
While it may be conceded that, from the viewpoint of
a medical expert, the information communicated was
imperfect, the same was nevertheless sufficient to
have induced appellant to make further inquiries
about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides
as follows:
Section 32. The right to information
of material facts maybe waived
either by the terms of insurance or
by neglect to make inquiries as to
such facts where they are distinctly
implied in other facts of which
information is communicated.
It has been held that where, upon the face of the
application, a question appears to be not answered at
all or to be imperfectly answered, and the insurers
issue a policy without any further inquiry, they waive
the imperfection of the answer and render the
omission to answer more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and
operation of Kwong Nam had such an important
bearing on the question of whether the defendant
would undertake the insurance or not, the court
cannot understand why the defendant or its medical
examiner did not make any further inquiries on such
matters from the Chinese General Hospital or require
copies of the hospital records from the appellant
before acting on the application for insurance. The
fact of the matter is that the defendant was too eager
to accept the application and receive the insured's
premium. It would be inequitable now to allow the
defendant to avoid liability under the circumstances."
Finding no reversible error committed by the trial
court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader
life Assurance Corporation.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12707 August 10, 1918
MRS. HENRY E. HARDING, and her husband,
plaintiffs-appellees,
vs.
COMMERCIAL UNION ASSURANCE COMPANY,
defendant-appellant.
Lawrence & Ross for appellant.
Gibbs, McDonough & Johnson for appellees.
FISHER, J.:
This was an action by plaintiffs to recover from
defendant the sum of P3,000 and interest, alleged to
be due under the terms of a policy of insurance. The
trial court gave plaintiffs judgment for the amount
demanded, with interest and costs, and from that
decision the defendant appeals.
The court below stated the issues made by the
pleadings in this case, and its finding of fact, as
follows:
It is alleged by plaintiffs and admitted by
defendant that plaintiffs are husband and
wife and residents of the city of Manila; that
the defendant is a foreign corporation
organized and existing under and by virtue of
the laws of Great Britain and duly registered
in the Philippine Islands, and Smith, Bell &
Co. (limited), a corporation organized and
existing under the laws of the Philippine
Islands, with its principal domicile in the city
of Manila, is the agent in the Philippine
Islands of said defendant.
The plaintiffs alleged that on February 16,
1916, the plaintiff Mrs. Henry E. Harding was
the owner of a Studebaker automobile,
registered number 2063, in the city of
Manila; that on said date; in consideration of
the payment to the defendant of the
premium of P150, by said plaintiff, Mrs.
Henry E. Harding, with the consent of her
husband, the defendant by its duly
authorized agent, Smith, Bell & Company
(limited), made its policy of insurance in
writing upon said automobile was set forth in
said policy to be P3,000 that the value of said
automobile was set forth in said policy
(Exhibit A) to be P3,000; that on March 24,
1916, said automobile was totally destroyed
by fire; that the loss thereby to plaintiffs was
the sum of P3,000; that thereafter, within
the period mentioned in the said policy of
insurance, the plaintiff, Mrs. Henry E.
Harding, furnished the defendant the proofs
of her said loss and interest, and otherwise
performed all the conditions of said policy on
her part, and that the defendant has not paid
said loss nor any part thereof, although due
demand was made upon defendant therefor.
The defendant, by its answer, admitted the
allegations of the residence and status of the
parties and denied all the other allegation of
the said complaint, and for a separate and
affirmative defense alleged (1) that on
February 17, 1916, at the city of Manila, P.I.
the defendant upon request of plaintiff, Mrs.
Henry E. Harding, issued to the said plaintiff
the policy of insurance on an automobile
alleged by the said plaintiff to be her
property; that the said request for the
issuance of said policy of insurance was made
by means of a proposal in writing signed and
delivered by said plaintiff to the defendant,
guaranteeing the truth of the statements
contained therein which said proposal is
referred to in the said policy of insurance
made a part thereof; (2) that certain of the
statements and representations contained in
said proposal and warranted by said plaintiff
to be true, to wit: (a) the price paid by the
proposer for the said automobile; (b) the
value of said automobile at the time of the
execution and delivery of the said proposal
and (c) the ownership of said automobile,
were false and known to be false by the said
plaintiff at the time of signing and delivering
the said proposal and were made for the
purpose of misleading and deceiving the
defendant, and inducing the defendant,
relying upon the warranties, statements, and
representations contained in the said
proposal and believing the same to be true,
issued the said policy of insurance.
The defendant prays that judgment be
entered declaring the said policy of
insurance to be null and void, and that
plaintiffs take nothing by this action; and for
such further relief as to the court may seem
just and equitable.
The evidence in this case shows that some
time in the year 1913 Levy Hermanos, the
Manila agents for the Studebaker
automobile, sold the automobile No. 2063 to
John Canson for P3,200 (testimony of Mr.
Diehl); that under date of October 14, 1914,
John Canson sold the said automobile to
Henry Harding for the sum of P1,500 (Exhibit
2); that under date of November 19, 1914,
the said Henry Harding sold the said
automobile No. 2063 to J. Brannigan, of Los
Baos, Province of Laguna, P.I., for the sum
of P2,000 (Exhibit 3); that under date of
December 20, 1915, J. C. Graham of Los
Baos, Province of Laguna, P.I., sold the said
automobile No. 2063 to Henry Harding of the
city of Manila for the sum of P2,800 (Exhibit
4 and testimony of J. C. Graham); that on or
about January 1, 1916, the said Henry
Harding gave the said automobile to his wife;
Mrs. Henry E. Harding, one of the plaintiffs,
as a present; that said automobile was
repaired and repainted at the Luneta Garage
at a cost of some P900 (testimony of Mr.
Server); that while the said automobile was
at the Luneta Garage; the said Luneta
Garage, acting as agent for Smith, Bell &
Company, (limited), solicited of the plaintiff
Mrs. Harding the insurance of said
automobile by the defendant Company
(testimony of Mrs. Henry Harding and Mr.
Server); that a proposal was filled out by the
said agent and signed by the plaintiff Mrs.
Henry E. Harding, and in said proposal under
the heading "Price paid by proposer," is the
amount of "3,500" and under another heading
"Present value" is the amount of "3,000"
(Exhibit 1).
The evidence tends to show that after the
said proposal was made a representative of
the Manila agent of defendant went to the
Luneta Garage and examined said
automobile No. 2063 and Mr. Server, the
General Manager of the Luneta Garage, an
experienced automobile mechanic, testified
that at the time this automobile was insured
it was worth about P3,000, and the
defendant, by and through its said agent
Smith, Bell & Company (limited), thereafter
issued a policy of insurance upon proposal in
which policy the said automobile was
described as of the "present value" of P3,000
and the said defendant charged the said
plaintiff Mrs. Henry E. Harding as premium
on said policy the sum of P150, or 5 per cent
of the then estimated value of P3,000.
(Exhibit A.)
The "Schedule" in said policy of insurance
describes the automobile here in question,
and provides in part of follows:
"Now it is hereby agreed as follows:
"That during the period above set
forth and during any period for
which the company may agree to
renew this policy the company will
subject to the exception and
conditions contained herein or
endorsed hereon indemnify the
insured against loss of or damage to
any motor car described in the
schedule hereto (including
accessories) by whatever cause
such loss or damage may be
occasioned and will further
indemnify the insured up to the
value of the car or P3,000
whichever is the greater against any
claim at common law made by any
person (not being a person in the
said motor car nor in the insured's
service) for loss of life or for
accidental bodily injury or damage
to property caused by the said
motor car including law costs
payable in connection with such
claim when incurred with the
consent of the company."
The evidence further shows that on March
24, 1916, the said automobile was totally
destroyed by fire, and that the iron and steel
portions of said automobile which did not
burn were taken into the possession of the
defendant by and through its agent Smith,
Bell & Company (limited), and sold by it for
a small sum, which had never been tendered
to the plaintiff prior to the trial of this case,
but in open court during the trial the sum of
P10 as the proceeds of such sale was
tendered to plaintiff and refused.
Upon the facts so found, which we hold are supported
by the evidence, the trial judge decided that there
was no proof of fraud on the part of plaintiff in her
statement of the value of the automobile, or with
respect to its ownership; that she had an insurable
interest therein; and that defendant, having agreed
to the estimated value, P3,000, and having insured
the automobile for that amount, upon the basis of
which the premium was paid, is bound by it and must
pay the loss in accordance with the stipulated insured
value. The assignments of error made on behalf of
appellant put in issue the correctness of those
conclusions of law, and some others of minor
importance relating to the exclusion of evidence.
Disposing of the minor objections first, as we have
reached the conclusion that the trial court was right
in holding that the defendant is bound by the
estimated value of the automobile upon which policy
was issued, and that the plaintiff was not guilty of
fraud in regard thereto, the exclusion of the
testimony of the witness Diehl is without importance.
It merely tended to show the alleged actual value of
the automobile, and in the view we take of the case
such evidence was irrelevant.
Appellant contends that Mrs. Harding was not the
owner of the automobile at the time of the issuance
of the policy, and, therefore, had no insurable
interest in it. The court below found that the
automobile was given to plaintiff by her husband
shortly after the issuance of the policy here in
question. Appellant does not dispute the correctness
of this finding, but contends that the gift was void,
citing article 1334 of the Civil Code which provides
that "All gifts between spouses during the marriage
shall be void. Moderate gifts which the spouses
bestow on each other on festive days of the family are
not included in this rule."
We are of the opinion that this contention is without
merit. In the case of Cook vs. McMicking 27 Phil. Rep.,
10), this court said:
It is claimed by the appellants that the so-
called transfer from plaintiff's husband to
her was completely void under article 1458
of the Civil Code and that, therefore, the
 property still remains the property of Edward
Cook and subject to levy under execution
against him.
In our opinion the position taken by
appellants is untenable. They are not in a
position to challenge the validity of the
transfer, if it may be called such. They bore
absolutely no relation to the parties to the
transfer at the time it occurred and had no
rights or interests inchoate, present,
remote, or otherwise, in the property in
question at the time the transfer occurred.
Although certain transfers from husband to
wife or from wife to husband are prohibited
in the article referred to, such prohibition
can be taken advantage of only by persons
who bear such a relation to the parties
making the transfer or to the property itself
that such transfer interferes with their rights
or interests. Unless such a relationship
appears the transfer cannot be attacked.
Even assuming that defendant might have invoked
article 1334 as a defense, the burden would be upon
it to show that the gift in question does not fall within
the exception therein established. We cannot say, as
a matter of law, that the gift of an automobile by a
husband to his wife is not a moderate one. Whether it
is or is not would depend upon the circumstances of
the parties, as to which nothing is disclosed by the
record.
Defendant contends that the statement regarding the
cost of the automobile was a warranty, that the
statement was false, and that, therefore, the policy
never attached to the risk. We are of the opinion that
it has not been shown by the evidence that the
statement was false on the contrary we believe that
it shows that the automobile had in fact cost more
than the amount mentioned. The court below found,
and the evidence shows, that the automobile was
bought by plaintiff's husband a few weeks before the
issuance of the policy in question for the sum of
P2,800, and that between that time and the issuance
of the policy some P900 was spent upon it in repairs
and repainting. The witness Server, an expert
automobile mechanic, testified that the automobile
was practically as good as new at the time the
insurance was effected. The form of proposal upon
which the policy was issued does not call for a
statement regarding the value of the automobile at
the time of its acquisition by the applicant for the
insurance, but merely a statement of its cost. The
amount stated was less than the actual outlay which
the automobile represented to Mr. Harding, including
repairs, when the insurance policy was issued. It is
true that the printed form calls for a statement of the
"price paid by the proposer," but we are of the opinion
that it would be unfair to hold the policy void simply
because the outlay represented by the automobile
was made by the plaintiff's husband and not by his
wife, to whom he had given the automobile. It cannot
be assumed that defendant should not have issued the
policy unless it were strictly true that the price
representing the cost of the machine had been paid
by the insured and by no other person that it would
no event insure an automobile acquired by gift,
inheritance, exchange, or any other title not requiring
the owner to make a specific cash outlay for its
acquisition.
Furthermore, the court below found and the evidence
shows, without dispute, that the proposal upon which
the policy in question was issued was made out by
defendant's agent by whom the insurance was
solicited, and that appellee simply signed the same.
It also appears that an examiner employed by the
defendant made an inspection of the automobile
before the acceptance of the risk, and that the sum
after this examination. The trial court found that Mrs.
Harding, in fixing the value of the automobile at
P3,000, acted upon information given her by her
husband and by Mr. Server, the manager of the Luneta
Garage. The Luneta Garage, it will be remembered,
was the agent of the defendant corporation in the
solicitation of the insurance. Mrs. Harding did not
state of her own knowledge that the automobile
originally cost P3,000, or that its value at the time of
the insurance was P3,000. She merely repeated the
information which had been given her by her husband,
and at the same time disclosed to defendant's agent
the source of her information. There is no evidence to
sustain the contention that this communication was
made in bad faith. It appears that the statements in
the proposal as to the price paid for the automobile
and as to its value were written by Mr. Quimby who
solicited the insurance on behalf of defendant, in his
capacity as an employee of the Luneta Garage, and
wrote out the proposal for Mrs. Harding to sign. Under
these circumstances, we do not think that the facts
stated in the proposal can be held as a warranty of
the insured, even if it should have been shown that
they were incorrect in the absence of proof of willful
misstatement. Under such circumstance, the proposal
is to be regarded as the act of the insurer and not of
the insured. This question was considered in the case
of the Union Insurance Company vs. Wilkinson (13
Wall., 222; 20 L. ed., 617), in which the Supreme
Court of the United States said:
This question has been decided differently
by courts of the highest respectability in
cases precisely analogous to the present. It
is not to be denied that the application
logically considered, is the work of the
assured, and if left to himself or to such
assistance as he might select, the person so
selected would be his agent, and he alone
would be responsible. On the other hand, it
is well-known, so well that no court would be
justified in shutting its eyes to it, that
insurance companies organized under the
laws of one State, and having in that State
their principal business office, send these
agents all over the land, with directions to
solicit and procure applications for policies
furnishing them with printed arguments in
favor of the value and necessity of life
insurance, and of the special advantages of
the corporation which the agent represents.
They pay these agents large commissions on
the premiums thus obtained, and the policies
are delivered at their hands to the assured.
The agents are stimulated by letters and
instructions to activity in procuring
contracts, and the party who is in this
manner induced to take out a policy, rarely
sees or knows anything about the company
or its officers by whom it is issued, but looks
to and relies upon the agent who has
persuaded him to effect insurance as the full
and complete representative of the
company, in all that is said or done in making
the contract. Has he not a right to so regard
him? It is quite true that the reports of
judicial decisions are filled with the efforts
of these companies, by their counsel, to
establish the doctrine for the acts of these
agents to the simple receipt of the premium
and delivery of the policy, the argument
being that, as to all other acts of the agent,
he is the agent of the assured. This
proposition is not without support in some of
the earlier decision on the subject; and, at a
time when insurance companies waited for
parties to come to them to seek assurance,
or to forward applications on their own
motion, the doctrine had a reasonable
foundation to rest upon. But to apply such a
doctrine, in its full force, to the system of
selling policies through agents, which we
have described, would be a snare and a
delusion, leading, as it has done in numerous
instances, to the grossest frauds, of which
the insurance corporations receive the
benefits, and the parties supposing
themselves insured are the victims. The
tendency of the modern decisions in this
country is steadily in the opposite direction.
The powers of the agent are, prima facie,
co-extensive with the business intrusted to
his care, and will not be narrowed by
limitations not communicated to the person
with whom he deals. (Bebee vs. Ins. Co., 25
Conn., 51; Lycoming Ins. Co. vs.
Schoolenberger, 44 Pa., 259; Beal vs. Ins.
Co., 16 Wis., 241; Davenport vs. Ins. Co., 17
Iowa, 276.) An insurance company,
establishing a local agency, must be held
responsible to the parties with whom they
transact business, for the acts and
declarations of the agent, within the scope
of his employment, as if they proceeded
from the principal. (Sav. Bk. vs. Ins. Co., 31
Conn., 517; Hortwitz vs. Ins. Co., 40 Mo.,
557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard
Ins. Co. vs. Bruner, 23 Pa., 50.)
In the fifth edition of American Leading
Cases, 917, after a full consideration of the
authorities, it is said:
"By the interested or officious zeal
of the agents employed by the
insurance companies in the wish to
outbid each other and procure
customers, they not unfrequently
mislead the insured, by a false or
erroneous statement of what the
application should contain; or,
taking the preparation of it into
their own hands, procure his
signature by an assurance that it is
properly drawn, and will meet the
requirements of the policy. The
better opinion seems to be that,
when this course is pursued, the
description of the risk should,
though nominally proceeding from
the insured, be regarded as the act
of the insurers." (Rowley vs. Empire
Ins. Co., 36 N.Y., 550.)
The modern decisions fully sustain this
proposition, and they seem to us founded on
reason and justice, and meet our entire
approval. This principle does not admit oral
testimony to vary or contradict that which is
in writing, but it goes upon the idea that the
writing offered in evidence was not the
instrument of the party whose name is signed
to it; that it was procured under such
circumstances by the other side as estops
that side from using it or relying on its
contents; not that it may be contradicted by
oral testimony, but that it may be shown by
such testimony that it cannot be lawfully
used against the party whose name is signed
to it. (See also Am. Life Ins. Co. vs. Mahone,
21 Wallace, 152.)
The defendant, upon the information given by
plaintiff, and after an inspection of the automobile by
its examiner, having agreed that it was worth P3,000,
is bound by this valuation in the absence of fraud on
the part of the insured. All statements of value are,
of necessity, to a large extent matters of opinion, and
it would be outrageous to hold that the validity of all
valued policies must depend upon the absolute
correctness of such estimated value. As was said by
the Supreme Court of the United States in the case of
the First National Bank vs. Hartford Fire Insurance Co.
(5 Otto, 673; 24 L. ed., 563), at. p. 565 of the Lawyers
Edition:
The ordinary test of the value of property is
the price it will commend in the market if
offered for sale. But that test cannot, in the
very nature of the case, be applied at the
time application is made for insurance. Men
may honestly differ about the value of
property, or as to what it will bring in the
market; and such differences are often very
marked among those whose special business
it is to buy and sell property of all kinds. The
assured could do no more than estimate such
value; and that, it seems, was all that he was
required to do in this case. His duty was to
deal fairly with the Company in making such
estimate. The special finding shows that he
discharged that duty and observed good
faith. We shall not presume that the
Company, after requiring the assured in his
application to give the "estimated value,"
and then to covenant that he had stated all
material facts in regard to such value, so far
as known to him, and after carrying that
covenant, by express words, into the written
contract, intended to abandon the theory
upon which it sought the contract, and make
the absolute correctness of such estimated
value a condition precedent to any insurance
whatever. The application, with its covenant
and stipulations, having been made a part of
the policy, that presumption cannot be
indulged without imputing to the Company a
purpose, by studied intricacy or an ingenious
framing of the policy, to entrap the assured
into incurring obligations which, perhaps, he
had no thought of assuming.
Section 163 of the Insurance Law (Act No. 2427)
provides that "the effect of a valuation in a policy of
fire insurance is the same as in a policy of marine
insurance."
By the terms of section 149 of the Act cited, the
valuation in a policy of marine insurance is conclusive
if the insured had an insurable interest and was not
guilty of fraud.
We are, therefore, of the opinion and hold that
plaintiff was the owner of the automobile in question
and had an insurable interest therein; that there was
no fraud on her part in procuring the insurance; that
the valuation of the automobile, for the purposes of
the insurance, is binding upon the defendant
corporation, and that the judgment of the court
below is, therefore, correct and must be affirmed,
with interest, the costs of this appeal to be paid by
the appellant. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41794 August 30, 1935
SEGUNDINA MUSGI, ET AL., plaintiffs-appellees,
vs.
WEST COAST LIFE INSURANCE CO., defendant-
appellant.
Courtney Whitney for appellants.
Laurel, Del Rosario and Sabido for appellees.
IMPERIAL, J.:
The plaintiffs, as beneficiaries, brought suit against
the defendant to recover the value of two life
insurance policies. The defendant appealed from a
judgment sentencing it to pay the plaintiffs the
amount of said policies, and the costs.
The principal facts of the case are embodied in the
following written stipulation entered into by the
parties:
1. That Arsenio T. Garcia was insured by the
defendant company in the sum of P5,000 as
evidenced by Policy No. 129454 effective as
of July 25, 1931, hereby attached and
marked as Exhibit A;
2. That the said Arsenio T. Garcia was again
insured by the defendant company in the
sum of P10,000 effective as of October 20,
1931, as evidenced by Policy No. 130381
hereby attached and marked as Exhibit B;
3. That the two policies aforementioned
were valid and subsisting at the time of the
death of the insured on December 30, 1932;
the fact of said death is evidenced by the
accompanying death certificate issued by
the Civil Register of Pasay, Rizal, which is
marked as Exhibit C;
4. That the plaintiffs herein are the
beneficiaries in said policies, Segundina
Musgi of Policy No. 129454, and
Buenaventura Garcia of Policy No. 130381;
5. That demand was made upon the
defendant company for the payment of the
two policies above referred to, but the
 defendant company refused to pay on the
grounds stated in the answer.
The two policies were issued upon applications filed
by the insured on July 20, 1931 and October 15, of the
same year, respectively. In both applications, the
insured had to answer inquiries as to his state of
health and that of his family, which he did voluntarily.
In each of the said applications the following question
was asked: "1. What physician or practitioner or any
other person not named above have you consulted or
been treated by, and for what illness, or ailment? (If
none, so state.)" In the first application, the insured
answered "None", and in the second, "No". These
answers of the insured as well as his other statements
contained in his applications were one of the causes
or considerations for the issuance of the policies, and
they so positively appear therein. After the death of
the insured and as a result of the demand made by
the beneficiaries upon the defendant to pay the value
of the policies, the latter discovered that the
aforementioned answers were false and fraudulent,
because the truth was that the insured, before
answering and signing the applications and before the
issuance of the policies, had been treated in the
General Hospital by a lady physician for different
ailments. It indisputably appears that between May 13
and 19, 1929, the insured had entered the General
Hospital in Manila, and was treated by Doctor Pilar V.
Cruz for peptic ulcer and chronic catarrhal
nasopharyngitis; on August 5, 1930, he entered the
same hospital and was treated by the same physician
for chronic pyelocystitis and for incipient pulmonary
tuberculosis; on the 13th of the same month he
returned to the hospital and was treated by the same
physician for chronic suppurative pyelocystitis and for
chronic bronchitis; on the 20th of the same month he
again entered the hospital and was treated by the
same doctor for acute tracheo-bronchitis and chronic
suppurative pyelocystitis; on the 27th of the same
month he again entered the same hospital and was
treated for the same ailments; on December 11, 1930,
he again entered the hospital and was treated for the
same ailments; on the 18th of the same month, he
again entered the hospital and was treated for the
same ailments; on the 28th of the same month he
again entered the hospital and was treated for the
same ailments, and, finally, on January 11, 1931, he
again entered the hospital and was treated by the
same doctor for the same ailments.
The defendant contended at the outset that the two
policies did not create any valid obligation because
they were fraudulently obtained by the insured. The
appealed decision holds that the health of the insured
before the acceptance of his applications and the
issuance of the policies could neither be discussed nor
questioned by the defendant, because the insured
was examined by three physicians of the company and
all of them unanimously certified that he was in good
health and that he could be properly insured. The
question here is not whether the physicians' reports
or the answers which the insured gave to them
relative to his health were correct or not. It is
admitted that such information was substantially
correct, in the sense that the physicians of the
defendant who examined the insured, for failure to
make a detailed examination, did not discover the
ailments suffered by the insured. However, the
question raised for our determination is whether the
two answers given by the insured in his applications
are false, and if they were the cause, or one of the
causes, which induced the defendant to issue the
policies. On the first point, the facts above set out
leave no room for doubt. The insured knew that he
had suffered from a number of ailments, including
incipient pulmonary tuberculosis, before subscribing
the applications, yet he concealed them and omitted
the hospital where he was confined as well as the
name of the lady physician who treated him. That this
concealment and the false statements constituted
fraud, is likewise clear, because the defendant by
reason thereof accepted the risk which it would
otherwise have flatly refused. When not otherwise
specially provided for by the Insurance Law, the
contract of life insurance is governed by the general
rules of the civil law regarding contracts. Article 1261
of the Civil Code provides that there is no contract
unless there should be, in addition to consent and a
definite object, a consideration for the obligation
established. And article 1276 provides that the
statement of a false consideration shall render the
contract void. The two answers being one of the
considerations of the policies, and it appearing that
they are false and fraudulent, it is evident that the
insurance contracts were null and void and did not
give rise to any right to recover their value or amount.
A similar case was already decided by this court in
Argente vs. West Coast Life Insurance Co. (51 Phil.,
725). In that case the insured concealed from the
physician who examined her that she had consulted
and had been treated by another physician for
cerebral congestion and Bell's Palsy, and that she was
addicted to alcohol, so much so that on one occasion
she was confined in the San Lazaro Hospital suffering
from "alcoholism"; this court held that such
concealments and false and fraudulent statements
rendered the policy null and void. In discussing the
legal phase of the case, this court said:
One ground for the rescission of a contract
of insurance under the Insurance Act is a
"concealment", which in section 25 is defined
as "A neglect to communicate that which a
party knows and ought to communicate".
Appellant argues that the alleged
concealment was immaterial and insufficient
to avoid the policy. We cannot agree. In an
action on a life insurance policy where the
evidence conclusively shows that the
answers to questions concerning diseases
were untrue, the truth or falsity of the
answers become the determining factor. If
the policy was procured by fraudulent
representations, the contract of insurance
apparently set forth therein was never
legally existent. It can fairly be assumed that
had the true facts been disclosed by the
assured, the insurance would never have
been granted.
In Joyce, The Law of Insurance, second
edition, volume 3, Chapter LV, is found the
following:
"Concealment exists where the assured has
knowledge of a fact material to the risk, and
honesty, good faith and fair dealing requires
that he should communicate it to the
assured, but he designedly and intentionally
withholds the same.
"Another rule is that if the assured
undertakes to state all the circumstances
affecting the risk, a full and fair statement
of all is required.
"It is also held that the concealment must, in
the absence of inquiries, be not only
material, but fraudulent, or the fact must
have been intentionally withheld; so it is
held under English law that if no inquiries are
made and no fraud or design to conceal
enters into the concealment the contract is
not avoided. And it is determined that even
though silence may constitute
misrepresentation or concealment it is not of
itself necessarily so as it is a question of fact.
Nor is there a concealment justifying a
forfeiture where the fact of insanity is not
disclosed no questions being asked
concerning the same. . . .
"But it would seem that if a material fact is
actually known to the assured, its
concealment must of itself necessarily be a
fraud, and if the fact is one which the
assured ought to know, or is presumed to
know, the presumption of knowledge ought
to place the assured in the same position as
in the former case with relation to material
facts; and if the jury in such cases find the
fact material, and one tending to increase
the risk, it is difficult to see how the
inference of a fraudulent intent or
intentional concealment can be avoided.
And it is declared that if a material fact is
concealed by assured it is equivalent to a
false representation that it does not exist
and that the essentials are the truth of the
representations whether they were intended
to mislead and did insurer accept them as
true and act upon them to his prejudice. So
it is decided that under a stipulation voiding
the policy for concealment or
misrepresentation of any material fact or if
his interest is not truly stated or is other than
the sole and unconditional ownership the
facts are unimportant that insured did not
intend to deceive or withhold information as
to encumbrances even though no questions
were asked. And if insured while being
examined for life insurance, and knowing
that she had heart disease, falsely stated
that she was in good health, and though she
could not read the application, it was
explained to her and the questions asked
through an interpreter, and the application
like the policy contained a provision that no
liability should be incurred unless the policy
was delivered while the insured was in good
health, the court properly directed a verdict
for the insurer, though a witness who was
present at the examination testified that the
insured was not asked whether she had heart
disease.
xxx xxx xxx
"The basis of the rule vitiating the contract
in cases of concealment is that it misleads or
deceives the insurer into accepting the risk,
or accepting it at the rate of premium agreed
upon. The insurer, relying upon the belief
that the assured will disclose every material
fact within his actual or presumed
knowledge, is misled into a belief that the
circumstance withheld does not exist, and he
is thereby induced to estimate the risk upon
a false basis that it does not exist. The
principal question, therefore, must be, Was
the assurer misled or deceived into entering
a contract obligation or in fixing the
premium of insurance by a withholding of
material information or facts within the
assured's knowledge or presumed
knowledge?
"It therefore follows that the assurer in
assuming a risk is entitled to know every
material fact of which the assured has
exclusive or peculiar knowledge, as well as
all material facts which directly tend to
increase the hazard or risk which are known
by the assured, or which ought to be or are
presumed to be known by him. And a
concealment of such facts vitiates the
policy. "It does not seem to be necessary ...
that the ... suppression of the truth should
have been willful." If it were but an
inadvertent omission, yet if it were material
to the risk and such as the plaintiff should
have known to be so, it would render the
policy void. But it is held that if untrue or
false answers are given in response to
inquiries and they relate to material facts
the policy is avoided without regard to the
knowledge or fraud of assured, although
under the statute statements are
representations which must be fraudulent to
avoid the policy. So under certain codes the
important inquiries are whether the
concealment was willful and related to a
matter material to the risk.
xxx xxx xxx
"If the assured has exclusive knowledge of
material facts, he should fully and fairly
disclose the same, whether he believes them
material or not. But notwithstanding this
general rule it will not infrequently happen,
especially in life risks, that the assured may
have a knowledge actual or presumed of
material facts, and yet entertain an honest
belief that they are not material. ... The
determination of the point whether there
has or has not been a material concealment
must rest largely in all cases upon the form
of the questions propounded and the exact
terms of the contract. Thus, where in
addition to specifically named diseases the
insured was asked whether he had had any
sickness within ten years, to which he
answered "No", and it was proven that within
that period he had had a slight attack of
pharyngitis, it was held a question properly
for the jury whether such an inflammation of
the throat was a "sickness" within the intent
of the inquiry, and the court remarked on
the appealed decision that if it could be held
as a matter of law that the policy was
thereby avoided, then it was a mere devise
on the part of insurance companies to obtain
money without rendering themselves liable
under the policy. . . .
". . . The question should be left to the jury
whether the assured truly represented the
state of his health so as not to mislead or
deceive the insurer; and if he did not deal in
good faith with the insurer in that matter,
then the inquiry should be made, Did he
know the state of his health so as to be able
to furnish a proper answer to such questions
as are propounded. A Massachusetts case, if
construed as it is frequently cited, would be
opposed to the above conclusion; but, on the
contrary, it sustains it, for the reason that
symptoms of consumption had so far
developed themselves within a few months
prior to effecting the insurance as to induce
a reasonable belief that the applicant had
that fatal disease, and we should further
construe this case as establishing the rule
that such a matter cannot rest alone upon
the assured's belief irrespective of what is a
reasonable belief, but that it ought to be
judged by the criterion whether the belief is
one fairly warranted by the circumstances. A
case in Indiana, however, holds that if the
assured has some affection or ailment of one
or more of the organs inquired about so well-
defined and marked as to materially derange
for a time the functions of such organ, as in
the case of Bright's disease, the policy will
be avoided by a nondisclosure, irrespective
of the fact whether the assured knew of such
ailment or not. . . ."
In view of the foregoing, we are of the opinion that
the appellant's first two assignments of error are well
founded, wherefore, the appealed judgment is
reversed and the defendant absolved from the
complaint, with the costs of both instances to the
plaintiffs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband,
MARCIAL EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION
and the COURT OF FIRST INSTANCE OF RIZAL,
BRANCH V, QUEZON CITY, respondents-appellees.
K.V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a
direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken
directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance
corporation of the premium and the issuance of the
corresponding certificate of insurance should be
deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in
April 1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against
accident and injuries. She filled up the blank
application form given to her and filed the same with
the respondent insurance corporation. In the said
application form which was dated April 15, 1969, she
gave the date of her birth as July 11, 1904. On the
same date, she paid the sum of P20.00 representing
the premium for which she was issued the
corresponding receipt signed by an authorized agent
of the respondent insurance corporation. (Rollo, p.
27.) Upon the filing of said application and the
payment of the premium on the policy applied for,
the respondent insurance corporation issued to
Carmen O. Lapuz its Certificate of Insurance No.
128866. (Rollo, p. 28.) The policy was to be effective
for a period of 90 days.
On May 31, 1969 or during the effectivity of
Certificate of Insurance No. 12886, Carmen O. Lapuz
died in a vehicular accident in the North Diversion
Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister
of the insured and who was the named beneficiary in
the policy, filed her claim for the proceeds of the
insurance, submitting all the necessary papers and
other requisites with the private respondent. Her
claim having been denied, Regina L. Edillon instituted
this action in the Court of First Instance of Rizal on
August 27, 1969.
In resisting the claim of the petitioner, the
respondent insurance corporation relies on a provision
contained in the Certificate of Insurance, excluding
its liability to pay claims under the policy in behalf of
"persons who are under the age of sixteen (16) years
of age or over the age of sixty (60) years ..." It is
pointed out that the insured being over sixty (60)
years of age when she applied for the insurance
coverage, the policy was null and void, and no risk on
the part of the respondent insurance corporation had
arisen therefrom.
The trial court sustained the contention of the private
respondent and dismissed the complaint; ordered the
petitioner to pay attorney's fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private
respondent; and ordered the private respondent to
return the sum of TWENTY (P20.00) PESOS received
by way of premium on the insurancy policy. It was
reasoned out that a policy of insurance being a
contract of adhesion, it was the duty of the insured
to know the terms of the contract he or she is entering
into; the insured in this case, upon learning from its
terms that she could not have been qualified under
the conditions stated in said contract, what she
should have done is simply to ask for a refund of the
premium that she paid. It was further argued by the
trial court that the ruling calling for a liberal
interpretation of an insurance contract in favor of the
insured and strictly against the insurer may not be
applied in the present case in view of the peculiar
facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age
of the insured Carmen 0. Lapuz was not concealed to
the insurance company. Her application for insurance
coverage which was on a printed form furnished by
private respondent and which contained very few
items of information clearly indicated her age of the
time of filing the same to be almost 65 years of age.
Despite such information which could hardly be
overlooked in the application form, considering its
prominence thereon and its materiality to the
coverage applied for, the respondent insurance
corporation received her payment of premium and
issued the corresponding certificate of insurance
without question. The accident which resulted in the
death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS
after the insurance coverage was applied for. There
was sufficient time for the private respondent to
process the application and to notice that the
applicant was over 60 years of age and thereby cancel
the policy on that ground if it was minded to do so. If
the private respondent failed to act, it is either
because it was willing to waive such disqualification;
or, through the negligence or incompetence of its
employees for which it has only itself to blame, it
simply overlooked such fact. Under the
circumstances, the insurance corporation is already
deemed in estoppel. It inaction to revoke the policy
despite a departure from the exclusionary condition
contained in the said policy constituted a waiver of
such condition, as was held in the case of "Que Chee
Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85.
This case involved a claim on an insurance policy
which contained a provision as to the installation of
fire hydrants the number of which depended on the
height of the external wan perimeter of the bodega
that was insured. When it was determined that the
bodega should have eleven (11) fire hydrants in the
compound as required by the terms of the policy,
instead of only two (2) that it had, the claim under
the policy was resisted on that ground. In ruling that
the said deviation from the terms of the policy did not
prevent the claim under the same, this Court stated
the following:
We are in agreement with the trial
Court that the appellant is barred
by waiver (or rather estoppel) to
claim violation of the so-called fire
hydrants warranty, for the reason
that knowing fully an that the
number of hydrants demanded
therein never existed from the very
beginning, the appellant
nevertheless issued the policies in
question subject to such warranty, contract
and received the corresponding inconsistent with
premiums. It would be perilously the known facts,
close to conniving at fraud upon the and the insurer is
insured to allow appellant to claim stopped
now as void ab initio the policies thereafter from
that it had issued to the plaintiff asserting the
without warning of their fatal breach of such
defect, of which it was informed, conditions. The
and after it had misled the law is charitable
defendant into believing that the enough to
policies were effective. assume, in the
absence of any
The insurance company was aware, showing to the
even before the policies were contrary, that an
issued, that in the premises insured insurance
there were only two fire hydrants company intends
installed by Que Chee Gan and two to execute a valid
others nearby, owned by the contract in return
municipality of Tabaco, contrary to for the premium
the requirements of the warranty in received; and
question. Such fact appears from when the policy
positive testimony for the insured contains a
that appellant's agents inspected condition which
the premises; and the simple renders it
denials of appellant's voidable at its
representative (Jamiczon) can not inception, and
overcome that proof. That such this result is
inspection was made it moreover known to the
rendered probable by its being a insurer, it will be
prerequisite for the fixing of the presumed to have
discount on the premium to which intended to waive
the insured was entitled, since the the conditions
discount depended on the number and to execute a
of hydrants, and the fire fighting binding contract,
equipment available (See"'Scale of rather than to
Allowances" to which the policies have deceived
were expressly made subject). The the insured into
law, supported by a long line of thinking he is
cases, is expressed by American insured when in
Jurisprudence (Vol. 29, pp. 611- fact he is not, and
612) to be as follows: to have taken is
money without
consideration.'
It is usually held (29 Am. Jur.,
that where the Insurance,
insurer, at the section 807, at
time of the pp. 611-612.)
issuance of a
policy of
insurance, has The reason for
knowledge of the rule is not
existing facts difficult to find.
which, if insisted
on, would The plain, human
invalidate the justice of this
contract from its doctrine is
very inception, perfectly
such knowledge apparent. To
constitutes a allow a company
waiver of to accept one's
conditions in the money for a
 policy of Significantly, in the case before Us
insurance which the Capital Insurance accepted the
it then knows to promise of Plastic Era to pay the
be void and of no insurance premium within thirty
effect, though it (30) days from the effective date of
knows as it must, policy. By so doing, it has impliedly
that the assured agreed to modify the tenor of the
believes it to be insurance policy and in effect,
valid and binding, waived the provision therein that it
is so contrary to would only pay for the loss or
the dictates of damage in case the same occurs
honesty and fair after the payment of the premium.
dealing, and so Considering that the insurance
closely related to policy is silent as to the mode of
positive fraud, as payment, Capital Insurance is
to be abhorent to deemed to have accepted the
fairminded men. promissory note in payment of the
It would be to premium. This rendered the policy
allow the immediately operative on the date
company to treat it was delivered. The view taken in
the policy as valid most cases in the United States:
long enough to
get the premium ... is that
on it, and leave it although one of
at liberty to conditions of an
repudiate it the insurance policy
next moment. is that "it shall
This cannot be not be valid or
deemed to be the binding until the
real intention of first premium is
the parties. To paid", if it is
hold that a literal silent as to the
construction of mode of
the policy payment,
expressed the promissory notes
true intention of received by the
the company company must be
would be to indict deemed to have
it, for fraudulent been accepted in
purposes and payment of the
designs which we premium. In
cannot believe it other words, a
to be guilty of requirement for
(Wilson vs. the payment of
Commercial the first or initial
Union Assurance premium in
Co., 96 Atl. 540, advance or actual
543544). cash may be
waived by
A similar view was upheld in the case of Capital acceptance of a
Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., promissory
65 SCRA 134, which involved a violation of the note...
provision of the policy requiring the payment of
premiums before the insurance shall become WHEREFORE, the judgment appealed from is hereby
effective. The company issued the policy upon the REVERSED and SET ASIDE. In lieu thereof, the private
execution of a promissory note for the payment of the respondent insurance corporation is hereby ordered
premium. A check given subsequent by the insured as to pay to the petitioner the sum of TEN THOUSAND
partial payment of the premium was dishonored for (P10,000.00) PESOS as proceeds of Insurance
lack of funds. Despite such deviation from the terms Certificate No. 128866 with interest at the legal rate
of the policy, the insurer was held liable. from May 31, 1969 until fully paid, the further sum of
TWO THOUSAND (P2,000.00) PESOS as and for
attorney's fees, and the costs of suit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-33131 December 13, 1930
EMILIO GONZALES LA O, plaintiff-appellee,
vs.
THE YEK TONG LIN FIRE AND MARINE INSURANCE
CO., LTD., defendant-appellant.
Araneta and Zaragosa for appellant.
Feria and La O for appellee.
VILLAMOR, J.:
This is an action to recover of the defendant the Yek
Tong Lin Fire & Marine Insurance Co., Ltd., the
amount of two insurance policies totaling P100,000
upon leaf tobacco belonging to the plaintiff, which
was damaged by the fire that destroyed the building
on Soler Street No. 188, where said tobacco was
stored, on January 11, 1928.
The defendant filed a general and specific denial of
each and every allegation of the complaint, set up
three special defenses, and prayed to be absolved
from the complaint with costs against the plaintiff.
After the case was tried, the court below rendered
judgment as follows:
In this case and in Nos. 334568, and 33480
of this court, which, by agreement of the
interested parties, were jointly tried, the
plaintiff demands P290,000 from the
defendant assurance companies, alleging
that to be the amount of the insurance on
his leaf tobacco which was damaged by
the fire that destroyed the warehouse at
No. 188 Soler Street, Manila, where it was
stored, on January 11, 1928, the
plaintiff's claim against the herein
defendant, the Yek Tong Lin Fire & Marine
Insurance Co. being for P100,000, and
against the defendants in the three other
cases mentioned above, for P190,000.
After the plaintiff had presented his
evidence, the defendant companies in
cases Nos. 33458, 33868, and 33480,
offered to compromise with him by paying
eighty-five per cent of his claim against
them. In view of the fact that said
defendants had in their answer raised the
question of warranties A and G of the
plaintiff's policies, providing that the
building used for the effects insured
would not be occupied by any other
lessee, nor would be used for the deposit
of other goods, without the consent of
said defendants, and inasmuch as the
latter alleged in their answer that the
owner of the burnt building had leased
the warehouse to several persons for the
storage of sundry articles, the plaintiff
had to accept the proposed compromise,
and in consequence thereof, the three
cases aforesaid were dismissed.
The present case followed the usual
course of procedure because the plaintiffs
refused to accept the compromise which,
in the same terms as those made by the
defendants in the three cases mentioned,
was proposed to him by the defendant the
Yek Tong Lin Fire & Marine Insurance
Company, the plaintiff contending that
said defendant did not, nor could, raise
the question of warranties A and G
heretofore mentioned for the simple
reason that it was the defendant itself, as
owner, who had leased the building which
later was destroyed by fire, to another
person after having already ceded a
portion of it to said plaintiff.
The only question to be determined,
having been raised in the defendant's
answer both parties agreeing that the
plaintiff insured his leaf tobacco with the
defendant assurance company, and that
said goods were damaged by the fire
which destroyed the warehouse where
they were stored, on January 11, 1928
is whether said goods were worth what
the plaintiff claims, that is, about equal
to the amount for which they were
insured in the four above mentioned
assurance companies, including the
defendant in this case.
The plaintiff has conclusively shown by
the Official Register Book (Exhibit 1) and
the Official Guide (Exhibit J), furnished by
the Bureau of Internal Revenue, and kept
under the supervision thereof in the usual
form, in accordance with articles 10, 34
to 38 of the Regulations of the same
promulgated under No. 17, by the
Secretary of Finance; the Stock Book for
recording the quantity of tobacco, Exhibit
K, kept by the plaintiff and presented as
part of the testimony of witnesses
Claveria, Bonete, and Leoncio Jose; the
testimony of Estanislao Lopez, Inspector
of Internal Revenue, and the latter's
report (Exhibit N), submitted to the
Collector of Internal Revenue in
pursuance of article 33 of the
aforementioned Regulations; the tobacco
invoices of stock damaged by the fire,
Exhibits L and L-1 to L-20; and by the
testimony of Clemente Uson who went
over the plaintiff's books as auditor and
public accountant, and also prepared
Exhibits T and U, attached to the record,
that the plaintiff had in the warehouse at
No. 188 Soler at the time of the fire, not
less, but rather more, than 6,200 bales of
leaf tobacco worth over P300,000, which
is of course more than the sum total of all
the insurances taken out with the
defendant herein and the defendants in
the three aforementioned cases Nos.
33458, 33868, and 33480.lawphi1>net
The reason why the entry showing that
258 bales of tobacco had been removed
from the warehouse, appearing in the
Official Register Book, Exhibit I, was not
posted in the Stock Book, Exhibit K, has
been satisfactorily explained by the
plaintiff's witnesses, who stated that it
was due to the fact that there was no time
to post it in the Stock Book, because the
fire took place and the plaintiff told them
not to touch, and to make no further
entries in the books. Witness White, the
defendant company's adjuster, who
carefully examined then plaintiff's books
not only immediately after the fire, but
also during the hearing of this case, seems
not to have found any irregularity therein;
at least he said nothing on the point when
he took the witness stand. On the
contrary, in his report Exhibit UU sent to
the defendant herein in his capacity as
adjuster, appointed by the latter, and in
Exhibits WW and XX, admitted by the Yek
Tong Lin Ins. Co., Ltd., he admitted that
the leaf tobacco belonging to the plaintiff
in the warehouse when the fire took place
exceeded, in quantity and value, the
amount of the insurance.
The defendant did not present evidence
to rebut the plaintiff's evidence, but only
presented witness Rowlands, whose
testimony or opinion as to the probable
number of bales of tobacco in the
warehouse at the date of the fire does not
deserve serious consideration, not only
because of the plaintiff's evidence, but
because his opinion or estimate is based
solely upon photographs of the place
taken after the fire.
In view of the foregoing, the court hereby
sentences the defendant the Yek Tong Lin
Fire and Marine Insurance Company, Ltd.,
to pay the plaintiff Emilio Gonzales La O,
the amount of one hundred thousand
pesos (P100,000), for which it had
accepted the insurance on the leaf
tobacco belonging to said plaintiff,
damaged by the fire which destroyed the
warehouse at No. 188 Soler Street, where
it was stored, on January 11, 1928, and
legal interest upon said amount from June
27, 1928, when the complaint was filed in
this case, plus the costs.
So ordered.
Manila, P. I., this 24th day of December,
1929.
ANACLETO DIAZ
Judge.
The defendant duly appealed from this judgment,
alleging that the trial court erred in making reference
to the settlement arrived at by the plaintiff and other
insurance companies, and in declaring that the only
question involved in the case is whether or not the
tobacco damaged by the fire is worth at least
P290,000.
There is no merit in these assignments of error. Since
the settlement between the plaintiff and the other
defendant companies was reached after the plaintiff
had presented his evidence, and as those three cases
were tried jointly with the instant case, there is no
valid reason why the trial court should not refer to it
in deciding this case. Furthermore, the court's holding
here assigned as error, granting there were other
incidental matters to be decided by the court, does
not in itself constitute a reversible error.
In the third assignment of error, the defendant
contends that the plaintiff cannot recover under the
policy as he has failed to prove that the Bank of the
Philippine Islands, to whom the policy was made
payable, no longer has any rights and interests in it.
It should be noted that the defendant did not in its
answer allege defect of parties plaintiff, and,
besides, it does not appear that the plaintiff ceded to
the bank all his rights or interests in the insurance,
the note attached to the policies merely stating:
"There shall be paid to the Bank of the Philippine
Islands an indemnity for any loss caused by fire,
according to the interest appearing in its favor." And
the fact that the plaintiff himself presented in
evidence the policies mortgaged to the Bank of the
Philippine Islands gives rise to the presumption that
the debt thus secured has been paid, in accordance
with article 1191 of the Civil Code.
Corpus Juris, volume 26, pages 483 et seq., states:
Insured, being the person with whom the
contract was made, is primarily the proper
person to bring suit thereon. Subject to some
exceptions, insured may thus sue, although
the policy is taken wholly or in part for the
benefit of another person named or
unnamed, and although it is expressly made
payable to another as his interest may
appear or otherwise. Although a policy
issued to a mortgagor is taken out for the
benefit of the mortgagee and is made
payable to him, yet the mortgagor may sue
thereon in his own name, especially where
the mortgagee's interest is less than the full
amount recoverable under the policy, . . . .
And in volume 33, page 82, of the same work, we read
the following:
Insured may be regarded as the real party in
interest, although he has assigned as
collateral security any judgment he may
obtain.
It is also contended that the trial court erred in not
declaring that in as much as the plaintiff failed to
notify the defendant corporation in writing, of other
insurance policies obtained by him, he has violated
article 3 of the conditions of the policies in question,
thereby rendering these policies null and void. Article
3 of the conditions of the policies in question
prescribes:
ART. 3. Any insurance in force upon all or
part of the things insured must be declared
in writing by the insured and he should cause
the company to insert or mention it in the
policy, and without such requisite said policy
will be regarded as null and void, and the
assured deprived of all rights of indemnity in
case of loss.
The following clause has been inserted with a
typewriter in the policies: "Subject to clauses G and A
and other insurances with a special short period
attached to this policy." And attached to said policies
issued by the defendant there is a sheet of "Other
insurances" with the amount and the assurance
companies in blank, which, according to the appellee,
constitutes a notification that there were other
insurances existing at the time.
In the case of Benedict vs. Ocean Insurance Co. (31
N.Y., 391-393), the construction of the clause,
"privilege for $4,500 additional insurance," was
discussed. One of the printed clauses of the policy
reads as follows:
If said assured, or his assigns, shall hereafter
make any other insurance upon the same
property, and shall not, with all reasonable
diligence, give notice to this corporation,
and have the same indorsed on this
instrument, or otherwise acknowledged by
them, in writing, this policy shall cease and
be of no further effect.
The Supreme Court of New York held that the words
"Privilege for $4,500 additional insurance" made it
unnecessary for the assured to inform the insurer of
any other policy up to that amount.
In the case cited the same goods insured by the
defendant company were reinsured to the amount of
$4,500 in accordance with the clause "privilege for
$4,500 additional insurance;" but in the instant case
it may be said that the tobacco insured in the other
companies was different from that insured with the
defendant, since the number of bales of tobacco in
the warehouse greatly exceeded that insured with the
defendant and the other companies put together. And
according to the doctrine enunciated in 26 Corpus
Juris, 188, "to be insurance of the sort prohibited the
prior policy must have been insurance upon the same
subject matter, and upon the same interest therein.
Furthermore, the appellant cannot invoke the
violation of article 3 of the conditions of the insurance
policies for the first time on appeal, having failed to
do so in its answer; besides, as the appellee correctly
contends in his brief, Guillermo Cu Unjieng, who was
then president and majority shareholder of the
appellant company, the Yek Tong Lin Fire & Marine
Insurance Co., knew that there were other
insurances, at least from the attempt to raise the
insurance premium on the warehouse and the
appellee's tobacco deposited therein to 1 per centum,
and it was later reduced upon petition of the
appellant itself and other assurance companies to
0.75 per centum presented to the association of
assurance companies in the year 1927, and
notwithstanding this, said appellant did not rescind
the insurance policies in question, but demanded and
collected from the appellee the increased premium.
That the defendant had knowledge of the existence
of other policies obtained by the plaintiff from other
insurance companies, is specifically shown by the
defendant's answer wherein it alleges, by way of
special defense, the fact that there exist other
policies issued by the companies mentioned therein.
If, with the knowledge of existence of other
insurances which the defendant deemed violations of
the contract, it has preferred to continue the policy,
its action amounts to a waiver of the annulment of
the contract, in accordance with the following
doctrine in 19 Cyc., 791, 792:.
FAILURE TO ASSERT FORFEITURE IN
GENERAL. While the weight of authority is
that a policy conditioned to become void
upon a breach of a warranty is void ipso facto
upon such a breach without formal
proceedings on the part of the insurer, yet it
is true that such conditions are inserted for
the benefit of the insurer and may be
waived, and that the insurer may elect to
continue the policy despite the breach. If it
does the policy is revived and restored. Its
failure to assert a forfeiture therefore is at
least evidence tending to show a waiver
thereof. Many authorities go further,
however, and hold that the failure to assert
a forfeiture after knowledge of a ground
thereof will amount of itself to waiver. . . .
The fifth and sixth assignments of error refer to the
quantity of tobacco in the Soler warehouse at the
time of the fire, which, according to the appellant,
did not exceed 4,930 bales. As may be seen, these
assignments of error by the appellant involved purely
questions of fact, and it is for this court to decide
whether the findings of the trial court are supported
by the evidence. The judgment appealed from sets
forth clearly the evidence presented to the court in
order to determine the quantity of tobacco in the
warehouse at the time of the fire. We have studied
the evidence aforesaid, are fully convinced that the
court's findings are well supported by the same.
Inasmuch as it has not, in our opinion, been shown
that the trial judge overlooked any fact, which, if duly
considered would have change the result of the case,
we do not feel justified in altering of modifying his
findings.
Finally, the appellant contends that the trial court
erred in arriving at the damages that plaintiff may
recover under the policies in question by the cost
price of the tobacco damaged by the fire, instead of
computing the same on the market price of the said
tobacco at the time of the fire; and in declaring that
the tobacco damaged was worth more than P300,000.
This error is not well taken, for it is clear that the cost
price is competent evidence tending to show the
value of the article in question. And it was so held the
case of Glaser vs. Home Ins. Co. (47 Misc. Rep., 89;
93 N. Y. Supp., 524; Abbott's Proof of Facts, 3d ed.,
p. 847), where it was declared that the cost of the
goods destroyed by fire is some evidence of value, in
an action against the insurance company. Exhibits L
to L-20, which are invoices for tobacco purchased by
the appellee, and the testimony of the public
accountant Clemente Uson, who went over them and
the rest of the appellee's books after the fire, taken
in connection with reports T and Z, adduced as part
of his testimony, show that the cost price of each bale
of tobacco belonging to the appellee, damaged by the
fire, was P51.8544, which, multiplied by 6,264, the
number of bales, yields a total of over P320,000.
The adjusters of the appellant, White & Page, in
ascertaining the market price of the plaintiff's
tobacco deposited in the burnt warehouse, taking the
information furnished by the Tabacalera and by M.
Pujalte, S. en C., as a basis, thus conclude their
report: "We therefore are obliged to the conclusion
that the value of the tobacco destroyed was not less
than P290,000." And, indeed, said adjusters, in behalf
of the appellant, appraised the appellee's tobacco
assured and damaged by the fire at P303,052.32,
collecting from the proceeds of the sale of the
tobacco saved from the fire P3,000, the appellants
share in proportion to the to the insurance of
P100,000 belonging to it, and P190,000 belonging to
the other assurance companies, and considered the
appellee himself as his own assurer in the amount of
P13,052.32 which was the difference between the
total value of the tobacco damaged and the total
amount of the insurance, P290,000, for which reason
the appellee received P129.21, as his proportionate
share of the tobacco saved, as shown by Exhibits UU,
WW, and XX.
Hence the last assignment of error is without merit.
Wherefore, the judgment appealed from is in
accordance with law, and must be, as it is hereby,
affirmed, with costs against the appellant. So
ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27541 November 21, 1927
TAN CHAY HENG, plaintiff-appellee,
vs.
THE WEST COAST LIFE INSURANCE COMPANY,
defendant-appellant.
Gibbs and McDonough and Roman Ozaeta for
appellant.
Hilado and Hilado for appellee.
STATEMENT
Plaintiff alleges that he is of age and a resident of
Bacolod, Occidental Negros; that the defendant is a
foreign insurance corporation duly organized by the
laws of the Philippines to engage in the insurance
business, its main office of which is in the City of
Manila; that in the month of April, 1925, on his
application the defendant accepted and approved a
life insurance policy of for the sum of P10,000 in
which the plaintiff was the sole beneficiary; that the
policy was issued upon the payment by the said Tan
Ceang of the first year's premium amounting to P936;
that in and by its terms, the defendant agreed to pay
the plaintiff as beneficiary the amount of the policy
upon the receipt of the proofs of the death of the
insured while the policy was in force; that without any
premium being due or unpaid, Tan Ceang died on May
10, 1925; that in June, 1925, plaintiff submitted the
proofs of the death of Tan Ceang with a claim for the
payment of the policy which the defendant refused to
pay, for which he prays for a corresponding judgment,
with legal interest from the date of the policy, and
costs.
In February, 1926, the defendant filed an answer to
the complaint in which it made a general and specific
denial, and then announced its intention to file an
amended answer, alleging special defense, and on
August 31, 1926, it filed the following:
AMENDED ANSWER
Comes now the defendant, by its
undersigned attorneys, and with leave of
court amends its answer to plaintiff's
complaint herein by making it reads as
follows:
I
That it admits paragraph 1 of said complaint.
II
That it denies each and every other
allegation contained in each and every other
paragraph of said complaint.
SPECIAL DEFENSE
By way of special defense, defendant
alleges:
I
That the insurance policy on the life of Tan
Ceang, upon which plaintiff's action is based,
was obtained by the plaintiff in
confabulation with one Go Chulian, of
Bacolod, Negros Occidental; Francisco
Sanchez of the same place; and Dr. V. S.
Locsin, of La Carlota, Negros Occidental,
thru fraud and deceit perpetrated against
this defendant in the following manner, to
wit:
1. That on or about the 22d day of February,
1925, in the municipality of Pulupandan,
Occidental Negros, the present plaintiff and
the said Go Chulian, Francisco Sanchez and
Dr., V. S. Locsin, conspiring and
confederating together for the purpose of
defrauding and cheating the defendant in
the sum of P10,000, caused one Tan Caeng
to sign an application for insurance with the
defendant in the sum of P10,000, in which
application it was falsely represented to the
defendant that the said Tan Ceang was single
and was a merchant, and that the plaintiff
Tan Chai Heng, the beneficiary, was his
nephew, whereas in truth and in fact and as
the plaintiff and his said coconspirators well
knew, the said Tan Ceang was not single but
was legally married to Marcelina Patalita
with whom he had several children; and that
he was not a merchant but was a mere
employee of another Chinaman by the name
of Tan Quina from whom he received only a
meager salary, and that the present plaintiff
was not a nephew of the said Tan Ceang.
2. That on said date, February 22, 1925, the
said Tan Ceang was seriously ill, suffering
from pulmonary tuberculosis of about three
years' duration, which illness was incurable
and was well known to the plaintiff and his
said coconspirators.
3. That on or about the same date, February
22, 1925, the said Dr. V. S. Locsin, in his
capacity as medical examiner for the
defendant insurance company, pursuant to
the conspiracy above mentioned, prepared
and falsified the necessary medical
certificate, in which it was made to appear,
among other things, that the said Tan Ceang
had never used morphine, cocaine or any
other drug; that he was then in good health
and had never consulted any physician; that
he had never spit blood; and that there was
no sign of either present or past disease of
his lungs; whereas in truth and in fact, as the
plaintiff and his said coconspirators well
knew, the said Tan Ceang was addicted to
morphine, cocaine, and opium and had been
convicted and imprisoned therefor, and was
then, and for about three year prior thereto
had been suffering from pulmonary
tuberculosis.
4. That on or about the same date, to wit,
February 22, 1925, the plaintiff and his said
coconspirators, pursuant to the conspiracy
above mentioned, cause a confidential
report to the defendant insurance company
to be signed by one V. Sy Yock Kian, who was
an employee of Go Chulian, in which
confidential report, among other things, it
was falsely represented to the defendant
insurance company that the said Tan Ceang
was worth about P40,000, had an annual
income of from eight to ten thousand pesos
net, had the appearance of good health, and
never had tuberculosis; that the plaintiff and
his said coconspirators well knew that said
representations were false; and that they
were made for the purpose of deceiving the
defendant and inducing it to accept the said
application for insurance.
5. That after the said application for
insurance, medical certificate and
confidential report had been prepared and
falsified, as aforesaid, the plaintiff and his
said coconspirators caused the same to be
forwarded to the defendant at its office in
Manila, the medical certificate thru the said
Dr. V. S. Locsin as medical examiner, and
said application for insurance and
confidential report thru the said Francisco
Sanchez in his capacity as one of the agents
of the defendant insurance company in the
Province of Occidental Negros; that the
defendant, believing that the
representations made in said document were
true, and relying thereon, provisionally
accepted the said application for insurance
on the life of Tan Ceang in the sum of
P10,000 and issued a temporary policy
pending the final approval or disapproval of
said application by defendant's home-office
in San Francisco, California, where in case of
approval a permanent policy was to be
issued; that such permanent policy was
never delivered to the plaintiff because
defendant discovered the fraud before its
delivery.
6. That the first agreed annual premium on
the insurance in question of P936.50 not
having been paid within sixty (60) days after
the date of the supposed medical
examination of the applicant as required by
the regulations of the defendant insurance
company, of which regulations the said
Francisco Sanchez as agent of the defendant
had knowledge, the plaintiff and his said
coconspirators in order to secure the
delivery to them of said temporary policy,
and in accordance with said regulations of
the defendant company, caused the said Tan
Ceang on April 10, 1925 to sign the following
document: lawphil.net
WEST COAST LIFE INSURANCE COMPANY
SAN FRANCISCO, CALIFORNIA
HEALTH CERTIFICATE FOR RE-INSTATEMENT
I herewith request the West Coast
Life Insurance Company to re-
instate Policy No.
............................. issued by it
upon my life, the first unpaid
premium on which became due
..............................,
19................
I certify and state that I am now in
good and sound health, that since
the date of my examination under
the application on which said policy
was written, I have had no injury,
sickness, impairment of health or
symptom thereof, and that since
said date I have neither consulted a
physician nor made any application
for life insurance that has not been
granted in exact kind and amount
applied for, except:
NADA
(State fully all exceptions to all
above statements. If no exceptions
insert "NONE.")
I agree that, if said policy re-
instated, it shall be only on
condition of the truth of the above
statements and such re-
instatement shall not operate as a
waiver on the part of said Company
of its right to refuse to accept any
future overdue premiums or
installments thereof.
Witness: (Sgd.) TAN CHAI HENG
TAN CAENG
Signature of
Applicant.
"Dated at Palupandan on this 10 day of April, 1925."
that the statements and representations contained in
the application for reinstatement above set forth with
regard to the health and physical condition of the said
Tan Ceang were false and known to the plaintiff and
his said coconspirators to be false; that the said
temporary policy was delivered by defendant to the
insured on April 10, 1925, in the belief that said
statements and representations were true and in
reliance thereon.
7. That on May 10, 1925, that is to say, two months
and a half after the supposed medical examination
above referred to, and exactly one month after the
date of the health certificate for reinstatement above
set forth, the said Tan Ceang died in Valladolid,
Occidental Negros, of pulmonary tuberculosis, the
same illnes from which suffering at the time it is
supposed he was examined by Dr. V. S. Locsin, but
that the plaintiff and his said coconspirators, pursuant
to their conspiracy, caused the said Dr. V. S. Locsin to
state falsely in the certificate of death that the said
Tan Ceang had died of cerebral hemorrhage.
II
That the plaintiff Tan Chai Heng, on the
dates herein-above mentioned, was, liked V.
Sy Yock Kian who signed the confidential
report above mentioned, an employee of the
said Go Chulian; that the latter was the
ringleader of a gang of malefactors, who,
during, and for some years previous to the
dates above mentioned, were engaged in the
illicit enterprise of procuring fraudulent life
insurances from the present defendant,
similar to the one in question, and which
enterprise was capitalized by him by
furnishing the funds with which to pay the
premium on said fraudulent insurance; that
the said Go Chulian was the one who
furnished the money with which to pay the
first and only annual premium on the
insurance here in question, amounting to
P936.50; that the said Go Chulian, on August
28, 1926, was convicted by the Court of First
Instance of the City of Manila, in criminal
case No. 31425 of that court, of the crime of
falsification of private documents in
connection with an fraudulent insurance,
similar to the present, committed against
this defendant in the month of September,
1924; that in the same case the said
Francisco Sanchez was one of the coaccused
of the said Go Chulian but was discharged
from the complaint, because he offered
himself and was utilized as a state's witness;
that there is another civil action now
pending against Go Chulian and Sanchez in
the Court of First Instance of Manila (civil
case No. 28680), in which the present
defendant is the plaintiff, for the recovery
of the amounts of two insurance policies
aggregating P19,000, fraudulently obtained
by the said Go Chulian and Sanchez upon the
lives of one Tan Deco, who was also suffering
from and died of tuberculosis, and one Tan
Anso, who was suffering from and died of
beriberi.
III
That by reason of all the facts above set
forth, the temporary policy of insurance on
the life of Tan Caeng for the sum of P10,000
upon which the present action is base is null
and void.
Wherefore, defendant prays that it be
absolved from plaintiff's complaint, with
costs against the plaintiff.
To this special defense, the plaintiff, claiming that it
was a cross-complaint, filed a general demurrer upon
the ground that it does not state facts sufficient to
constitute a cause of defense.
After exhaustive arguments and on September 16,
1926, the court rendered the following decision:
After considering the demurrer filed by the
plaintiff to the special defense contained in
the amended answer of the defendant,
dated August 31, 1926, without prejudice to
writing a more extensive decision, said
demurrer is sustained, and the defendant is
given a period of five days within which to
amend its aforesaid answer.
So ordered.
To which the defendant duly excepted.
As a result of the trial the general issues, the lower
court rendered judgment for the plaintiff for P10,000,
with legal interest from January 4, 1926, and costs,
to which the defendant duly excepted and filed a
motion for a new trial, which was overruled. On
appeal the defendant assigns the following errors:
The trial court erred
1. In sustaining plaintiff's demurrer to the
special defense contained in defendant's
amended answer.
 2. In holding, in effect, that an insurer
cannot avoid a policy which had been
procured by fraud unless he brings an action
to rescind it before he is sued thereon.
3. In rejecting all proofs offered by the
defendant during the trial for the purpose of
defeating plaintiff's fraudulent claim.
4. In not absolving the defendant from
plaintiff's complaint.
JOHNS, J.:
It will thus be noted that the premium was paid on
April 10, 1925, at which time the temporary policy
was issued; that the plaintiff's action was commenced
on January 4, 1926; that the original answer of the
defendant, consisting of a general and specific denial,
was filed on February 27, 1926; and that its amended
answer was filed on August 31, 1926.
Based upon those facts the plaintiff vigorously
contended in the lower court and now contends in the
court, that section 47 of the Insurance Act should be
applied, and that when so applied, defendant is
barred and estopped to plead and set forth the
matters alleged in its special defense. That section is
as follows:
Whenever a right to rescind a contract of
insurance is given to the insurer by any
provision of this chapter, such right must be
exercised previous to the commencement of
an action on the contract.
The defendant contended in the lower court and now
contends in this court, that section 47 does not apply
to the new matters alleged in the special defense. If
in legal effect defendant's special defense is in the
nature of an act to rescind "a contract of insurance,"
then such right must be exercised prior to an action
enforce the contract. That is the real question
involved in this appeal.
Defendant's original answer was a general and specific
denial. In other words, it specifically denied that if
ever issued the policy in question, or that it ever
agreed with Tan Ceang in the even of his death to pay
P10,000 to the plaintiff or any one else. In its
amended answer the defendant again makes a general
and specific denial, and alleges the reasons, the
specific facts, and the reasons why it never made or
entered into the contract alleged in the complaint,
and based upon those alleged facts, defendant
contends that it never did enter into any contract of
insurance on the life of Tan Caeng.
The word "rescind" has a well defined legal meaning,
and as applied to contracts, it presupposes the
existence of a contract to rescind.
Word & Phrases, volume 7, page 6139, says:
To rescind is to abrogate, annual, avoid, or
cancel a contract.
The word "rescind," as used in a statement
by a party to a contrary as follows. "I hereby
terminate and rescind my said written
contract," is synonymous with the word
`terminate,' and the rescission therefore
relates only to the unfulfilled part, and not
to the entire agreement, making the party
rescinding liable on notes executed pursuant
to the contract which matured before the
rescission.
The rescission is the unmaking of a contract,
requiring the same concurrence of wills as
that which made it, and nothing short of this
will suffice. There is a wide difference
between the rescission of a contract and its
mere termination or cancellation.
After a contract has been broken, whether
by an inability to perform it, or by rescinding
against right or otherwise, the party not in
fault may sue the other for the damages
suffered, or, if the parties can be placed in
status quo, he may, should he prefer, return
what he has received and recover in a suit
value of what he has paid or done. The latter
remedy is termed "rescission."
In the instant case, it will be noted that even in its
prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that it
ever made any contract of insurance on the life of Tan
Ceang or that any such a contract ever existed, and
that is the question which it seeks to have litigated by
its special defense. In the very nature of things, if the
defendant never made or entered into the contract in
question, there is no contract to rescind, and, hence,
section 47 upon which the lower based its decision in
sustaining the demurrer does not apply. As stated, an
action to rescind a contract is founded upon and
presupposes the existence of the contract which is
sought to be rescinded. If all of the material matters
set forth and alleged in the defendant's special plea
are true, there was no valid contract of insurance, for
the simple reason that the minds of the parties never
met and never agreed upon the terms and conditions
of the contract. We are clearly of the opinion that, if
such matters are known to exist by a preponderance
of the evidence, they would constitute a valid defense
to plaintiff's cause of action. Upon the question as to
whether or not they or are not true, we do not at this
time have or express any opinion, but we are clear
that section 47 does not apply to the allegations made
in the answer, and that the trial court erred in
sustaining the demurrer.
The judgment of the lower court is reversed and the
case is remanded for such other and further
proceedings as are not inconsistent with this opinion,
with costs against the plaintiff. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-4611 December 17, 1955
QUA CHEE GAN, plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., LTD.,
represented by its agent, WARNER, BARNES AND
CO., LTD., defendant-appellant.
Delgado, Flores & Macapagal for appellant.
Andres Aguilar, Zacarias Gutierrez Lora, Gregorio
Sabater and Perkins, Ponce Enrile & Contreras for
appellee.
REYES, J. B. L., J.:
Qua Chee Gan, a merchant of Albay, instituted this
action in 1940, in the Court of First Instance of said
province, seeking to recover the proceeds of certain
fire insurance policies totalling P370,000, issued by
the Law Union & Rock Insurance Co., Ltd., upon
certain bodegas and merchandise of the insured that
were burned on June 21, 1940. The records of the
original case were destroyed during the liberation of
the region, and were reconstituted in 1946. After a
trial that lasted several years, the Court of First
Instance rendered a decision in favor of the plaintiff,
the dispositive part whereof reads as follows:
Wherefore, judgment is rendered for the
plaintiff and against the defendant
condemning the latter to pay the former
(a) Under the first cause of action, the sum
of P146,394.48;
(b) Under the second cause of action, the
sum of P150,000;
(c) Under the third cause of action, the sum
of P5,000;
(d) Under the fourth cause of action, the sum
of P15,000; and
(e) Under the fifth cause of action, the sum
of P40,000;
all of which shall bear interest at the rate of 8% per
annum in accordance with Section 91 (b) of the
Insurance Act from September 26, 1940, until each is
paid, with costs against the defendant.
The complaint in intervention of the Philippine
National Bank is dismissed without costs. (Record on
Appeal, 166-167.)
From the decision, the defendant Insurance Company
appealed directly to this Court.
The record shows that before the last war, plaintiff-
appellee owned four warehouses or bodegas
(designated as Bodegas Nos. 1 to 4) in the municipality
of Tabaco, Albay, used for the storage of stocks of
copra and of hemp, baled and loose, in which the
appellee dealth extensively. They had been, with
their contents, insured with the defendant Company
since 1937, and the lose made payable to the
Philippine National Bank as mortgage of the hemp and
crops, to the extent of its interest. On June, 1940, the
insurance stood as follows:
Policy No. Property Insured
2637164 (Exhibit "LL") Bodega No. 1 (Building)
Bodega No. 2 (Building)
Bodega No. 3 (Building)
2637165 (Exhibit "JJ")
Bodega No. 4 (Building)
Hemp Press moved by steam eng
2637345 (Exhibit "X") Merchandise contents (copra and e
2637346 (Exhibit "Y") Merchandise contents (hemp) of Bo
2637067 (Exhibit "GG") Merchandise contents (loose hemp)
Total
Fire of undetermined origin that broke out in the early
morning of July 21, 1940, and lasted almost one week,
gutted and completely destroyed Bodegas Nos. 1, 2
and 4, with the merchandise stored theren. Plaintiff-
appellee informed the insurer by telegram on the
same date; and on the next day, the fire adjusters
engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises,
pored over the books of the insured and conducted an
extensive investigation. The plaintiff having
submitted the corresponding fire claims, totalling
P398,562.81 (but reduced to the full amount of the
insurance, P370,000), the Insurance Company resisted
payment, claiming violation of warranties and
conditions, filing of fraudulent claims, and that the
fire had been deliberately caused by the insured or by
other persons in connivance with him.
With counsel for the insurance company acting as
private prosecutor, Que Chee Gan, with his brother,
Qua Chee Pao, and some employees of his, were
indicted and tried in 1940 for the crime of arson, it
being claimed that they had set fire to the destroyed
warehouses to collect the insurance. They were,
however, acquitted by the trial court in a final
decision dated July 9, 1941 (Exhibit WW). Thereafter,
the civil suit to collect the insurance money
proceeded to its trial and termination in the Court
below, with the result noted at the start of this
opinion. The Philippine National Bank's complaint in
intervention was dismissed because the appellee had
managed to pay his indebtedness to the Bank during
the pendecy of the suit, and despite the fire losses.
In its first assignment of error, the insurance company
alleges that the trial Court should have held that the
policies were avoided for breach of warranty,
specifically the one appearing on a rider pasted (with
other similar riders) on the face of the policies
(Exhibits X, Y, JJ and LL). These riders were attached
for the first time in 1939, and the pertinent portions
read as follows:
Memo. of Warranty. The undernoted
Appliances for the extinction of fire being
kept on the premises insured hereby, and it
being declared and understood that there is
an ample and constant water supply with
sufficient pressure available at all seasons
for the same, it is hereby warranted that the
said appliances shall be maintained in
efficient working order during the currency
of this policy, by reason whereof a discount
of 2 1/2 per cent is allowed on the premium
chargeable under this policy.
Hydrants in the compound, not less in
number than one for each 150 feet of
external wall measurement of building,
protected, with not less than 100 feet of
hose piping and nozzles for every two
hydrants kept under cover in convenient
places, the hydrants being supplied with
water pressure by a pumping engine, or from
some other source, capable of discharging at
the rate of not less than 200 gallons of water
per minute into the upper story of the
highest building protected, and a trained
brigade of not less than 20 men to work the
same.'
It is argued that since the bodegas insured had an
external wall perimeter of 500 meters or 1,640 feet,
the appellee should have eleven (11) fire hydrants in
the compound, and that he actually had only two (2),
with a further pair nearby, belonging to the
municipality of Tabaco.
We are in agreement with the trial Court that the
appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that
the number of hydrants demanded therein never
existed from the very beginning, the appellant
neverthless issued the policies in question subject to
such warranty, and received the corresponding
premiums. It would be perilously close to conniving at
fraud upon the insured to allow appellant to claims
now as void ab initio the policies that it had issued to
the plaintiff without warning of their fatal defect, of
which it was informed, and after it had misled the
defendant into believing that the policies were
effective.
The insurance company was aware, even before the
policies were issued, that in the premises insured
there were only two fire hydrants installed by Qua
Chee Gan and two others nearby, owned by the
municipality of TAbaco, contrary to the requirements
of the warranty in question. Such fact appears from
positive testimony for the insured that appellant's
agents inspected the premises; and the simple denials
of appellant's representative (Jamiczon) can not
overcome that proof. That such inspection was made
is moreover rendered probable by its being a
prerequisite for the fixing of the discount on the
premium to which the insured was entitled, since the
discount depended on the number of hydrants, and
the fire fighting equipment available (See "Scale of
Allowances" to which the policies were expressly
made subject). The law, supported by a long line of
cases, is expressed by American Jurisprudence (Vol.
29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at
the time of the issuance of a policy of
insurance, has knowledge of existing facts
which, if insisted on, would invalidate the
contract from its very inception, such
knowledge constitutes a waiver of conditions
in the contract inconsistent with the facts,
and the insurer is stopped thereafter from
 asserting the breach of such conditions. The
law is charitable enough to assume, in the
absence of any showing to the contrary, that
an insurance company intends to executed a
valid contract in return for the premium
received; and when the policy contains a
condition which renders it voidable at its
inception, and this result is known to the
insurer, it will be presumed to have intended
to waive the conditions and to execute a
binding contract, rather than to have
deceived the insured into thinking he is
insured when in fact he is not, and to have
taken his money without consideration. (29
Am. Jur., Insurance, section 807, at pp. 611-
612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is
perfectly apparent. To allow a company to
accept one's money for a policy of insurance
which it then knows to be void and of no
effect, though it knows as it must, that the
assured believes it to be valid and binding, is
so contrary to the dictates of honesty and
fair dealing, and so closely related to
positive fraud, as to the abhorent to
fairminded men. It would be to allow the
company to treat the policy as valid long
enough to get the preium on it, and leave it
at liberty to repudiate it the next moment.
This cannot be deemed to be the real
intention of the parties. To hold that a literal
construction of the policy expressed the true
intention of the company would be to indict
it, for fraudulent purposes and designs which
we cannot believe it to be guilty of (Wilson
vs. Commercial Union Assurance Co., 96 Atl.
540, 543-544).
The inequitableness of the conduct observed by the
insurance company in this case is heightened by the
fact that after the insured had incurred the expense
of installing the two hydrants, the company collected
the premiums and issued him a policy so worded that
it gave the insured a discount much smaller than that
he was normaly entitledto. According to the "Scale of
Allowances," a policy subject to a warranty of the
existence of one fire hydrant for every 150 feet of
external wall entitled the insured to a discount of 7
1/2 per cent of the premium; while the existence of
"hydrants, in compund" (regardless of number)
reduced the allowance on the premium to a mere 2
1/2 per cent. This schedule was logical, since a
greater number of hydrants and fire fighting
appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so
worded the policies that while exacting the greater
number of fire hydrants and appliances, it kept the
premium discount at the minimum of 2 1/2 per cent,
thereby giving the insurance company a double
benefit. No reason is shown why appellant's premises,
that had been insured with appellant for several years
past, suddenly should be regarded in 1939 as so
hazardous as to be accorded a treatment beyond the
limits of appellant's own scale of allowances. Such
abnormal treatment of the insured strongly points at
an abuse of the insurance company's selection of the
words and terms of the contract, over which it had
absolute control.
These considerations lead us to regard the parol
evidence rule, invoked by the appellant as not
applicable to the present case. It is not a question
here whether or not the parties may vary a written
contract by oral evidence; but whether testimony is
receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing
forfeitures in its favor, in order to forestall fraud or
imposition on the insured.
Receipt of Premiums or Assessments afte
Cause for Forfeiture Other than
Nonpayment. It is a well settled rule of law
that an insurer which with knowledge of
facts entitling it to treat a policy as no longer
in force, receives and accepts a preium on
the policy, estopped to take advantage of
the forfeiture. It cannot treat the policy as
void for the purpose of defense to an action
to recover for a loss thereafter occurring and
at the same time treat it as valid for the
purpose of earning and collecting further
premiums." (29 Am. Jur., 653, p. 657.)
It would be unconscionable to permit a
company to issue a policy under
circumstances which it knew rendered the
policy void and then to accept and retain
premiums under such a void policy. Neither
law nor good morals would justify such
conduct and the doctrine of equitable
estoppel is peculiarly applicable to the
situation. (McGuire vs. Home Life Ins. Co. 94
Pa. Super Ct. 457.)
Moreover, taking into account the well known rule
that ambiguities or obscurities must be strictly
interpreted aganst the prty that caused them, 1the
"memo of warranty" invoked by appellant bars the
latter from questioning the existence of the
appliances called for in the insured premises, since its
initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured
hereby, . . . it is hereby warranted . . .", admists of
interpretation as an admission of the existence of
such appliances which appellant cannot now
contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of
fire hose for every two hydrants, must be equally
rejected, since the appellant's argument thereon is
based on the assumption that the insured was bound
to maintain no less than eleven hydrants (one per 150
feet of wall), which requirement appellant is
estopped from enforcing. The supposed breach of the
wter pressure condition is made to rest on the
testimony of witness Serra, that the water supply
could fill a 5-gallon can in 3 seconds; appellant
thereupon inferring that the maximum quantity
obtainable from the hydrants was 100 gallons a
minute, when the warranty called for 200 gallons a
minute. The transcript shows, however, that Serra
repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only
gave the "5-gallon per 3-second" rate because the
insistence of appellant's counsel forced the witness to
hazard a guess. Obviously, the testimony is worthless
and insufficient to establish the violation claimed,
specially since the burden of its proof lay on
appellant.
As to maintenance of a trained fire brigade of 20 men,
the record is preponderant that the same was
organized, and drilled, from time to give, altho not
maintained as a permanently separate unit, which the
warranty did not require. Anyway, it would be
unreasonable to expect the insured to maintain for his
compound alone a fire fighting force that many
municipalities in the Islands do not even possess.
There is no merit in appellant's claim that subordinate
membership of the business manager (Co Cuan) in the
fire brigade, while its direction was entrusted to a
minor employee unders the testimony improbable. A
business manager is not necessarily adept at fire
fighting, the qualities required being different for
both activities.
Under the second assignment of error, appellant
insurance company avers, that the insured violated
the "Hemp Warranty" provisions of Policy No. 2637165
(Exhibit JJ), against the storage of gasoline, since
appellee admitted that there were 36 cans (latas) of
gasoline in the building designed as "Bodega No. 2"
that was a separate structure not affected by the fire.
It is well to note that gasoline is not specifically
mentioned among the prohibited articles listed in the
so-called "hemp warranty." The cause relied upon by
the insurer speaks of "oils (animal and/or vegetable
and/or mineral and/or their liquid products having a
flash point below 300o Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance,
"Oils" mean "lubricants" and not gasoline or kerosene.
And how many insured, it may well be wondered, are
in a position to understand or determine "flash point
below 003o Fahrenheit. Here, again, by reason of the
exclusive control of the insurance company over the
terms and phraseology of the contract, the ambiguity
must be held strictly against the insurer and liberraly
in favor of the insured, specially to avoid a forfeiture
(44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and
difficult for the layman to understand.
Policies are prepared by experts who know
and can anticipate the hearing and possible
complications of every contingency. So long
as insurance companies insist upon the use
of ambiguous, intricate and technical
provisions, which conceal rather than frankly
disclose, their own intentions, the courts
must, in fairness to those who purchase
insurance, construe every ambiguity in favor
of the insured. (Algoe vs. Pacific Mut. L. Ins.
Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use
of obscure phrases and exceptions, to defeat
the very purpose for which the policy was
procured (Moore vs. Aetna Life Insurance
Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping
gasoline in the premises could not be expressed
clearly and unmistakably, in the language and terms
that the general public can readily understand,
without resort to obscure esoteric expression (now
derisively termed "gobbledygook"). We reiterate the
rule stated in Bachrach vs. British American Assurance
Co. (17 Phil. 555, 561):
If the company intended to rely upon a
condition of that character, it ought to have
been plainly expressed in the policy.
This rigid application of the rule on ambiguities has
become necessary in view of current business
practices. The courts cannot ignore that nowadays
monopolies, cartels and concentrations of capital,
endowed with overwhelming economic power,
manage to impose upon parties dealing with them
cunningly prepared "agreements" that the weaker
party may not change one whit, his participation in
the "agreement" being reduced to the alternative to
take it or leave it" labelled since Raymond Baloilles"
contracts by adherence" (con tracts d'adhesion), in
contrast to these entered into by parties bargaining
on an equal footing, such contracts (of which policies
of insurance and international bills of lading are prime
examples) obviously call for greater strictness and
vigilance on the part of courts of justice with a view
to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the
unwarry (New Civil Coee, Article 24; Sent. of Supreme
Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de
la poliza de seguro envolvia alguna
 oscuridad, habra de ser tenido en cuenta que
al seguro es, practicamente un contrato de
los llamados de adhesion y por consiguiente
en caso de duda sobre la significacion de las
clausulas generales de una poliza
redactada por las compafijas sin la
intervencion alguna de sus clientes se ha
de adoptar de acuerdo con el articulo 1268
del Codigo Civil, la interpretacion mas
favorable al asegurado, ya que la obscuridad
es imputable a la empresa aseguradora, que
debia haberse explicado mas claramante.
(Dec. Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith
(uferrimal fidei) not for the insured alone, but
equally so for the insurer; in fact, it is mere so for the
latter, since its dominant bargaining position carries
with it stricter responsibility.
Another point that is in favor of the insured is that the
gasoline kept in Bodega No. 2 was only incidental to
his business, being no more than a customary 2 day's
supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp.
1447-1448). "It is well settled that the keeping of
inflammable oils on the premises though prohibited
by the policy does not void it if such keeping is
incidental to the business." Bachrach vs. British
American Ass. Co., 17 Phil. 555, 560); and "according
to the weight of authority, even though there are
printed prohibitions against keeping certain articles
on the insured premises the policy will not be avoided
by a violation of these prohibitions, if the prohibited
articles are necessary or in customary use in carrying
on the trade or business conducted on the premises."
(45 C. J. S., p. 311; also 4 Couch on Insurance, section
966b). It should also be noted that the "Hemp
Warranty" forbade storage only "in the building to
which this insurance applies and/or in any building
communicating therewith", and it is undisputed that
no gasoline was stored in the burned bodegas, and
that "Bodega No. 2" which was not burned and where
the gasoline was found, stood isolated from the other
insured bodegas.
The charge that the insured failed or refused to
submit to the examiners of the insurer the books,
vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has
been shown to alter this finding. The insured gave the
insurance examiner all the date he asked for (Exhibits
AA, BB, CCC and Z), and the examiner even kept and
photographed some of the examined books in his
possession. What does appear to have been rejected
by the insured was the demand that he should submit
"a list of all books, vouchers, receipts and other
records" (Age 4, Exhibit 9-c); but the refusal of the
insured in this instance was well justified, since the
demand for a list of all the vouchers (which were not
in use by the insured) and receipts was positively
unreasonable, considering that such listing was
superfluous because the insurer was not denied access
to the records, that the volume of Qua Chee Gan's
business ran into millions, and that the demand was
made just after the fire when everything was in
turmoil. That the representatives of the insurance
company were able to secure all the date they needed
is proved by the fact that the adjuster Alexander
Stewart was able to prepare his own balance sheet
(Exhibit L of the criminal case) that did not differ
from that submitted by the insured (Exhibit J) except
for the valuation of the merchandise, as expressly
found by the Court in the criminal case for arson.
(Decision, Exhibit WW).
How valuations may differ honestly, without fraud
being involved, was strikingly illustrated in the
decision of the arson case (Exhibit WW) acquiting Qua
Choc Gan, appellee in the present proceedings. The
decision states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha
examinado los libros de Qua Choc Gan en
Tabaco asi como su existencia de copra y
abaca en las bodega al tiempo del incendio
durante el periodo comprendido desde el 1.o
de enero al 21 de junio de 1940 y ha
encontrado que Qua Choc Gan ha sufrico una
perdida de P1,750.76 en su negocio en
Tabaco. Segun Steward al llegar a este
conclusion el ha tenidoen cuenta el balance
de comprobacion Exhibit 'J' que le ha
entregado el mismo acusado Que Choc Gan
en relacion con sus libros y lo ha encontrado
correcto a excepcion de los precios de abaca
y copra que alli aparecen que no estan de
acuerdo con los precios en el mercado. Esta
comprobacion aparece en el balance
mercado exhibit J que fue preparado por el
mismo testigo.
In view of the discrepancy in the valuations between
the insured and the adjuster Stewart for the insurer,
the Court referred the controversy to a government
auditor, Apolonio Ramos; but the latter reached a
different result from the other two. Not only that, but
Ramos reported two different valuations that could
be reached according to the methods employed
(Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues
ha tenido sus muchos usos buenos para
promovar el comercio y la finanza, pero en
el caso presente ha resultado un tanto
cumplicada y acomodaticia, como lo prueba
el resultado del examen hecho por los
contadores Stewart y Ramos, pues el juzgado
no alcanza a ver como habiendo examinado
las mismas partidas y los mismos libros
 dichos contadores hayan de llegara dos
conclusiones que difieron sustancialmente
entre si. En otras palabras, no solamente la
comprobacion hecha por Stewart difiere de
la comprobacion hecha por Ramos sino que,
segun este ultimo, su comprobacion ha dado
lugar a dos resultados diferentes
dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation
cannot be seriously entertained. The insurer
attempted to bolster its case with alleged
photographs of certain pages of the insurance book
(destroyed by the war) of insured Qua Chee Gan
(Exhibits 26-A and 26-B) and allegedly showing
abnormal purchases of hemp and copra from June 11
to June 20, 1940. The Court below remained
unconvinced of the authenticity of those photographs,
and rejected them, because they were not mentioned
not introduced in the criminal case; and considering
the evident importance of said exhibits in establishing
the motive of the insured in committing the arson
charged, and the absence of adequate explanation for
their omission in the criminal case, we cannot say that
their rejection in the civil case constituted reversible
error.
The next two defenses pleaded by the insurer, that
the insured connived at the loss and that the
fraudulently inflated the quantity of the insured stock
in the burnt bodegas, are closely related to each
other. Both defenses are predicted on the assumption
that the insured was in financial difficulties and set
the fire to defraud the insurance company,
presumably in order to pay off the Philippine National
Bank, to which most of the insured hemp and copra
was pledged. Both defenses are fatally undermined by
the established fact that, notwithstanding the
insurer's refusal to pay the value of the policies the
extensive resources of the insured (Exhibit WW)
enabled him to pay off the National Bank in a short
time; and if he was able to do so, no motive appears
for attempt to defraud the insurer. While the
acquittal of the insured in the arson case is not res
judicata on the present civil action, the insurer's
evidence, to judge from the decision in the criminal
case, is practically identical in both cases and must
lead to the same result, since the proof to establish
the defense of connivance at the fire in order to
defraud the insurer "cannot be materially less
convincing than that required in order to convict the
insured of the crime of arson"(Bachrach vs. British
American Assurance Co., 17 Phil. 536).
As to the defense that the burned bodegas could not
possibly have contained the quantities of copra and
hemp stated in the fire claims, the insurer's case rests
almost exclusively on the estimates, inferences and
conclusionsAs to the defense that the burned bodegas
could not possibly have contained the quantities of
copra and hemp stated in the fire claims, the insurer's
case rests almost exclusively on the estimates,
inferences and conclusions of its adjuster
investigator, Alexander D. Stewart, who examined the
premises during and after the fire. His testimony,
however, was based on inferences from the
photographs and traces found after the fire, and must
yield to the contradictory testimony of engineer
Andres Bolinas, and specially of the then Chief of the
Loan Department of the National Bank's Legaspi
branch, Porfirio Barrios, and of Bank Appraiser Loreto
Samson, who actually saw the contents of the bodegas
shortly before the fire, while inspecting them for the
mortgagee Bank. The lower Court was satisfied of the
veracity and accuracy of these witnesses, and the
appellant insurer has failed to substantiate its charges
aganst their character. In fact, the insurer's repeated
accusations that these witnesses were later
"suspended for fraudulent transactions" without giving
any details, is a plain attempt to create prejudice
against them, without the least support in fact.
Stewart himself, in testifying that it is impossible to
determine from the remains the quantity of hemp
burned (t. s. n., pp. 1468, 1470), rebutted appellant's
attacks on the refusal of the Court below to accept its
inferences from the remains shown in the photographs
of the burned premises. It appears, likewise, that the
adjuster's calculations of the maximum contents of
the destroyed warehouses rested on the assumption
that all the copra and hemp were in sacks, and on the
result of his experiments to determine the space
occupied by definite amounts of sacked copra. The
error in the estimates thus arrived at proceeds from
the fact that a large amount of the insured's stock
were in loose form, occupying less space than when
kept in sacks; and from Stewart's obvious failure to
give due allowance for the compression of the
material at the bottom of the piles (t. s. n., pp. 1964,
1967) due to the weight of the overlying stock, as
shown by engineer Bolinas. It is probable that the
errors were due to inexperience (Stewart himself
admitted that this was the first copra fire he had
investigated); but it is clear that such errors render
valueles Stewart's computations. These were in fact
twice passed upon and twice rejected by different
judges (in the criminal and civil cases) and their
concordant opinion is practically conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were
correctly disregarded by the Court below, since the
opinions stated therein were based on ex parte
investigations made at the back of the insured; and
the appellant did not present at the trial the original
testimony and documents from which the conclusions
in the report were drawn.lawphi1.net
Appellant insurance company also contends that the
claims filed by the insured contained false and
fraudulent statements that avoided the insurance
policy. But the trial Court found that the
discrepancies were a result of the insured's erroneous
interpretation of the provisions of the insurance
policies and claim forms, caused by his imperfect
knowledge of English, and that the misstatements
were innocently made and without intent to defraud.
Our review of the lengthy record fails to disclose
reasons for rejecting these conclusions of the Court
below. For example, the occurrence of previous fires
in the premises insured in 1939, altho omitted in the
claims, Exhibits EE and FF, were nevertheless
revealed by the insured in his claims Exhibits Q (filed
simultaneously with them), KK and WW. Considering
that all these claims were submitted to the smae
agent, and that this same agent had paid the loss
caused by the 1939 fire, we find no error in the trial
Court's acceptance of the insured's explanation that
the omission in Exhibits EE and FF was due to
inadvertance, for the insured could hardly expect
under such circumstances, that the 1939 would pass
unnoticed by the insurance agents. Similarly, the 20
per cent overclaim on 70 per cent of the hemo stock,
was explained by the insured as caused by his belief
that he was entitled to include in the claim his
expected profit on the 70 per cent of the hemp,
because the same was already contracted for and sold
to other parties before the fire occurred. Compared
with other cases of over-valuation recorded in our
judicial annals, the 20 per cent excess in the case of
the insured is not by itself sufficient to establish
fraudulent intent. Thus, in Yu Cua vs. South British
Ins. Co., 41 Phil. 134, the claim was fourteen (14)
times (1,400 per cent) bigger than the actual loss; in
Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight
(8) times (800 per cent); in Tuason vs. North China
Ins. Co., 47 Phil. 14, six (6) times (600 per cent); in
Tan It vs. Sun Insurance, 51 Phil. 212, the claim
totalled P31,860.85 while the goods insured were
inventoried at O13,113. Certainly, the insured's
overclaim of 20 per cent in the case at bar, duly
explained by him to the Court a quo, appears puny by
comparison, and can not be regarded as "more than
misstatement, more than inadvertence of mistake,
more than a mere error in opinion, more than a slight
exaggeration" (Tan It vs. Sun Insurance Office, ante)
that would entitle the insurer to avoid the policy. It
is well to note that the overchange of 20 per cent was
claimed only on a part (70 per cent) of the hemp
stock; had the insured acted with fraudulent intent,
nothing prevented him from increasing the value of
all of his copra, hemp and buildings in the same
proportion. This also applies to the alleged fraudulent
claim for burned empty sacks, that was likewise
explained to our satisfaction and that of the trial
Court. The rule is that to avoid a policy, the false
swearing must be wilful and with intent to defraud
(29 Am. Jur., pp. 849-851) which was not the cause.
Of course, the lack of fraudulent intent would not
authorize the collection of the expected profit under
the terms of the polices, and the trial Court correctly
deducte the same from its award.
We find no reversible error in the judgment appealed
from, wherefore the smae is hereby affirmed. Costs
against the appellant. So ordered.
Colado v. Insular Life - Tender of Overdue Payments
51 OG (No 12) 6269
Facts:
> Vivencio Collado applied for an insurance contract
with Insular life in 1948. His application was
approved and he began started making premium
payments. However, he defaulted and the insurance
was cancelled.
> He then applied for the reinstatement of his
insurance policy in Nov. of 1951 and tendered the
amount of premium for the years 1950-1951.
> He stated that he was as of Nov. 1951 of good
health, and that he had no injuries, ailments or
illnesses and had not been sick for any case since 1948
(his medical check up when he applied for insurance)
and that he had not consulted any physician or
practitioner for any case since the date of such latest
medical exam.
> However, when Vivencio applied for the
reinstatement, he was already sick of a fatal disease
known as carcinoma of the liver and that 4 days prior
to his application for insurance, he consulted a doctor
regarding his condition.
> The reinstatement was approved. Vivencio again
failed to pay the premiums for the last quarter of Nov.
1951 and as such, Insular life sent him a notice
canceling the policy.
> Vivencio then died. The beneificiaries instituted
the present action to recover from Insular life the
death benefits of a life insurance policy valued at
2T. Insular refused to pay claiming concealment on
the part of Vivencio.
> Collado contends that Insular life had waived the
right to rescine the policy in view of its repeated
acceptance of the overdue premiums for the second
and third years.
> Municipal court of Manila found for Collado and
Insular filed an appeal with CFI of Manila. CFI
rendered judgment in favor of Insular and dismissed
Collados complaint.
Issue:
Whether or nor Insular life was estopped and could no
longer cancel the contract due to the fact that it
accepted the tender of overdue payments from
Vivencio.

Held:

NO.

It is enormously clear that when the deceased

applied for a reinstatement of his policy in Nov. 1951,
he had already been afflicted with the fatal ailment
for a period of about four months. Furthermore, in
submitting together with his application for
reinstatement, a health statement to the effect that
he was in good health, Vivencio concealed the
material fact that he had consulted a doctor and was
then found to be afflicted with the malady.

The acceptance of Insular life of the overdue

premiums did not necessarily deprive it of the right to
cancel the policy in case of default incurred by the
Insured in the payment of future premiums. The case
would be different had the insured died at any time
after the payment of overdue premiums but previous
to the reinstatement of the policy, for the, Insular, by
its acceptance of its overdue premiums is deemed to
have waived its right to rescind the policy.

The evidence at hand shows that insofar as the

payment of the last quarterly premium for 1951 was
concerned, Insular had availed of the right to rescind
the policy by notifying the Insured that the policy had
lapsed.