Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-41014 November 28, 1988

PACIFIC BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.

Flores, Ocampo, Dizon and Domingo Law Office for petitioner.

Cabochan and Reyes Law Office for respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No.
41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First
Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889.

As gathered from the records, the undisputed facts of this case are as follows:

On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the
Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which
private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss
or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials
and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while
contained in the ground, second and third floors of the building situated at number 256 Jaboneros
St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964.

The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner
in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods
described in the policy were held in trust by the insured for the petitioner under thrust receipts
(Record on Appeal, p. 4).

Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the
knowledge and consent of private respondent to the effect that "loss if any under this policy is
payable to the Pacific Banking Corporation".

On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the
subject premises destroying the goods contained in its ground and second floors (Record on Appeal,
p.5)

On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for
indemnity due to the loss of property by fire under the endorsement of said policy (Brief for Plaintiff-
Appellee, pp. 16-17).

On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready
to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster,
H.H. Bayne Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18).

On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured
under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation
of Policy Condition No.11, and for which reason, determination of the liability of private respondent
could not be had (Supra, pp. 19-20).

On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to
verify from the records of the Bureau of Customs the entries of merchandise taken into the customs
bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22). For failure of the
insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed
in the court a quo an action for a sum of money against the private respondent, Oriental Assurance
Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing
Co. (Record on Appeal, pp. 1-36).

On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of
formal claim by insured over the loss and (b) premature filing of the suit as neither plaintiff nor
insured had submitted any proof of loss on the basis of which defendant would determine its liability
and the amount thereof, either to the private respondent or its ad . adjuster H.H. Bayne Adjustment
Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).

At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December
22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc.,
revealing undeclared co-insurances with the following: P30,000.00 with Wellington Insurance;
P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by insured
Paramount on the same property covered by its policy with private respondent whereas the only co-
insurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with
South Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14).

It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form
of non-declaration of co-insurances which was not pleaded in the answer was also not pleaded in
the Motion to Dismiss.

At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that
the defense of lack of proof of loss or defects therein was raised for the first time after the
commencement of the suit and that it must be deemed to have waived the requirement of proof of
loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).

On September 9, 1967, the case was considered submitted for decision from which order private
respondent filed a motion for reconsideration to set the case or further reception of private
respondent's additional evidence, "in order to prove that 'insured has committed a violation of
condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-
69).

On September 30,1967, the case was set for the continuation of the hearing for the reception merely
of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement
opposition of the petitioner (Record on Appeal, p. 129).

On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the
petitioner under the said contract of insurance, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the

plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, 1964,
to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid,
P6,100.00, as attorney's fees, and the costs.

SO ORDERED. (Record on Appeal, pp. 140-141)

On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on
April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals,
but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with
the following assigned errors;

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN

CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED
PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE
STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY
PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH
NEGATE THE CORRECTNESS OF SAID CONCLUSION.

(a) The respondent Court did not consider the legal presumption
against the existence of fraud, which should be established with such
quantum of proof as is required for any crime.

(b) The record of the case is bereft of proof of such fraud.

(c) The private respondent insurer did not even plead or in anywise
raise fraud as a defense in its answer or motion to dismiss and,
therefore, it should have been considered waived.

(d) The total amount of insurance procured by the insured from the
different companies amounted to hardly onehalf (½) of the value of
the goods insured.

II

RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE

VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE
TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED.

III

THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY

ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT
BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT
BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF
PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE
OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE
RESPONDENT INSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN
THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL
THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR
ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING.

IV

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN

NOT INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR
OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT
ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED.

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN

DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF
THE TRIAL COURT. (Brief for Petitioners, pp. 1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated
policy conditions No. 3 and (b) failure of the insured to file the required proof of loss prior to court
action. Policy Condition No. 3 explicitly provides:

3. The Insured shall give notice to the Company of any insurance already effected, 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 benefit under this policy shall be forfeited.
(Record on Appeal, p. 12)

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by
the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known that there were
many co-insurances, it could have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud (Rollo, p. 25).

Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable.
In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner
itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other
Insurance Clause" are materially different from the actual number of co-insurances taken over the
subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach
and the policy never becomes a contract between the parties. Representations of facts are the
foundation of the contract and if the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the contract, or to terminate a
contract which has once been made, but to show that no contract has ever existed (Tolentino,
Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one
which has no force and effect from the very beginning, as if it had never been entered into, and
which cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila
v. C.A. 145 SCRA [1986]).

As the insurance policy against fire expressly required that notice should be given by the insured of
other insurance upon the same property, the total absence of such notice nullifies the policy (Sta.
Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs.
Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA
432 [1974]).

The argument that notice of co-insurances may be made orally is preposterous and negates policy
condition No. 20 which requires every notice and other communications to the insurer to be written
or printed.

Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause"
supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover the
insurance as mortgagee/assignee. Particularly referring to the mortgage clause of the policy,
petitioner argues that considering the purpose for which the endorsement or assignment was made,
that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it
would be absurd to hold that petitioner is barred from recovering the insurance on account of the
alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 33-35).

It is obvious that petitioner has missed all together the import of subject mortgage clause which
specifically provides:

Mortgage Clause

Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby
understood and agreed that this insurance as to the interest of the mortgagee/trustor
 only herein, shall not be invalidated by any act or neglect—except fraud or
misrepresentation, or arson—of the mortgagor or owner/trustee of the property
insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to
pay any premium, the mortgagee/ trustor shall, on demand pay the same. (Rollo, p.
26)

The paragraph clearly states the exceptions to the general rule that insurance as to the interest of
the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly
found by the Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).

Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the
proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more
reason petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such
proceeds.

Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's
answer or motion to dismiss, should be deemed to have been waived.

It will be noted that the fact of fraud was tried by express or at least implied consent of the parties.
Petitioner did not only object to the introduction of evidence but on the contrary, presented the very
evidence that proved its existence.

Be that as it may, it is established that the Supreme Court has ample authority to give beyond the
pleadings where in the interest of justice and the promotion of public policy, there is a need to make
its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which
surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).

Generally, the cause of action on the policy accrues when the loss occurs, But when the policy
provides that no action shall be brought unless the claim is first presented extrajudicially in the
manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects
the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).

In the case at bar, policy condition No. 11 specifically provides that the insured shall on the
happening of any loss or damage give notice to the company and shall within fifteen (15) days after
such loss or damage deliver to the private respondent (a) a claim in writing giving particular account
as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all
other insurances, if any. Likewise, insured was required "at his own expense to produce, procure
and give to the company all such further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record
on Appeal, pp. 18-20).

The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters
to private respondent to serve as a notice of loss, thereafter, the former did not furnish the latter
whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner
shifted upon private respondent the burden of fishing out the necessary information to ascertain the
particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that
private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor
submitted the supporting documents in compliance with the requirements set forth in the policy.
Despite the notice, the latter remained unheedful. Since the required claim by insured, together with
the preliminary submittal of relevant documents had not been complied with, it follows that private
respondent could not be deemed to have finally rejected petitioner's claim and therefore the latter's
cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua
non to the right to maintain an action as prior thereto no violation of petitioner's right can be
attributable to private respondent. This is so, as before such final rejection, there was no real
necessity for bringing suit. Petitioner should have endeavored to file the formal claim and procure all
the documents, papers, inventory needed by private respondent or its adjuster to ascertain the
amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not
encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra). <äre|| anº• 1àw>
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under
the circumstances. While it is a cardinal principle of insurance law that a policy or contract of
insurance is to be construed liberally in favor of the insured and strictly as against the insurer
company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v.
The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA
533 [1986]), yet, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular sense
(Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil.
Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA
630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The parties have a right to impose such reasonable conditions at the time of the making of
the contract as they may deem wise and necessary. The agreement has the force of law between
the parties. The terms of the policy constitute the measure of the insurer's liability, and in order to
recover, the insured must show himself within those terms. The compliance of the insured with the
terms of the policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance
Co., Inc., 127 SCRA 766 [1984]).

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the
contract, and such violation or want of performance has not been waived by the insurer, the insured
cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the
parties; the function and duty of the courts is simply to enforce and carry out the contracts actually
made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil.
Guaranty Co. Inc., p. 276 supra).

Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when
supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration.
Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in
certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of
Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v.
Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147
SCRA 238-239 [1987]).

PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed
from is AFFIRMED. No costs.

SO ORDERED.

Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

* Penned by Hon. Magno S. Gatmaitan, then Associate Justice, Court of Appeals,

with the concurrence of then Associate Justices Hon. Efren I. Plana & Francisco Ma.
Chanco, and Hon. Crisolito Pascual & Hon. Sixto A. Domondon, then Associate
Justices, dissenting.

** Penned by Hon. Jose L. Moya, then Presiding Judge, CFI of Manila, Branch X.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy.
The facts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing

herein petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P
80,000.00.

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).

On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.

After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's
decision for lack of merit
Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allowed
to avoid the policy on grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of applicable legal provisions
and established jurisprudence.

C. The inference of respondent Court that respondent insurer was misled in issuing
the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind the contract
of insurance as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.

The contention is without merit.

The pertinent section in the Insurance Code provides:

Section 48. 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.

After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph of Section
48 added to prevent the insurance company from exercising a right to rescind after the death of the
insured.

The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."

As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or misrepresentation by their
late father because Tan Lee Siong did not have to buy insurance. He was only pressured by
insistent salesmen to do so. The petitioners state:

Here then is a case of an assured whose application was submitted because of

repeated visits and solicitations by the insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was the object of solicitations and visits.

Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did
not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most of us
have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the
transactions and otherwise smoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:

It is of common knowledge that the selling of insurance today is subjected to the

whirlwind 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
the other rival 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 out to do.

The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population of
this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140-
142, Rollo)

xxx xxx xxx

 In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long denounced,
the assured who dies within the two-year period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestability clause"
added by the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They state that the insurer should have presented
its two medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends
that the medical examination must be conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."

We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary consequence
of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule
131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6)
Because of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent company was
thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles
and print the amount of benefits they agree to pay in large black-faced type, following
such undertakings by fine print conditions which destroy the substance of the
 promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)

There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such
a way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection
against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether
or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are not based on substantial evidence or that
its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge that
burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court
of Appeals is AFFIRMED.

SO ORDERED.

Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.

Feliciano, took no part.