COMMONWEALTH ACT No.

65 TITLE I

IN ACT TO DECLARE THAT PUBLIC ACT NUMBERED FIVE HUNDRED AND TWENTY-ONE, KNOWN AS "CARRIAGE OF Section 1. When used in this Act —
GOODS BY SEA ACT," ENACTED BY THE SEVENTY-FOURTH CONGRESS OF THE UNITED STATES, BE ACCEPTED, AS IT
IS HEREBY ACCEPTED BY THE NATIONAL ASSEMBLY (a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any
WHEREAS, the Seventy-fourth Congress of the United States enacted Public Act Numbered Five hundred and similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill
twenty-one, entitled: of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at
which such bill of lading or similar document of title regulates the relations between a carrier and a holder of
"Carriage of Goods by Sea Act"; the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live
WHEREAS, the primordial purpose of the said Acts is to bring about uniformity in ocean bills of lading and to animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.
give effect to the Brussels Treaty, signed by the United States with other powers; (d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when the goods are loaded on to the time
WHEREAS, the Government of the United States has left it to the Philippine Government to decide whether or when they are discharged from the ship.
not the said Act shall apply to carriage of goods by sea in foreign trade to and from Philippine ports; RISKS

WHEREAS, the said Act of Congress contains advanced legislation, which is in consonance with modern Section 2. Subject to the provisions of section 6, under every contract of carriage of goods by sea, the carrier
maritime rules and the practices of the great shipping countries of the world; in relation to the loading handling, stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth.
WHEREAS, shipping companies, shippers, and marine insurance companies, and various chambers of
commerce, which are directly affected by such legislation, have expressed their desire that said RESPONSIBILITIES AND LIABILITIES
Congressional Act be made applicable and extended to the Philippines; therefore,
Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence
Be it enacted by the National Assembly of the Philippines: to —

Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth (a) Make the ship seaworthy;
Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it (b) Properly man, equip, and supply the ship;
is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from (c) Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are
Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing carried, fit and safe for their reception carriage and preservation.
provision of the Code of Commerce which is now in force, or as limiting its application.
(2) The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods
Section 2. This Act shall take effect upon its approval. carried.
Approved: October 22,1936.
(3) After receiving the goods into his charge the carrier, or the master or agent of the carrier, shall, on demand
AN ACT RELATING TO THE CARRIAGE OF GOODS BY SEA. of the shipper, issue to the shipper a bill of lading showing among other things —
(a) The leading marks necessary for identification of the goods as the same are furnished in writing by the
Be it enacted by the Senate and House of Representatives of the United States of America in Congress shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly
assembled, That every bill of landing or similar document of title which is evidence of a contract for the upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a
carriage of goods by sea to or from ports of the United States, in foreign trade, shall have effect subject to the manner as should ordinarily remain legible until the end of the voyage.
provisions of the Act. (b) Either the number of packages or pieces, or the quantity or weight, as the case may be, as furnished in
writing by the shipper.

1
(c) The apparent order and condition of the goods: Provided, That no carrier, master, or agent of the carrier, goods have been shipped and the date or dates of shipment, and when so noted the same shall for the
shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has purpose of this section be deemed to constitute a "shipped" bill of lading.
reasonable ground for suspecting not accurately to represent the goods actually received, or which he has
had no reasonable means of checking. (8) Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability
for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties
(4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall
described in accordance with paragraphs (3) (a), (b), and (c) of this section: Provided, That nothing in this Act be null and void and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be
shall be construed as repealing or limiting the application of any part of the Act, as amended, entitled "An Act deemed to be a clause relieving the carrier from liability.
relating to bills of lading in interstate and foreign commerce," approved August 29, 1916 (U. S. C. title 49, secs.
81-124), commonly known as the "Pomerene Bills of Lading Act." RIGHTS AND IMMUNITIES

(5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of Section 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from
the marks, number, quantity, and weight, as furnished by him; and the shipper shall indemnify the carrier unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy,
against all loss damages, and expenses arising or resulting from inaccuracies in such particulars. The right of and to secure that the ship is properly manned, equipped, and supplied, and to make to the holds,
the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage or
refrigerating and cool chambers, and all other parts of the ship in which goods are carried fit and safe for their
to any person other than the shipper. reception, carriage, and preservation in accordance with the provisions of paragraph (1) of section 3.
Whenever loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the diligence shall be on the carrier or other persons claiming exemption under the section.
carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody
of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie (2) Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from —
evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is
not apparent, the notice must be given within three days of the delivery. (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the
management of the ship;
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking (b) Fire, unless caused by the actual fault or privity of the carrier;
delivery thereof. (c) Perils, dangers, and accidents of the sea or other navigable waters;
(d) Act of God;
The notice in writing need not be given if the state of the goods has at the time of their receipt been the (e) Act of war,
subject of joint survey or inspection. (f) Act of public enemies;
(g) Arrest or restraint of princes, rulers, or people, or seizure under legal process;
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless (h) Quarantine restrictions;
suit is brought within one year after delivery of the goods or the date when the goods should have been (i) Act or omission of the shipper or owner of the goods, his agent or representative;
delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided (j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general;
for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year Provided, That nothing herein contained shall be construed to relieve a carrier from responsibility for the
after the delivery of the goods or the date when the goods should have been delivered carrier's own acts;
(k) Riots and civil commotions
In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all (l) Saving or attempting to save life or property at sea;
reasonable facilities to each other for inspecting and tallying the goods. (m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the
goods;
(7) After the goods are loaded the bill of lading to be issued by the carrier, master, or agent of the carrier to (n) Insufficiency of packing;
the shipper shall, if the shipper so demands, be a "shipped" bill of lading Provided, That if the shipper shall have (o) Insufficiency of inadequacy of marks;
previously taken up any document of title to such goods, he shall surrender the same as against the issue of (p) Latent defects not discoverable by due diligence; and
the "shipped" bill of lading, but at the option of the carrier such document of title may be noted at the port of (q) Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of
shipment by the carrier, master, or agent with name or name the names of the ship or ships upon which the the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this

2
exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or The provisions of this Act shall not be applicable to charter parties; but if bills of lading are issued in the case of
servants of the carrier contributed to the loss or damage. a ship under charter party, they shall comply with the terms of this Act. Nothing in this Act shall be held to
prevent the insertion in a bill of lading of any lawful provision regarding general average.
(3) The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising from any
cause without the act, fault, or neglect of the shipper, his agents, or servants. SPECIAL CONDITIONS

(4) Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not Section 6. Notwithstanding the provisions of the preceding sections, a carrier, master or agent of the carrier,
be deemed to be an infringement or breach of this Act or of the contract of carriage, and the carrier shall not and a shipper shall, in regard to any particular goods be at liberty to enter into any agreement in any terms as
be liable for any loss or damage resulting therefrom: Provided, however, That if the deviation is for the purpose to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier
of loading cargo or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable. in respect of such goods, or his obligation as to seaworthiness (so far as the stipulation regarding seaworthiness
is not contrary to public policy), or the care or diligence of his servants or agents in regard to the loading,
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in handling stowage, carriage, custody, care, and discharge of the goods carried by sea: Provided, That in this
connection with the transportation of goods in an amount exceeding $600 per package lawful money of the case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt
United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of which shall be a non-negotiable document and shall be marked as such.
that sum in other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be Any agreement so entered into shall have full legal effect: Provided, That this section shall not apply to
prima facie evidence, but shall not be conclusive on the carrier. ordinary commercial shipments made in the ordinary course of trade but only to other shipments where the
character or condition of the property to be carried or the circumstances, terms, and conditions under which
By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount the carriage is to be performed are such as reasonably to justify a special agreement.
than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the
figure above named. In no event shall the carrier be liable for more than the amount of damage actually Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering into any agreement,
sustained. stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for
the loss or damage to or in connection with the custody and care and handling of goods prior to the loading
Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the on and subsequent to the discharge from the ship on which the goods are carried by sea.
transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by
the shipper in the bill of lading. Section 8. The provisions of this Act shall not affect the rights and obligations of the carrier under the provisions
of the Shipping Act, 1916, or under the provisions of section 4281 to 4289, inclusive, of the Revised Statutes of
(6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof the carrier, master or the United States, or of any amendments thereto; or under the provisions of any other enactment for the time
agent of the carrier, has not consented with knowledge of their nature and character, may at any time being in force relating to the limitation of the liability of the owners of seagoing vessels.
before discharge be landed at any place or destroyed or rendered innocuous by the carrier without
compensation, and the shipper of such goods shall be liable for all damages and expenses directly or
indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and TITLE II
consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or
destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general Section 9. Nothing contained in this Act shall be construed as permitting a common carrier by water to
average, if any. discriminate between competing shippers similarly place in time and circumstances, either (a) with respect to
the right to demand and receive bills of lading subject to the provisions of this Act; or (b) when issuing such bills
SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES AND LIABILITIES of lading, either in the surrender of any of the carrier's rights and immunities or in the increase of any of the
carrier's responsibilities and liabilities pursuant to section 6, title I, of this Act or (c) in any other way prohibited
Section 5. A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to by the Shipping Act, 1916, s amended.
increase any of his responsibilities and liabilities under this Act, provided such surrender or increase shall be
embodied in the bill of lading issued to the shipper. Section 10. Section 25 of the Interstate Commerce Act is hereby amended by adding the following proviso at
the end of paragraph 4 thereof: "Provided, however, That insofar as any bill of lading authorized hereunder

3
relates to the carriage of goods by sea, such bill of lading shall be subject to the provisions of the Carriage of Section 15. This Act shall take effect ninety days after the date of its approval; but nothing in this Act shall
Goods by Sea Act." apply during a period not to exceed one year following its approval to any contract for the carriage of goods
by sea, made before the date on which this Act is approved, nor to any bill of lading or similar document of
Section 11. Where under the customs of any trade the weight of any bulk cargo inserted in the bill of lading is title issued, whether before or after such date of approval in pursuance of any such contract as aforesaid.
a weight ascertained or accepted by a third party other than the carrier or the shipper, and the fact that the
weight is so ascertained or accepted is stated in the bill of lading, then, notwithstanding any thing in this Act, Section 16. This Act may be cited as the "Carriage of Goods by Sea Act."
the bill of lading shall not be deemed to be prima facie evidence against the carrier of the receipt of goods of
the weight so inserted in the bill of lading, and the accuracy thereof at the time of shipment shall not be Approved, April 16, 1936.
deemed to have been guaranteed by the shipper.
Republic of the Philippines
Section 12. Nothing in this Act shall be construed as superseding any part of the Act entitled "An act relating to SUPREME COURT
navigation of vessels, bills of lading, and to certain obligations, duties, and rights in connection with the Manila
carriage of property," approved February 13,1893, or of any other law which would be applicable in the THIRD DIVISION
absence of this Act, insofar as they relate to the duties, responsibilities, and liabilities of the ship or carrier prior G.R. No. 200784 August 7, 2013
to the time when the goods are loaded on or after the time they are discharged from the ship. MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from ports of the United States PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
in foreign trade. As used in this Act the term "United States" includes its districts, territories, and possessions:
Provided, however, That the Philippine legislature may by law exclude its application to transportation to or DECISION
from ports of the Philippine Islands. The term "foreign trade" means the transportation of goods between the
ports of the United States and ports of foreign countries. Nothing in this Act shall be held to apply to contracts MENDOZA, J.:
for carriage of goods by sea between any port of the United States or its possessions, and any other port of the
United States or its possession: Provided, however, That any bill of lading or similar document of title which is Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011
evidence of a contract for the carriage of goods by sea between such ports, containing an express statement Decision1 of the Court of Appeals (CA), which affirmed with modification the September 17, 2009 Decision2 of
that it shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto as fully the Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012 Resolution3 denying the motion for
as if subject hereto by the express provisions of this Act: Provided, further, That every bill of lading or similar reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).
document of title which is evidence of a contract for the carriage of goods by sea from ports of the United
States, in foreign trade, shall contain a statement that it shall have effect subject to the provisions of this Act. The Facts

Section 14. Upon the certification of the Secretary of Commerce that the foreign commerce of the United The undisputed factual antecedents were succinctly summarized by the CA as follows:
States in its competition with that of foreign nations is prejudiced the provisions, or any of them, of Title I of this
Act, or by the laws of any foreign country or countries relating to the carriage of goods by sea, the President of On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to
the United States, may, from time to time, by proclamation, suspend any or all provisions of Title I of this Act for PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision Phils. Bldg.,
such periods of time or indefinitely as may be designated in the proclamation. The President may at any time Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen Million
rescind such suspension of Title I hereof, and any provisions thereof which may have been suspended shall Pesos (?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal
thereby be reinstated and again apply to contracts thereafter made for the carriage of goods by sea. Any Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.
proclamation of suspension or rescission of any such suspension shall take effect on a date named therein,
which date shall be not less than ten days from the issue of the proclamation. After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the
policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was
Any contract for the carriage of goods by sea, subject to the provisions of this Act, effective during any period issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.
when title I hereof, or any part thereof, is suspended, shall be subject to all provisions of law now or hereafter
applicable to that part of Title I which may have thus been suspended.

4
On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount ordering it to indemnify PAP for the loss of the subject machineries since the latter, without notice and/or
insured. consent, transferred the same to a location different from that indicated in the fire insurance policy.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, Ruling of the CA
the insured machineries and equipment were transferred by PAP Co. to a location different from that
indicated in the policy. Specifically, that the insured machineries were transferred in September 1996 from the On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the
Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). attorney’s fees. The decretal portion of the CA decision reads:
Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by
RCBC, the party duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must
claim. Distraught, PAP Co. filed the complaint below against Malayan.4 indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997
Ruling of the RTC until fully paid. However, the Five Hundred Thousand Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as
attorney’s fees is DELETED. With costs.
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP)
an indemnity for the loss under the fire insurance policy as well as for attorney’s fees. The dispositive portion of SO ORDERED.6
the RTC decision reads:
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby properties during the efficacy of the insurance policy. Malayan also failed to show that its contractual consent
ordered: was needed before carrying out a transfer of the insured properties. Despite its bare claim that the original
and the renewed insurance policies contained provisions on transfer limitations of the insured properties,
a) To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the loss under the Malayan never cited the specific provisions.
fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on October 12,
1997 until fully paid; The CA further stated that even if there was such a provision on transfer restrictions of the insured properties,
b) To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of attorney’s still Malayan could not escape liability because the transfer was made during the subsistence of the original
fees; [and,] policy, not the renewal policy. PAP transferred the insured properties from the Sanyo Factory to the Pace
c) To pay the costs of suit. Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan was aware or should have
been aware of such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an
SO ORDERED.5 insurance policy was a contract of adhesion, any ambiguity must be resolved against the party that prepared
the contract, which, in this case, was Malayan.
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy
because, although there was a change in the condition of the thing insured as a result of the transfer of the Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk
subject machineries to another location, said insurance company failed to show proof that such transfer of the loss. It, thus, could not use such transfer as an excuse for not paying the indemnity to PAP. Although the
resulted in the increase of the risk insured against. In the absence of proof that the alteration of the thing insurance proceeds were payable to RCBC, PAP could still sue Malayan to enforce its rights on the policy
insured increased the risk, the contract of fire insurance is not affected per Article 169 of the Insurance Code. because it remained a party to the insurance contract.

The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following
with the notice requirement under the policy considering that it was RCBC which procured the insurance. PAP
acted in good faith in notifying RCBC about the transfer and the latter even conducted an inspection of the GROUNDS
machinery in its new location.
I. THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND
APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND

5
THUS RULING IN THE QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE III. THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND
INSURANCE CONTRACT BECAUSE: APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE
QUESTIONED DECISION THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE TO PROVE AND CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN
AFFIRMATIVE WARRANTY OR A REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS IV. THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD
AT THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO IN THE QUESTIONED DECISION AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED
RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT SHALL BE ADOPTED.7
LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS INSURED
AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES PETITIONER MALAYAN TO Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed
CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT, concealment, misrepresentation and breach of an affirmative warranty under the renewal policy when it
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION transferred the location of the insured properties without informing it. Such transfer affected the correct
TO SECTION 31 OF THE INSURANCE CODE, RESPECTIVELY. estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk
and, if so, at what rate of premium. The transfer also affected Malayan’s ability to control the risk by guarding
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT, against the increase of the risk brought about by the change in conditions, specifically the change in the
MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED location of the risk.
PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY. Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code8 when it
did not inform Malayan of the actual and new location of the insured properties. In fact, before the issuance
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND LIMITATIONS TO THE of the renewal policy on May 14, 1997, PAP even informed it that there would be no changes in the renewal
RENEWAL POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST policy. Malayan also argues that PAP is guilty of breach of warranty under the renewal policy in violation of
PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS Section 74 of the Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured
ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF properties were located at the Sanyo Factory, these were already transferred to the Pace Factory. Malayan
THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY. adds that PAP is guilty of misrepresentation upon a material fact in violation of Section 45 of the Insurance
Code10 when it informed Malayan that there would be no changes in the original policy, and that the original
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK BECAUSE OF policy would be renewed on an "as is" basis.
THE UNILATERAL TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY
RESPONDENT PAP CO. Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured
properties under the insurance policy was with its knowledge and consent. Granting that PAP informed RCBC
II. THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE of the transfer or change of location of the insured properties, the same is irrelevant and does not bind
HONORABLE COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME Malayan considering that RCBC is a corporation vested with separate and distinct juridical personality.
OF THE LOSS UNTIL FULLY PAID. Malayan did not consent to be the principal of RCBC. RCBC did not also act as Malayan’s representative.

JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a
MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF TWELVE result of the unilateral transfer of the insured properties. According to Malayan, the Sanyo Factory was
PERCENT (12%) PER ANNUM. occupied as a factory of automotive/computer parts by the assured and factory of zinc & aluminum die cast
and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED BY Pace Factory was occupied as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657%
THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY under 6.1.2 A.
REFUSED OR WITHHELD THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO. COMMITTED
CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER
MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.

6
PAP’s position What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the
entity which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been
On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or sister companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to
deception on its part and that its claim is not fraudulent. It insists that it can still sue to protect its rights and Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral,
interest on the policy notwithstanding the fact that the proceeds of the same was payable to RCBC, and that PAP dealt directly with Malayan.
it can collect interest at the rate of 12% per annum on the proceeds of the policy because its claim for
indemnity was unduly delayed without legal justification. The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel stipulated in
open court that it was Malayan’s authorized insurance agent, Rodolfo Talusan, who procured the original
The Court’s Ruling policy from Malayan, not RCBC. This was the reason why Talusan’s testimony was dispensed with.

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander Barrera,
under the fire insurance policy. Administrative Assistant of Malayan, testified that he was the one who procured Malayan’s renewal policy, not
RCBC, and that RCBC merely referred fire insurance clients to Malayan. He stressed, however, that no written
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 referral agreement exists between RCBC and Malayan. He also denied that PAP notified Malayan about the
fire insurance policy from Malayan covering its machineries and equipment effective for one (1) year or until transfer before the renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano),
May 13, 1997; that the policy expressly stated that the insured properties were located at "Sanyo Precision Phils. informed him that the fire insurance would be renewed on an "as is basis."15
Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was
renewed11 on an "as is" basis for another year or until May 13, 1998; that the subject properties were later Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan
transferred to the Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the was not indubitably established. At best, PAP could only come up with the hearsay testimony of its principal
renewal policy, a fire broke out at the Pace Factory which totally burned the insured properties. witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:

The policy forbade the removal of the insured properties unless sanctioned by Malayan Q What did you do as Branch Manager of Pap Co. Ltd.?
A What I did I instructed my Secretary, because these equipment was bank loan and because of the
Condition No. 9(c) of the renewal policy provides: insurance I told my secretary to notify.
Q To notify whom?
9. Under any of the following circumstances the insurance ceases to attach as regards the property affected A I told my Secretary to inform the bank.
unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company Q You are referring to RCBC?
signified by endorsement upon the policy, by or on behalf of the Company: A Yes, sir.
xxxx
xxx xxx xxx Q After the RCBC was informed in the manner you stated, what did you do regarding the new location of
these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is concerned?
(c) If property insured be removed to any building or place other than in that which is herein stated to be A After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance
insured.12 but we were not able to contact Malayan Insurance so I instructed again my secretary to inform Malayan
Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any about the transfer.
building or place required the consent of Malayan. Any transfer effected by the insured, without the insurer’s Q Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?
consent, would free the latter from any liability. A Dory Ramos.
Q How many secretaries do you have at that time in your office?
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal A Only one, sir.
Q Do you know a certain Maricar Jardiniano?
The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of A Yes, sir.
the insured properties from the Sanyo factory to the Pace factory. The Court has combed the records and Q Why do you know her?
found nothing that would show that Malayan was duly notified of the transfer of the insured properties. A Because she is my secretary.
Q So how many secretaries did you have at that time?

7
A Two, sir.
Q What happened with the instruction that you gave to your secretary Dory Ramos about the matter of
informing the defendant Malayan Insurance Co of the new location of the insured properties?
A She informed me that the notification was already given to Malayan Insurance.
Q Aside from what she told you how did you know that the information was properly relayed by the said
secretary, Dory Ramos, to Malayan Insurance?
A I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Q Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance
Company about the transfer of the properties insured to the new location, do you know what happened
insofar this information was given to the defendant Malayan Insurance?
A I heard that someone from Malayan Insurance came over to our company.
Q Did you come to know who was that person who came to your place at Pace Pacific?
A I do not know, sir.
Q How did you know that this person from Malayan Insurance came to your place?
A It is according to the report given to me.
Q Who gave that report to you?
A Dory Ramos.
Q Was that report in writing or verbally done?
A Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the Malayan is entitled to rescind the insurance contract
notice to either Malayan or RCBC. PAP should have presented his secretaries, Dory Ramos and Maricar
Jardiniano, at the witness stand. His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were others, that the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured
transferred to a different location only after the renewal of the fire insurance policy.
COURT
Q When did you transfer the machineries and equipments before the renewal or after the renewal of the incident at the Pace Factory, which opined that "[g]iven that the location of risk covered under the policy is
insurance?
A After the renewal.
COURT
Q You understand my question?
A Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before
the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to
the Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace
Factory increased the hazard to which the insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as factory of
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic gear for copy
machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg.
Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders with a rate of 0.657%
under 6.1.2 A. Hence, there was an increase in the hazard as indicated by the increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous
environment and negatively affected the fire rating stated in the renewal policy. The increase in tariff rate
from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in risk would necessarily
entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the
issue, PAP failed to refute Malayan’s argument on the increased risk.
Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried
with it the same stipulations and limitations. The terms and conditions in the renewal policy provided, among
properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace
Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the
transfer was at PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court agrees
with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated the fire
not the location affected, the policy will, therefore, not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties, without notice and without
Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation
and a breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance."
8
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in I attest that the conclusions in the above Decision had been reached in consultation before the case was
case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides, assigned to the writer of the opinion of the Court's Division.
as follows:
PRESBITERO J. VELASCO, JR.
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy Associate Justice
made without the consent of the insurer, by means within the control of the insured, and increasing the risks, Chairperson, Third Division
entitles an insurer to rescind a contract of fire insurance.
CERTIFICATION
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions
are present, to wit: Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the
1) the policy limits the use or condition of the thing insured; writer of the opinion of the Court's Division.
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer; MARIA LOURDES P. A. SERENO
4) the alteration is made by means within the insured’s control; and Chief Justice
5) the alteration increases the risk of loss.20

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy
stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the alteration of the location increased the risk of loss.

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE.
Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss of the insured
machineries and equipment suffered by PAP Co., Ltd.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO*

Chief Justice

PRESBITERO J. VELASCO, JR.

Associate Justice DIOSDADO M. PERALTA
Associate Justice
MARVIC MARIO VICTOR F. LEONEN
Associate Justice

ATTESTATION

9
 On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584[8] to Manuel, with petitioner Ma.
THIRD DIVISION Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.[9]
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a
MA. LOURDES S. FLORENDO, G.R. No. 186983 claim with Philam Plans for the payment of the benefits under her husbands plan.[10] Because Manuel died
Petitioner, before his pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans
Present: forwarded her claim to Philam Life.[11]
VELASCO, JR., J., Chairperson,
- versus - PERALTA, On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her claim. Philam Life found that Manuel was
ABAD, on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes
MENDOZA, and mellitus and was taking insulin. Lourdes renewed her demand for payment under the plan[13] but Philam Plans
PERLAS-BERNABE, JJ. rejected it,[14] prompting her to file the present action against the pension plan company before the Regional
PHILAM PLANS, INC., Trial Court (RTC) of Quezon City.[15]
PERLA ABCEDE and Promulgated:
MA. CELESTE ABCEDE, On March 30, 2006 the RTC rendered judgment,[16] ordering Philam Plans, Perla and Ma. Celeste, solidarily, to
Respondents. February 22, 2012 pay Lourdes all the benefits from her husbands pension plan, namely: P997,050.00, the proceeds of his term
insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00 as moral
x --------------------------------------------------------------------------------------- x damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of
his health from his pension plan application.
DECISION
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,[17] holding that insurance policies
ABAD, J.: are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to
disclose to Philam Plans conditions affecting the risk of which he was aware or material facts that he knew or
ought to know.[18]
This case is about an insureds alleged concealment in his pension plan application of his true state of health
and its effect on the life insurance portion of that plan in case of death. Issues Presented

The Facts and the Case The issues presented in this case are:

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent
Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need
price of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years.[1] Manuel
signed the application and left to Perla the task of supplying the information needed in the
application.[2] Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales counselor.[3]
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to
Florendo.[4] This was covered by a Group Master Policy that Philippine American Life Insurance Company
(Philam Life) issued to Philam Plans.[5] Under the master policy, Philam Life was to automatically provide life
insurance coverage, including accidental death, to all who signed up for Philam Plans comprehensive
pension plan.[6] If the plan holder died before the maturity of the plan, his beneficiary was to instead receive
the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take
care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of
the pension plan.[7]
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did
not answer questions in his pension plan application regarding the ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma.
Celeste to declare the condition of Manuels health in the pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans approval of Manuels pension plan application and
acceptance of his premium payments precluded it from denying Lourdes claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application relating to his
medical history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to
approve the application just as it was, it cannot cry concealment on Manuels part. Further, Lourdes adds that
Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame
him for not mentioning it.[19]

10
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of
Manuels health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely
largely on his stating the truth regarding his health in his application. For, after all, he knew more than anyone
that he had been under treatment for heart condition and diabetes for more than five years preceding his
submission of that application. But he kept those crucial facts from Philam Plans.
contemplated.[24] But a pacemaker is an electronic device implanted into the body and connected to the
wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart
muscles and restores normalcy to the heartbeat.[25] That Manuel still had his pacemaker when he applied for a
pension plan in October 1997 is an admission that he remained under treatment for irregular heartbeat within
five years preceding that application.

Besides, when Manuel signed the pension plan application, he adopted as his own the written representations Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he
and declarations embodied in it. It is clear from these representations that he concealed his chronic heart submitted his pension plan application. These clearly fell within the five-year period. More, even if Perlas
ailment and diabetes from Philam Plans. The pertinent portion of his representations and declarations read as knowledge of Manuels pacemaker may be applied to Philam Plans under the theory of imputed
follows: knowledge,[26] it is not claimed that Perla was aware of his two other afflictions that needed medical
I hereby represent and declare to the best of my knowledge that: treatments. Pursuant to Section 27[27] of the Insurance Code, Manuels concealment entitles Philam Plans to
rescind its contract of insurance with him.
xxxx Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the
required details did not make her his agent and bind him to her concealment of his true state of health. Since
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or there is no evidence of collusion between them, Perlas fault must be considered solely her own and cannot
stomach disorder or any other physical impairment in the last five years. prejudice Manuel.[28]
(d) I am in good health and physical condition.
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information
If your answer to any of the statements above reveal otherwise, please give details in the space provided for: stated in it or had someone do it under his direction. Thus:

Date of confinement : ____________________________ APPLICATION FOR PENSION PLAN

Name of Hospital or Clinic : ____________________________ (Comprehensive)
Name of Attending Physician : ____________________________
Findings : ____________________________ I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance
Others: (Please specify) : ____________________________ with the General Provisions set forth in this application and hereby certify that the date and other information
x x x x.[20] (Emphasis supplied) stated herein are written by me or under my direction. x x x.[29] (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he
years preceding his application. This is implicit from the phrase If your answer to any of the statements above certified that he authorized her action. Philam Plans had every right to act on the faith of that certification.
(specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise,
please give details in the space provided for. But this is untrue since he had been on Coumadin, a treatment Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health
for venous thrombosis,[21] and insulin, a drug used in the treatment of diabetes mellitus, at that time.[22] would not hinder the approval of his application and that what is written on his application made no
difference to the insurance company. But, indubitably, Manuel was made aware when he signed the pension
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the
pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension representations contained in that application. Thus:
plan.[23] But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the DECLARATIONS AND REPRESENTATIONS
application and disown the responsibility for having it filled up. If he furnished Perla the needed information
and delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans x x x x
instruction.
I agree that the insurance coverage of this application is based on the truth of the foregoing
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a representations and is subject to the provisions of the Group Life Insurance Policy issued by THE PHILIPPINE
pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the disclosure AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.[30] (Emphasis supplied)

11
As the Court said in New Life Enterprises v. Court of Appeals:[31] ROBERTO A. ABAD
Associate Justice
It may be true that x x x insured persons may accept policies without reading them, and that this is not
negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read WE CONCUR:
the insurance contracts, and this can be reasonably expected of him considering that he has been a
businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of PRESBITERO J. VELASCO, JR.
which important consideration he could not have been unaware as it was precisely the reason for his Associate Justice
procuring the same.[32] Chairperson

The same may be said of Manuel, a civil engineer and manager of a construction company.[33] He could be DIOSDADO M. PERALTA JOSE CATRAL MENDOZA
expected to know that one must read every document, especially if it creates rights and obligations affecting Associate Justice Associate Justice
him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could
reasonably be expected that he would not trifle with something that would provide additional financial ESTELA M. PERLAS-BERNABE
security to him and to his wife in his twilight years. Associate Justice

Three. In a final attempt to defend her claim for benefits under Manuels pension plan, Lourdes points out that ATTESTATION
any defect or insufficiency in the information provided by his pension plan application should be deemed
waived after the same has been approved, the policy has been issued, and the premiums have been I attest that the conclusions in the above Decision had been reached in consultation before the case was
collected. [34] assigned to the writer of the opinion of the Courts Division.

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year PRESBITERO J. VELASCO, JR.
incontestability period. It states: Associate Justice
Chairperson, Third Division
VIII. INCONTESTABILITY
CERTIFICATION
After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any
claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the
or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement conclusions in the above Decision had been reached in consultation before the case was assigned to the
lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of writer of the opinion of the Courts Division.
approval of your request for reinstatement.[35]
RENATO C. CORONA
The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the Chief Justice
ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan,[36] the one year incontestability
period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes entitlement to
the benefits of her husbands pension plan.

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated
December 18, 2007.

SO ORDERED.

12
 Republic of the Philippines c)attended or been admitted to any hospital or other medical facility?
SUPREME COURT
Manila 6.Have you ever had or sought advice for:

FIRST DIVISION xxx xxx xxx

G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, b)urine, kidney or bladder disorder? (Rollo, p. 53)
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents. The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation with a
certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu
QUIASON, J.: complications. The other questions were answered in the negative (Rollo, p. 53).

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and
Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution dated confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his
April 22, 1992, denying reconsideration thereof. confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.

We grant the petition. On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed an
action for specific performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro
I. On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was Manila. Petitioner filed its answer with counterclaim and a list of exhibits consisting of medical records furnished
issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of accidental death. The by the Lung Center of the Philippines.
designated beneficiary was his mother, respondent Bernarda Bacani.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment"
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner, where they manifested that they "have no evidence to refute the documentary evidence of
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).
findings prompted it to reject the claim.
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material facts as well as allegations regarding the health of the insured. Private respondents failed to oppose said request or
relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing reply thereto, thereby rendering an admission of the matters alleged.
the total premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents.
Petitioner claimed that the insured gave false statements in his application when he answered the following The dispositive portion of the decision is reproduced as follows:
questions:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, condemning
5.Within the past 5 years have you: 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
a)consulted any doctor or other health practitioner? Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable attorney's fees and
b)submitted to: costs of suit.

EGG? Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

X-rays?
blood tests? In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made
other tests? 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".

13
 Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate court hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides.
ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of death was It appears that such concealment was deliberate on his part.
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 The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of
prior to the approval and issuance of the insurance policy. Moreover, the appellate court agreed with the trial the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance
court that the policy was "non-medical" (Rollo, pp. 4-5). 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
Petitioner's motion for reconsideration was denied; hence, this petition. 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 . . . "
II. We reverse the decision of the Court of Appeals.
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which allows
The rule that factual findings of the lower court and the appellate court are binding on this Court is not the injured party to rescind a contract of insurance where there is concealment, ineffective (See Vda. de
absolute and admits of exceptions, such as when the judgment is based on a misappreciation of the facts Canilang v. Court of Appeals, supra).
(Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
In weighing the evidence presented, the trial court concluded that indeed there was concealment and settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that
misrepresentation, however, the same was made in "good faith" and the facts concealed or misrepresented his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in
were irrelevant since the policy was "non-medical". We disagree. making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate to We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of
the other, in good faith, all facts within his knowledge which are material to the contract and as to which he the concealment employed by the insured. It must be emphasized that rescission was exercised within the
makes no warranty, and which the other has no means of ascertaining. Said Section provides: two-year contestability period as recognized in Section 48 of The Insurance Code.

A neglect to communicate that which a party knows and ought to communicate, is called concealment. WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the SO ORDERED.
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). Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

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.

14
 Republic of the Philippines Has any life insurance company ever refused your application for insurance or for reinstatement of a lapsed
SUPREME COURT policy or offered you a policy different from that applied for? If, so, name company and date.
Manila
SECOND DIVISION In its brief, appellant rationalized its thesis thus:
G.R. No. L-30685 May 30, 1983
NG GAN ZEE, plaintiff-appellee, ... As pointed out in the foregoing summary of the essential facts in this case, the insured had in January, 1962,
vs. applied for reinstatement of his lapsed life insurance policy with the Insular Life Insurance Co., Ltd, but this was
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant. 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]
Alberto Q. Ubay for plaintiff-appellee. question propounded to him. ... 1
Santiago F. A lidio for defendant-appellant.
The lower court found the argument bereft of factual basis; and We quote with approval its disquisition on the
ESCOLIN, J.: matter-

This is an appeal from the judgment of the Court of First Instance of Manila, ordering the appellant Asian- On the first question there is no evidence that the Insular Life Assurance Co., Ltd. ever refused any application
Crusader Life Assurance Corporation to pay the face value of an insurance policy issued on the life of Kwong of Kwong Nam for insurance. Neither is there any evidence that any other insurance company has refused
Nam the deceased husband of appellee Ng Gan Zee. Misrepresentation and concealment of material facts any application of Kwong Nam for insurance.
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 evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request for
the date of the filing of the complaint, until paid, and the costs. " 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
The Court of Appeals certified this appeal to Us, as the same involves solely a question of law. 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
On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, Kwong Nam answered 'No' to the question whether any life insurance company ever refused his application
with his wife, appellee Ng Gan Zee as beneficiary. On the same date, appellant, upon receipt of the required for reinstatement of a lapsed policy he did not misrepresent any fact.
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 ... the evidence shows that the application of Kwong Nam with the Insular Life Assurance Co., Ltd. was for the
time of his death. 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.
On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for payment of the 369531 was reinstated for the amount of P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No
face value of the policy. On the same date, she submitted the required proof of death of the insured. new policy was issued by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection with said
Appellant denied the claim on the ground that the answers given by the insured to the questions appealing in application for reinstatement and amendment. Such being the case, the Court finds that there is no
his application for life insurance were untrue. misrepresentation on this matter. 2

Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco Y. Appellant further maintains that when the insured was examined in connection with his application for life
Mandamus, and the latter, after conducting an investigation, wrote the appellant that he had found no insurance, he gave the appellant's medical examiner false and misleading information as to his ailment and
material concealment on the part of the insured and that, therefore, appellee should be paid the full face previous operation. The alleged false statements given by Kwong Nam are as follows:
value of the policy. This opinion of the Insurance Commissioner notwithstanding, appellant refused to settle its
obligation. 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
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the following General Hospital by Dr. Yap. Now, claims he is completely recovered.
question appearing in the application for life insurance-
To demonstrate the insured's misrepresentation, appellant directs Our attention to:

15
[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.
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.

On the bases of the above undisputed medical data showing that the insured was operated on for peptic Section 32 of Insurance Law [Act No. 24271 provides as follows:
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 Section 32. The right to information of material facts maybe waived either by the terms of insurance or by
material concealment. neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is
communicated.
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 It has been held that where, upon the face of the application, a question appears to be not answered at all
agreed upon? 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
The lower court answered this question in the negative, and We agree.
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an important
Section 27 of the Insurance Law [Act 2427] provides: 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
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts within his from the Chinese General Hospital or require copies of the hospital records from the appellant before acting
knowledge which are material to the contract, and which the other has not the means of ascertaining, and as on the application for insurance. The fact of the matter is that the defendant was too eager to accept the
to which he makes no warranty. 3 application and receive the insured's premium. It would be inequitable now to allow the defendant to avoid
liability under the circumstances."
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 Finding no reversible error committed by the trial court, the judgment appealed from is hereby affirmed, with
intentionally withholds the same." 4 costs against appellant Asian-Crusader life Assurance Corporation.

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but SO ORDERED.
fraudulent, or the fact must have been intentionally withheld." 5
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and De Castro), JJ., concur.
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 Abad Santos, J., I reserve my vote.
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 Republic of the Philippines
Court does not clearly and satisfactorily establish that defense." SUPREME COURT
Manila
It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the tumor for which EN BANC
he was operated on was "associated with ulcer of the stomach." In the absence of evidence that the insured G.R. No. L-16163 February 28, 1963
had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS SATURNINO, minor,
statement that said tumor was "associated with ulcer of the stomach, " should be construed as an expression plaintiffs-appellants,

16
 vs. Insurance Law (Section 30) provides that "materiality is to be determined not by the event, but solely by the
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee. probable and reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the proposed contract, or in making his inquiries." It seems to be the contention of appellants
Eleazaro A. Samson for plaintiffs-appellants. that the facts subject of the representation were not material in view of the "non-medical" nature of the
Abello & Macias for defendant-appellee. insurance applied for, which does away with the usual requirement of medical examination before the policy
is issued. The contention is without merit. If anything, the waiver of medical examination renders even more
MAKALINTAL, J.: 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
Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover the sum of consideration in deciding whether to issue the policy or not. It is logical to assume that if appellee had been
P5,000.00, corresponding to the face value of an insurance policy issued by defendant on the life of Estefania properly apprised of the insured's medical history she would at least have been made to undergo medical
A. Saturnino, and the sum of P1,500.00 as attorney's fees. Defendant, now appellee, set up special defenses in examination in order to determine her insurability.
its answer, with a counterclaim for damages allegedly sustained as a result of the unwarranted presentation of
this case. Both the complaint and the counterclaim were dismissed by the trial court; but appellants were Appellants argue that due information concerning the insured's previous illness and operation had been given
declared entitled to the return of the premium already paid; plus interest at 6% up to January 8, 1959, when a to appellees agent Edward A. Santos, who filled the application form after it was signed in blank by Estefania
check for the corresponding amount — P359.65 — was sent to them by appellee. A. Saturnino. This was denied by Santos in his testimony, and the trial court found such testimony to be true. This
is a finding of fact which is binding upon us, this appeal having been taken upon questions of law alone. We
The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses with do not deem it necessary, therefore, to consider appellee's additional argument, which was upheld by the
the medical examination of the applicant usually required in ordinary life policies. However, detailed trial court, that in signing the application form in blank and leaving it to Edward A. Santos to fill (assuming that
information is called for in the application concerning the applicant's health and medical history. The written to be the truth) the insured in effect made Santos her agent for that purpose and consequently was
application in this case was submitted by Saturnino to appellee on November 16, 1957, witnessed by responsible for the errors in the entries made by him in that capacity.
appellee's agent Edward A. Santos. The policy was issued on the same day, upon payment of the first year's
premium of P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants In the application for insurance signed by the insured in this case, she agreed to submit to a medical
here, who are her surviving husband and minor child, respectively, demanded payment of the face value of examination by a duly appointed examiner of appellee if in the latter's opinion such examination was
the policy. The claim was rejected and this suit was subsequently instituted. necessary as further evidence of insurability. In not asking her to submit to a medical examination, appellants
maintain, appellee was guilty of negligence, which precluded it from finding about her actual state of health.
It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was No such negligence can be imputed to appellee. It was precisely because the insured had given herself a
operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and clean bill of health that appellee no longer considered an actual medical checkup necessary.
the glands found in the right armpit. She stayed in the hospital for a period of eight days, after which she was
discharged, although according to the surgeon who operated on her she could not be considered definitely Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insured herself did
cured, her ailment being of the malignant type. not know, since her doctor never told her, that the disease for which she had been operated on was cancer.
In the first place the concealment of the fact of the operation itself was fraudulent, as there could not have
Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in her been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it is not necessary
application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had, to show actual fraud on the part of the insured. In the case of Kasprzyk v. Metropolitan Insurance Co., 140
among other ailments listed in the application, cancer or other tumors; that she had not consulted any N.Y.S. 211, 214, it was held:
physician, undergone any operation or suffered any injury within the preceding five years; and that she had
never been treated for nor did she ever have any illness or disease peculiar to her sex, particularly of the Moreover, if it were the law that an insurance company could not depend a policy on the ground of
breast, ovaries, uterus, and menstrual disorders. The application also recites that the foregoing declarations misrepresentation, unless it could show actual knowledge on the part of the applicant that the statements
constituted "a further basis for the issuance of the policy." were false, then it is plain that it would be impossible for it to protect itself and its honest policyholders against
fraudulent and improper claims. It would be wholly at the mercy of any one who wished to apply for
The question at issue is whether or not the insured made such false representations of material facts as to insurance, as it would be impossible to show actual fraud except in the extremest cases. It could not rely on an
avoid the policy. There can be no dispute that the information given by her in her application for insurance application as containing information on which it could act. There would be no incentive to an applicant to
was false, namely, that she had never had cancer or tumors, or consulted any physician or undergone any tell the truth.
operation within the preceding period of five years. Are the facts then falsely represented material? The

17
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by
this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as "negligence to communicate that which a party knows
and ought to communicate" (Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life
Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed., Vol. 3:

"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 judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium
already paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and
Regala, JJ., concur.

18