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G.R. No. L-12707 August 10, 1918

MRS. HENRY E. HARDING, and her husband, plaintiffs-appellees,vs.COMMERCIAL UNION ASSURANCE COMPANY, defendant-appellant.

Lawrence & Ross for appellant.Gibbs, McDonough & Johnson for appellees.

FISHER, J.:

This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest, alleged tobe due under the terms of a policy of insurance. The trial court gave plaintiffs judgment for theamount demanded, with interest and costs, and from that decision the defendant appeals.

The court below stated the issues made by the pleadings in this case, and its finding of fact, asfollows:

It is alleged by plaintiffs and admitted by defendant that plaintiffs are husband and wife andresidents of the city of Manila; that the defendant is a foreign corporation organized andexisting under and by virtue of the laws of Great Britain and duly registered in the PhilippineIslands, and Smith, Bell & Co. (limited), a corporation organized and existing under the laws ofthe Philippine Islands, with its principal domicile in the city of Manila, is the agent in thePhilippine Islands of said defendant.

The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs. Henry E. Harding was theowner of a Studebaker automobile, registered number 2063, in the city of Manila; that on saiddate; in consideration of the payment to the defendant of the premium of P150, by saidplaintiff, Mrs. Henry E. Harding, with the consent of her husband, the defendant by its duly

authorized agent, Smith, Bell & Company (limited), made its policy of insurance in writingupon said automobile was set forth in said policy to be P3,000 that the value of saidautomobile was set forth in said policy (Exhibit A) to be P3,000; that on March 24, 1916, saidautomobile was totally destroyed by fire; that the loss thereby to plaintiffs was the sum of P3,000; that thereafter, within the period mentioned in the said policy of insurance, theplaintiff, Mrs. Henry E. Harding, furnished the defendant the proofs of her said loss andinterest, and otherwise performed all the conditions of said policy on her part, and that thedefendant has not paid said loss nor any part thereof, although due demand was made upondefendant therefor.

The defendant, by its answer, admitted the allegations of the residence and status of theparties and denied all the other allegation of the said complaint, and for a separate andaffirmative defense alleged (1) that on February 17, 1916, at the city of Manila, P.I. thedefendant upon request of plaintiff, Mrs. Henry E. Harding, issued to the said plaintiff thepolicy of insurance on an automobile alleged by the said plaintiff to be her property; that thesaid request for the issuance of said policy of insurance was made by means of a proposal inwriting signed and delivered by said plaintiff to the defendant, guaranteeing the truth of thestatements contained therein which said proposal is referred to in the said policy of insurancemade a part thereof; (2) that certain of the statements and representations contained in saidproposal and warranted by said plaintiff to be true, to wit: (a) the price paid by the proposer



for the said automobile; (b) the value of said automobile at the time of the execution anddelivery of the said proposal and (c) the ownership of said automobile, were false and knownto be false by the said plaintiff at the time of signing and delivering the said proposal and weremade for the purpose of misleading and deceiving the defendant, and inducing the defendant,relying upon the warranties, statements, and representations contained in the said proposaland believing the same to be true, issued the said policy of insurance.

The defendant prays that judgment be entered declaring the said policy of insurance to be nulland void, and that plaintiffs take nothing by this action; and for such further relief as to thecourt may seem just and equitable.

The evidence in this case shows that some time in the year 1913 Levy Hermanos, the Manilaagents for the Studebaker automobile, sold the automobile No. 2063 to John Canson forP3,200 (testimony of Mr. Diehl); that under date of October 14, 1914, John Canson sold thesaid automobile to Henry Harding for the sum of P1,500 (Exhibit 2); that under date of November 19, 1914, the said Henry Harding sold the said automobile No. 2063 to J.Brannigan, of Los Baños, Province of Laguna, P.I., for the sum of P2,000 (Exhibit 3); that under date of December 20, 1915, J. C. Graham of Los Baños, Province of Laguna, P.I., sold

the said automobile No. 2063 to Henry Harding of the city of Manila for the sum of P2,800(Exhibit 4 and testimony of J. C. Graham); that on or about January 1, 1916, the said HenryHarding gave the said automobile to his wife; Mrs. Henry E. Harding, one of the plaintiffs, as apresent; that said automobile was repaired and repainted at the Luneta Garage at a cost of some P900 (testimony of Mr. Server); that while the said automobile was at the LunetaGarage; the said Luneta Garage, acting as agent for Smith, Bell & Company, (limited), solicitedof the plaintiff Mrs. Harding the insurance of said automobile by the defendant Company(testimony of Mrs. Henry Harding and Mr. Server); that a proposal was filled out by the saidagent and signed by the plaintiff Mrs. Henry E. Harding, and in said proposal under theheading "Price paid by proposer," is the amount of "3,500" and under another heading"Present value" is the amount of "3,000" (Exhibit 1).

The evidence tends to show that after the said proposal was made a representative of theManila agent of defendant went to the Luneta Garage and examined said automobile No. 2063and Mr. Server, the General Manager of the Luneta Garage, an experienced automobilemechanic, testified that at the time this automobile was insured it was worth about P3,000,and the defendant, by and through its said agent Smith, Bell & Company (limited), thereafterissued a policy of insurance upon proposal in which policy the said automobile was describedas of the "present value" of P3,000 and the said defendant charged the said plaintiff Mrs.Henry E. Harding as premium on said policy the sum of P150, or 5 per cent of the thenestimated value of P3,000. (Exhibit A.)

The "Schedule" in said policy of insurance describes the automobile here in question, andprovides in part of follows:

"Now it is hereby agreed as follows:

"That during the period above set forth and during any period for which the companymay agree to renew this policy the company will subject to the exception and conditionscontained herein or endorsed hereon indemnify the insured against loss of or damageto any motor car described in the schedule hereto (including accessories) by whatever



cause such loss or damage may be occasioned and will further indemnify the insured upto the value of the car or P3,000 whichever is the greater against any claim at commonlaw made by any person (not being a person in the said motor car nor in the insured'sservice) for loss of life or for accidental bodily injury or damage to property caused bythe said motor car including law costs payable in connection with such claim whenincurred with the consent of the company."

The evidence further shows that on March 24, 1916, the said automobile was totally destroyedby fire, and that the iron and steel portions of said automobile which did not burn were takeninto the possession of the defendant by and through its agent Smith, Bell & Company(limited), and sold by it for a small sum, which had never been tendered to the plaintiff priorto the trial of this case, but in open court during the trial the sum of P10 as the proceeds of such sale was tendered to plaintiff and refused.

Upon the facts so found, which we hold are supported by the evidence, the trial judge decided that there was no proof of fraud on the part of plaintiff in her statement of the value of the automobile, orwith respect to its ownership; that she had an insurable interest therein; and that defendant, havingagreed to the estimated value, P3,000, and having insured the automobile for that amount, upon the

basis of which the premium was paid, is bound by it and must pay the loss in accordance with thestipulated insured value. The assignments of error made on behalf of appellant put in issue thecorrectness of those conclusions of law, and some others of minor importance relating to theexclusion of evidence. Disposing of the minor objections first, as we have reached the conclusion thatthe trial court was right in holding that the defendant is bound by the estimated value of theautomobile upon which policy was issued, and that the plaintiff was not guilty of fraud in regardthereto, the exclusion of the testimony of the witness Diehl is without importance. It merely tendedto show the alleged actual value of the automobile, and in the view we take of the case suchevidence was irrelevant.

Appellant contends that Mrs. Harding was not the owner of the automobile at the time of the

issuance of the policy, and, therefore, had no insurable interest in it. The court below found that theautomobile was given to plaintiff by her husband shortly after the issuance of the policy here inquestion. Appellant does not dispute the correctness of this finding, but contends that the gift wasvoid, citing article 1334 of the Civil Code which provides that "All gifts between spouses during themarriage shall be void. Moderate gifts which the spouses bestow on each other on festive days of thefamily are not included in this rule."

We are of the opinion that this contention is without merit. In the case of Cook vs. McMicking 27 Phil.Rep., 10), this court said:

It is claimed by the appellants that the so-called transfer from plaintiff's husband to her wascompletely void under article 1458 of the Civil Code and that, therefore, the property stillremains the property of Edward Cook and subject to levy under execution against him.

In our opinion the position taken by appellants is untenable. They are not in a position tochallenge the validity of the transfer, if it may be called such. They bore absolutely no relationto the parties to the transfer at the time it occurred and had no rights or interests inchoate,present, remote, or otherwise, in the property in question at the time the transfer occurred.

Although certain transfers from husband to wife or from wife to husband are prohibited in thearticle referred to, such prohibition can be taken advantage of only by persons who bear such



a relation to the parties making the transfer or to the property itself that such transferinterferes with their rights or interests. Unless such a relationship appears the transfer cannot be attacked.

Even assuming that defendant might have invoked article 1334 as a defense, the burden would beupon it to show that the gift in question does not fall within the exception therein established. Wecannot say, as a matter of law, that the gift of an automobile by a husband to his wife is not amoderate one. Whether it is or is not would depend upon the circumstances of the parties, as towhich nothing is disclosed by the record.

Defendant contends that the statement regarding the cost of the automobile was a warranty, that the statement was false, and that, therefore, the policy never attached to the risk. We are of theopinion that it has not been shown by the evidence that the statement was false on the contrarywe believe that it shows that the automobile had in fact cost more than the amount mentioned. Thecourt below found, and the evidence shows, that the automobile was bought by plaintiff's husband afew weeks before the issuance of the policy in question for the sum of P2,800, and that between thattime and the issuance of the policy some P900 was spent upon it in repairs and repainting. Thewitness Server, an expert automobile mechanic, testified that the automobile was practically as good

as new at the time the insurance was effected. The form of proposal upon which the policy wasissued does not call for a statement regarding the value of the automobile at the time of itsacquisition by the applicant for the insurance, but merely a statement of its cost. The amount statedwas less than the actual outlay which the automobile represented to Mr. Harding, including repairs,when the insurance policy was issued. It is true that the printed form calls for a statement of the"price paid by the proposer," but we are of the opinion that it would be unfair to hold the policy voidsimply because the outlay represented by the automobile was made by the plaintiff's husband andnot by his wife, to whom he had given the automobile. It cannot be assumed that defendant shouldnot have issued the policy unless it were strictly true that the price representing the cost of themachine had been paid by the insured and by no other person that it would no event insure anautomobile acquired by gift, inheritance, exchange, or any other title not requiring the owner to

make a specific cash outlay for its acquisition.

Furthermore, the court below found and the evidence shows, without dispute, that the proposal uponwhich the policy in question was issued was made out by defendant's agent by whom the insurancewas solicited, and that appellee simply signed the same. It also appears that an examiner employedby the defendant made an inspection of the automobile before the acceptance of the risk, and that the sum after this examination. The trial court found that Mrs. Harding, in fixing the value of theautomobile at P3,000, acted upon information given her by her husband and by Mr. Server, themanager of the Luneta Garage. The Luneta Garage, it will be remembered, was the agent of thedefendant corporation in the solicitation of the insurance. Mrs. Harding did not state of her own

knowledge that the automobile originally cost P3,000, or that its value at the time of the insurancewas P3,000. She merely repeated the information which had been given her by her husband, and at the same time disclosed to defendant's agent the source of her information. There is no evidence tosustain the contention that this communication was made in bad faith. It appears that the statementsin the proposal as to the price paid for the automobile and as to its value were written by Mr. Quimbywho solicited the insurance on behalf of defendant, in his capacity as an employee of the LunetaGarage, and wrote out the proposal for Mrs. Harding to sign. Under these circumstances, we do not think that the facts stated in the proposal can be held as a warranty of the insured, even if it shouldhave been shown that they were incorrect in the absence of proof of willful misstatement. Undersuch circumstance, the proposal is to be regarded as the act of the insurer and not of the insured.



This question was considered in the case of the Union Insurance Company vs. Wilkinson (13 Wall.,222; 20 L. ed., 617), in which the Supreme Court of the United States said:

This question has been decided differently by courts of the highest respectability in casesprecisely analogous to the present. It is not to be denied that the application logicallyconsidered, is the work of the assured, and if left to himself or to such assistance as he might select, the person so selected would be his agent, and he alone would be responsible. On theother hand, it is well-known, so well that no court would be justified in shutting its eyes to it,that insurance companies organized under the laws of one State, and having in that State theirprincipal business office, send these agents all over the land, with directions to solicit andprocure applications for policies furnishing them with printed arguments in favor of the valueand necessity of life insurance, and of the special advantages of the corporation which theagent represents. They pay these agents large commissions on the premiums thus obtained,and the policies are delivered at their hands to the assured. The agents are stimulated byletters and instructions to activity in procuring contracts, and the party who is in this mannerinduced to take out a policy, rarely sees or knows anything about the company or its officersby whom it is issued, but looks to and relies upon the agent who has persuaded him to effect insurance as the full and complete representative of the company, in all that is said or done in

making the contract. Has he not a right to so regard him? It is quite true that the reports of judicial decisions are filled with the efforts of these companies, by their counsel, to establishthe doctrine for the acts of these agents to the simple receipt of the premium and delivery of the policy, the argument being that, as to all other acts of the agent, he is the agent of theassured. This proposition is not without support in some of the earlier decision on the subject;and, at a time when insurance companies waited for parties to come to them to seekassurance, or to forward applications on their own motion, the doctrine had a reasonablefoundation to rest upon. But to apply such a doctrine, in its full force, to the system of sellingpolicies through agents, which we have described, would be a snare and a delusion, leading,as it has done in numerous instances, to the grossest frauds, of which the insurancecorporations receive the benefits, and the parties supposing themselves insured are thevictims. The tendency of the modern decisions in this country is steadily in the oppositedirection. The powers of the agent are, prima facie, co-extensive with the business intrusted tohis care, and will not be narrowed by limitations not communicated to the person with whomhe deals. (Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins. Co. vs. Schoolenberger, 44 Pa.,259; Bealvs. Ins. Co., 16 Wis., 241; Davenport vs. Ins. Co., 17 Iowa, 276.) An insurancecompany, establishing a local agency, must be held responsible to the parties with whom theytransact business, for the acts and declarations of the agent, within the scope of hisemployment, as if they proceeded from the principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517;Hortwitz vs. Ins. Co., 40 Mo., 557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins.Co. vs. Bruner, 23 Pa., 50.)

In the fifth edition of American Leading Cases, 917, after a full consideration of the authorities,it is said:

"By the interested or officious zeal of the agents employed by the insurance companiesin the wish to outbid each other and procure customers, they not unfrequently misleadthe insured, by a false or erroneous statement of what the application should contain;or, taking the preparation of it into their own hands, procure his signature by anassurance that it is properly drawn, and will meet the requirements of the policy. Thebetter opinion seems to be that, when this course is pursued, the description of the risk



should, though nominally proceeding from the insured, be regarded as the act of theinsurers." (Rowley vs. Empire Ins. Co., 36 N.Y., 550.)

The modern decisions fully sustain this proposition, and they seem to us founded on reasonand justice, and meet our entire approval. This principle does not admit oral testimony to varyor contradict that which is in writing, but it goes upon the idea that the writing offered inevidence was not the instrument of the party whose name is signed to it; that it was procuredunder such circumstances by the other side as estops that side from using it or relying on itscontents; not that it may be contradicted by oral testimony, but that it may be shown by suchtestimony that it cannot be lawfully used against the party whose name is signed to it. (Seealso Am. Life Ins. Co. vs. Mahone, 21 Wallace, 152.)

The defendant, upon the information given by plaintiff, and after an inspection of the automobile byits examiner, having agreed that it was worth P3,000, is bound by this valuation in the absence of fraud on the part of the insured. All statements of value are, of necessity, to a large extent matters ofopinion, and it would be outrageous to hold that the validity of all valued policies must depend uponthe absolute correctness of such estimated value. As was said by the Supreme Court of the UnitedStates in the case of the First National Bank vs. Hartford Fire Insurance Co. (5 Otto, 673; 24 L. ed.,

563), at. p. 565 of the Lawyers Edition:

The ordinary test of the value of property is the price it will commend in the market if offeredfor sale. But that test cannot, in the very nature of the case, be applied at the time applicationis made for insurance. Men may honestly differ about the value of property, or as to what it will bring in the market; and such differences are often very marked among those whosespecial business it is to buy and sell property of all kinds. The assured could do no more thanestimate such value; and that, it seems, was all that he was required to do in this case. Hisduty was to deal fairly with the Company in making such estimate. The special finding showsthat he discharged that duty and observed good faith. We shall not presume that theCompany, after requiring the assured in his application to give the "estimated value," and then

to covenant that he had stated all material facts in regard to such value, so far as known tohim, and after carrying that covenant, by express words, into the written contract, intended toabandon the theory upon which it sought the contract, and make the absolute correctness of such estimated value a condition precedent to any insurance whatever. The application, withits covenant and stipulations, having been made a part of the policy, that presumption cannot be indulged without imputing to the Company a purpose, by studied intricacy or an ingeniousframing of the policy, to entrap the assured into incurring obligations which, perhaps, he hadno thought of assuming.

Section 163 of the Insurance Law (Act No. 2427) provides that "the effect of a valuation in a policy of

fire insurance is the same as in a policy of marine insurance."

By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance isconclusive if the insured had an insurable interest and was not guilty of fraud.

We are, therefore, of the opinion and hold that plaintiff was the owner of the automobile in questionand had an insurable interest therein; that there was no fraud on her part in procuring the insurance;that the valuation of the automobile, for the purposes of the insurance, is binding upon thedefendant corporation, and that the judgment of the court below is, therefore, correct and must beaffirmed, with interest, the costs of this appeal to be paid by the appellant. So ordered.



Arellano, C.J., Torres, Street, Malcolm and Avanceña, JJ., concur.

G.R. No. L-47593 September 13, 1941

THE INSULAR LIFE ASSURANCE CO., LTD., petitionervs.SERAFIN D. FELICIANO and ANGEL, FLORENDA, EUGENIO, HERMINIO and LETICIA, allsurnamed FELICIANO, represented by their guardian ad litem SERAFIN D

FELICIANO, respondents.

Araneta, Zaragosa, Araneta & Bautista for peDelfin Joven for respondents.

LAUREL, J.:

One Evaristo Feliciano filed an application for insurance with the herein petitioner upon thesolicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 wereissued to him. Feliciano died on September 29, 1935. The defendant company refused to pay on theground that the policies were fraudulently obtained, the insured having given false answers and

statements in the application as well as in the medical report. The present action was brought torecover on said policies. The lower court rendered judgment in favor of the plaintiffs. The lower courtfound that at the time Feliciano filed his application and at the time he was subjected to physicalexamination by the medical examiner of the herein petitioner, he was already suffering fromtuberculosis. This fact appears in the negative both in the application and in the medical report. Thelower court, after an exhaustive examination of the conflicting testimonies, also found that Felicianowas made to sign the application and the examiners report in blank, and that afterwards the blankspaces therein were filled in by the agent and the medical examiner, who made it appear therein thatFeliciano was a fit subject for insurance. The lower court also held that neither the insured nor anymember of his family concealed the real state of health of the insured. That as a matter of fact the

insured, as well as the members of his family, told the agent and the medical examiner that theapplicant had been sick and coughing for some time and that he had also gone three times to theSantol Sanitarium. On appeal, this finding of facts of the lower court was sustained by the Court of

Appeals. This concludes the controversy over the facts in so far as this Court is concerned.

The first assignment of error of the petitioner raises the question we are now called upon to decide:

The Court of Appeals erred in holding that an insurance company has no right to avoid a policy whereits agent knowingly and intentionally wrote down the answers in the application differing from thosemade by the insured, in disregard of the exception that when the agent, instead of serving theinterests of his principal, acts in his own or anothers interest and adversely to that of his principal,

the said principal is not bound by said acts of the agent.

On the proposition thus presented, there are two main avenues of approach indicated: one leading tothe validation of a policy where its agent, without fraud, collusion or bad faith on the part of theinsured, falsified the answers given by the insured; and the other, leading to the avoidance of thepolicy under the circumstances. We see no need for an extended discussion of the conflictingauthorities. Whenever courts are given the choice between two conflicting principles, thedeterminative fact which should sway them is the conformity of its contemplated course to reasonand to the common sense of the situation. The life of the law is not only logic but experience.



The phenomenal growth of insurance from almost nothing a hundred years ago to its presentgigantic proportion is not of the outstanding marvels of present-day business life. The demand foreconomic security, the growing need for social stability, and the clamor for protection against thehazards of cruel-crippling calamities and sudden economic shocks, have made insurance one of thefelt necessities of modern life. Insurance is no longer a rich mans monopoly. Upon it are heaped theassured hopes of many families of modest means. It is woven, as it were, into the very warp andwoof of national economy. It touches the holiest and most sacred ties in the life of man-love ofparents, love of wives and love of children. It is of common knowledge that the selling of insurancetoday is subjected to the whilrlwind pressure of modern salesmanship. Insurance companies senddetailed instructions to their agents to solicit and procure applications. These agents are to be foundall over the length and breadth of the land. They are stimulated to more active efforts by contestsand by the keen competition offered by other rival insurance companies. They are supplied withblank applications and paid large commissions on the policies secured by them. All transactions aregenerally done through these agents. They act, in fact and in theory, as the general representativesof the insurance companies. They supply all the information , prepare and answer the applications,submit the applications to their companies, conclude the transactions, and otherwise smooth out aldifficulties. The agents, in short, do what the company set them to do.

In the present case, the agent knew all the time the true state of health of the insured. The insurersmedical examiner approve the application knowing full well that the applicant was sick. The situationis one in which one of two innocent parties must bear a loss for his reliance upon a third person. Inthis case, it was the insurer who gave the agent authority to deal with the applicant. It was the onewho selected the agent, thus implying that the insured could put his trust on him. It was the one whodrafted and accepted the policy and consummated the contract. It seems reasonable that as betweenthe two of them, the one who employed and gave character to the third person as its agent shouldbe the one to bear the loss.

The company received the money of the applicant as the price of the risk to be taken by it. If thepolicy should be avoided, it must be because it was void from the very beginning, and the result

would be that the insurer, while it received the money, never assumed any risk. The result would be,in the language of one of the cases, to place every simple or uneducated person seeking insuranceat the mercy of the insurer who could, through its agent, insert in every application, unknown to theapplicant and over his signature, some false statements which would enable him to avoid all liabilitywhile retaining the price paid for the supposes insurance. (State Insurance Company v. Taylor, 14Colo. 499, 24 Pac. 333.) The weight of authority is that if an agent of the insurer, after obtainingfrom an applicant for insurance a correct and truthful answer to interrogatories contained in theapplication for insurance, without knowledge of the applicant fills in false answers, either fraudulentlyor otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on thepolicy, and this is true generally without regard to the subject matter of the answers or the nature ofthe agents duties or limitations on his authority, at least if not brought to the attention of theapplicant.

The fact that the insured did not read the application which he signed, is not indicative of bad faith.It has been held that it is not negligence for the insured to sign an application without first reading itif the insurer by its conduct in appointing the agent influenced the insured to place trust andconfidence in the agent. (Den Hartog v. Home Nat. Ins. Asso., 197 Iowa, 143 196 N. W. 944.) As thecourt said in the case of Germania L. Ins. Co. v. Lunkebiemer, 127 Ind. 538, 26 N. E. 1082, Nor canit be said that the assured, who has fully, frankly, truthfully, and in good faith answered all therequired questions, is guilty of negligence in signing, without reading, the application which isthereupon prepared by the agent. He is justified in assuming that the agent has, with equal good



faith, truthfully recorded the answers given him. He may well say to the company: You accreditedthis man to me as your representative and I signed the application thus prepared by him, relyingupon the character which you gave him when you commissioned him to come to me as your agent. Ifhe acted dishonestly in the matter, you and not I must suffer the consequences. In the instantcase, it has been proved that the insured could not read English, the language in which theapplication was written, and that after the contract was signed, it was kept by his mother. As aconsequence, the insured had no opportunity to read or correct any misstatement therein. (Bill ofExceptions, pp. 60-61.)

We have not been insensible to the appeal that the course we have followed may lead to fraud andwork hardship on insurance companies, for it would be easy for insurance agents and applicants toinsert false answers in their applicants to insert false answers in their applications for insurance. Thismeans that it is to the particular interest of these companies to exercise greater care in the selectionof their agents and examiners. Their protection is still in their own hands and which may be achievedby other means. Withal, the attainment of a common good may involve impairment and evensacrifice of beneficial interests of a particular group, but in life, compromise is inevitable until thehour of doom strikes.

The petition is hereby dismissed and the judgment sought to be reviewed is affirmed with costsagainst the petitioner. So ordered.

Abad Santos, Diaz, and Horrilleno, JJ., concur.

Read case digest here.

Separate Opinions

OZAETA, J., with whom concur AVANCEÑA, C.J., and MORAN, J., dissenting:

Altho a dissenting opinion is but a voice in the wilderness, we have to write it because theConstitution so requires.

The material facts are not disputed in this instance, but they are not adequately stated in themajority opinion, and we apprehend that the significance of those not stated therein may have beenoverlooked by the majority of the Court.

This is a suit on two life insurance policies issued by the petitioner (hereinafter referred to as the

Company) to Evaristo Feliciano as of October 1 and November 1, 1934, for P20,000 and P5,000,respectively. The application for the first policy was signed on October 12, and that for the secondpolicy, on October 28, 1934. On those dates Feliciano had an advanced disease of the lungs Hewas breathless, having difficulty in breathing, and he had the appearance of one with high fever. Asa matter of fact, on October 12, 1934, the very day the insured signed the first applications, after thelast X-ray examination of his lungs had been made at the Santol Sanatorium by Doctor Trepp, thelatter informed the respondent Serafin D. Feliciano, brother of the insured, of the result of the X-rayexamination and told him that in his opinion his brother was already in a very serious and practicallyhopeless condition. (Trial courts decision, P.27, B. of E.) After the first application for insurance ofP20,000 had been approved and the corresponding policy issued, the insured applied on October 28,



1934, for another insurance of P5,000, and the policy therefor was issued as of November 1, 1934.Less than one year later, to wit, on September 29, 1935, the insured died of the same malady he hadbeen suffering-pulmonary tuberculosis.

The Court of Appeals found in effect that the Companys soliciting agent Romulo M. David, inconclusion with the medical examiner Dr. Gregorio Valdez, knowingly wrote false answers to thequestion contained in the applications and in the medical examiners reports which they had madethe applicant sign in blank in order to secure the Companys approval thereof and have the

corresponding policies credited to the agent in connection with the interprovincial contest which theCompany was then holding among its soliciting agents to boost the sales of its policies. The Court of

Appeals intimates that Agent David bribed Medical Examiner Valdez with money which the formeborrowed from the applicants mother by way of advanced payment on the premium. In thisconnection, it may be mentioned that the premium paid on the first policy was P1,111.20, and thaton the second policy, P277.80, or a total of P1,389, which the Company offers to refund.

The Court of Appeals also found that before the insured signed the first application and medicalexaminers report, he and the members of his family told the agent and the medical examiner that hehad been sick and coughing for some time and that he had gone three times to the Santo

Sanatorium and had X-ray pictures of his lungs taken; but that in spite of such information the agentand the medical examiner told them that the applicant was a fit subject for insurance.

Each of the policies sued upon contains the following stipulations:

This policy and the application therefor constitute the entire contract between the parties hereto. Only the President, or the Manager, acting jointly with the Secretary of Assistant Secretary (and thenonly in writing signed by them) have power in behalf of the Company to issue permits or to modifythis or any contract, or to extend the time for making any premium payment, and the Company shallnot be bound by any promise or representation heretofore or hereafter given by any person otherthan the above-named officials, and by them only in writing and signed conjointly as stated.

The application referred to in and made a part of the policy contains, among others, the followingstatements:

18. I [the applicant] hereby declare that all the above statements and answers as well as thosethat I may make to the Companys Medical Examiner in continuation of this application, to becomplete, true and correct to the best of my knowledge and belief, and I hereby agree as follows:

1. That this declaration, with the answers to be given by me to the Medical Examiner, shall be thebasis of the policy and from part of same.

xxx xxx xxx

3. That the said policy shall not take effect until the first premium has been paid and the policy hasbeen delivered to and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, orto waive any of the companys rights or requirements.

xxx xxx xxx



Upon the facts above set forth, we are of the opinion that respondents are not entitled to recover theamounts of the policies in question but only the premiums paid thereon, for the following reasons:

1. Under the very terms of the policies sued upon there is no valid contract of insurance here. Thepolicies were issued on the basis of the statement subscribed to by the applicant to the effect that hewas and had been in good health. The basis being false, there was no real meeting of the minds ofthe parties. The agents had no authority to bind the company thru oral representations, and less sowhen such representations were false and fraudulent.

2. The insured and the members of his family who are the respondents herein were not entirelyinnocent of bad faith. They were not candid, unsophisticated rustics. They were well to do and welleducated. They were not ignorant of the practices in the life insurance business. In 1924, the insuredhad taken an insurance policy of P10,000 from the Sun Life Insurance Company, which, however, heallowed to lapse. The insured was a proprietor and agriculturist (see policy Exhibit E). Therespondent Serafin D. Feliciano, brother of the insured, is a physician who for some years hadworked in the Santol Sanatorium with Doctor Trepp (Exhibit B, p. 16). The most charitable view thatone could take of the insureds part in the transaction is that he, with the approval of his relatives,particularly his mother who furnished the money with which to pay the premiums and who was

named beneficiary to the extent of P12,000, allowed himself to be used as instrument in the wrongfuissuance of the policies in question by the Company to defraud the latter. It is difficult to believe thatin so doing he and his relatives were not actuated by the desire for lucre. They knew that a person inbad health let alone one who was in a very serious and practically hopeless condition was notinsurable. So they must also have known, or at least they had good reason to suspect, that AgentDavid and Medical Examiner Valdez were not acting in good faith when they made the applicant signthe application in blank and told him (the hopelessly sick man) that he was fit of insurance. If theapplicant and his relatives were acting in good faith, they would have been curious enough toscrutinize the application and the medical examiners report contained in the first policy upon receiptof it, to see whether the medical examiner had correctly stated therein the state of the applicantshealth. It is significant that shortly after they had received the first policy of P20,000, the insured

applied for and secured another policy of P5,000. As held by the Supreme Court of the United Statesin the analogous case on New York Life Insurance company v. Fletcher, 117 U. S. 519: He could nothold the policy without approving the action of the agents and thus becoming a participant in thefraud committed. The retention of the policy was an approval of the application and of its statementsThe consequences of that approval cannot after his death be avoided.

3. Life insurance is a savings institution; it is not a gambling scheme. The premiums paid by theinsured, plus a participation in the profits realized by the life insurance company from the investmentof those premiums, are returned to him if he survives the policy. If, contrary to the life expectancy ofthe insured, he dies before the policy matures, the full amount of the insurance is paid to hisbeneficiary. The insured is not expected to lose, but neither is he supposed to expect a windfall or an

inordinate gain. That is elemental in every sound business. The life insurance business is a co-operative enterprise in the sense that the policy-holders as well as the company are interested inmaking profits and in avoiding unnecessary or bad losses. The company is, to a certain extent, atrustee of the funds paid to it by its policyholders. No insurance company which would issue policiesindiscriminately could expect to survive or, for that matter, be licensed by the Government to dobusiness. That is fundamental. Every fraud perpetrated upon the company affects the policy-holdersbecause their share in the profits is thereby unduly minimized. That is why the Government, thru theInsurance Commissioner, closely supervises the insurance business (see section 169 et seq., TheInsurance Act). We think it is bad law to hold valid a policy procured thru fraud on the life of aperson who was almost on the brink of his grave. Avaricious persons, with the connivance of



unscrupulous agents of insurance companies, could make money on the lives of their relatives whowere expected to die soon, by fraudulently insuring them, and could get away with it, as in theinstant case. The real or ultimate victim is not the company alone but also its numerous policyholderswho have put their savings in it.

It is suggested that the remedy is for the insurance companies to exercise greater care in theselection of their agents and examiners. As a matter of fact, under the law no one may act assoliciting agent of an insurance company without authority or license from the Insurance

Commissioner(section 189, The Insurance Act); and the Insurance Commissioner makes a careful,confidential investigation of the conduct and reputation of the applicant for such license beforeissuing the same. But no amount of care taken by both the company and the InsuranceCommissioner in the selection of soliciting agents and medical examiners can insure the companyagainst bad faithly and the cupidity of the evil-minded. The company would have to exact a hugebond of every one of its numerous agents and medical examiners to guarantee his fidelity, and thatwould be too expensive to make the insurance business profitable. In other words, the suggestedremedy is, we believe, impracticable. The only safe and sound policy is, not to condone but tocondemn fraud under any and all circumstances.

4. If we are to be guided and persuaded by cases adjudicated in other jurisdictions as the Court of Appeals was in deciding this case, we should follow that decided by the Supreme Court of the UnitedStates upon facts similar or analogous to those obtaining in the instant case, instead of adoptingdoctrines laid down by the state supreme courts and inferior federal courts in cases the facts of whichbear little or no analogy to those of the case at bar. The case squarely in point, but which the Courtof Appeals rejected, is New York Life Insurance Company v. Fletcher, supra. In that case it wasstated in the application for insurance that the applicant never had a disease of the kidneys or anyserious disease, and had never been seriously ill, and had no regular medical attendant, whereas hehad been afflicted with diabetes, which is a serious disease of the kidneys, and had been undermedical treatment for it, and he actually died of that disease. The plaintiff therein, however, alleged,and adduced evidence to show:

. . . That two agents of the company at St. Louis, who were personally acquainted with the assuredand knew his past and then physical condition, had solicited him on different occasions to take out apolicy in the company; that he told each of them on those occasions that he did not believe he wasinsurable; that they knew he had been in bad health and had been under medical treatment fordiabetes, though he thought he was then well; that they assured him that he was insurable, that thefact that he had the disease made no difference, and that if he would take out a policy and pay thepremiums required he would have no trouble; that finally, about the 18th of December, 1877, heconsented to take a policy; that they then told him it would be necessary for him to answer certainquestions as a matter of form; that one of them thereupon read to him certain questions from aprinted blank, and as he answered them the other pretended to take down and write in the blank the

substance of the answers as given, not reading over to the assured what he had written, norconsulting him about it, nor informing him what it was, but saying that what he did was a mereformality; that when he was asked with respect to his having any disease of the kidneys he repliedthat his condition was well known to the agents, who were aware that he had been sick and undertreatment by Doctor Brokaw for diabetes, and that the doctors office was opposite, and they couldgo there and find out everything they wanted to know; that the assured had faithfully answered allthe questions, but the agents inserted in the blanks false answers; that he had no reason to supposethat the answers were taken down differently from those given; that after answering all theirquestion he was asked to sign his name to the paper to identify him as the party for whose benefitthe policy was to be issued, and for that purpose he signed the paper twice, without reading it or the



written answers; that the agents did not read to him any part of the application except the questions,and did not read the clause set forth in the defendants answer, nor call the attention to the fact thathis signatures were intended as an acceptance or assent to that clause; that when the policy wasdelivered to him he neither read it nor the copy of the application attached to it, that the agent whodelivered it informed him that it was right, and he was insured, and he gave no further attention tothe matter; that the annual premiums, as they fell due, were paid to said agent, who received themwith full knowledge of all the facts; and that, therefore, the company was estopped form pretendingthat any of the answers as written rendered the policy void. (117 U.S. 521-523.)

In reversing the judgment rendered by the trial court in favor of the plaintiff, the Federal SupremeCourt held that the agent had no authority from the company to falsify the answers, and that theassured could acquire no right by virtue of his falsified answers. The Court further said:

. . . Both he and the company were deceived by the fraudulent conduct of the agent. The assuredwas placed in the position of making false representations in order to secure a valuable contractwhich, upon a truthful report of his condition, could not have been obtained. By them the companywas imposed upon and induced to enter into the contract. In such a case, assuming that both partiesacted in good faith, justice would require that the contract be cancelled and the premiums returned.

As the present action is not for such a cancellation, the only recovery which the plaintiff couldproperly have upon the facts he asserts, taken in connection with the limitation upon the powers ofthe agent, is for the amount of the premiums paid, and to that only would he be entitled by virtue ofthe statute of Missouri.

But the case as presented by the record is by no means as favorable to him as we have assumed. Itwas his duty to read the application he signed. He knew that upon it the policy would be issued, ifissued at all. It would introduce great uncertainty in all business transactions, if a party makingwritten proposals for a contract, with representations to induce its execution, should be allowed toshow, after it had been obtained, that he did not know the contents of his proposals, and to enforceit, notwithstanding their falsity as to matters essential to its obligation and validity. Contracts could

not be made, or business fairly conducted, if such a rule should prevail; and there is no reason why itshould be applied merely to contract of insurance. There is nothing in their nature whichdistinguishes them in this particular from others. But here the right is asserted to prove not only thatthe assured did not make the statements contained in his answers, but that he never read theapplication, and to recover upon a contract obtained by representations admitted to be false, just asthough they were true. If he had read even the printed lines of his application, he would have seenthat it stipulated that the rights of the company could in no respect be affected by his verbalstatements, or by those of its agents, unless the same were reduced to writing and forwarded withhis application to the home office. The company, like any other principal, could limit the authority ofits agents, and thus bind all parties dealing with them with knowledge of the limitation. It must bepresumed that he read the application, and was cognizant of the limitations thereon expressed.

xxx xxx xxx

There is another view of this case equally fatal to a recovery. Assuming that the answers of theassured were falsified, as alleged, the fact would be at once disclosed by the copy of the application,annexed to the policy, to which his attention was called. He would have discovered by inspection thata fraud had been perpetrated, not only upon himself but upon the company, and it would have beenhis duty to make the fact known to the company. He could not hold the policy without approving theaction of the agents and thus becoming a participant in the fraud committed. The retention of the



policy was an approval of the application and of its statements. The consequences of that approvacannot after his death be avoided.

. . . No one can claim the benefit of an executory contract fraudulently obtained, after the discoveryof the fraud, without approving and sanctioning it. (117 U. S. 529-530, 534, 535.)

Our attention has been called to al later case Continental Life Insurance Company v. Chamberlain,132 U. S. 304 in which the court held the company liable upon a policy of insurance of the life of

one Richard Stevens issued under the following circumstances, as stated in the decision:

The application for insurance was taken in Iowa by one Boak, a district agent of the company incertain named counties of the States, fourteen in number, having written authority to prosecute thebusiness of soliciting and procuring applications for life insurance policies within and throughout saidterritory.

Among the numerous questions propounded in the application was the following: Has the said party[the applicant] any other insurance on his life; if so, where and for what amounts? The answer, as itappears in the application, is: No other. That answer, as were all the answers to questionspropounded to the applicant, was written by the companys agent, Boak. In reference to the above

question and answer, the latter testified: I asked him [Stevens] the question if he had any otherinsurance, as printed in the application and as we ask every applicant, and he told me he had certaincertificates of membership with certain cooperative societies, and he enumerated different ones, andsaid he did not know whether I would consider them insurance or not. I told him emphatically that Idid not consider them insurance and we had considerable conversation about it. He wanted to knowmy authority for saying I did not consider them insurance. I gave him my authority give him myreasons and he agreed with me that these cooperative societies were in no sense insurancecompanies, and in that light I answered the question No after he had stated the facts? A. I didQ. Who wrote the answer in there? A. I did.

xxx xxx xxx

It was admitted on the trial that at the date of Stevens application he had insurance in cooperativecompanies to the amount of $12,000. (132 U. S. 306, 308.)

The court, after quoting the pertinent provision of the statute of Iowa, observed that by force of thestatute, he was the agent of the company in soliciting and procuring the application. He could not, byany of his, shake of the character of agent for the company. Nor could the company by any provisionin the application or policy convert him into an agent of the assured. Referring to the incorrectnesspropounded by him to the applicant in relation to the stipulation in the policy that the terms thereofcould not be varied except in writing signed by the president or the secretary of the company, the

court said:

. . . The purport of the word insurance in the question, Has the said party any other insurance onhis life? is not so absolutely certain as, in an action upon the policy, to preclude proof as to whatkind of life insurance the contracting parties had in mind when that question was answered. Suchproof does not necessarily contradict the written contract. Consequently, the above clause, printed onthe back of the policy, is to be interpreted in the light of the statute and of the understandingreached between the assured and the company by its agent when the application was completed,namely, that the particular kind of insurance inquired about did not include insurance in cooperativesocieties. In view of the statute and of that understanding, upon the faith of which the assured madehis application, paid the first premium, and accepted the policy, the company is estopped, by every



principle of justice, from saying that its question embraced insurance in cooperative associations. Theanswer of No other having been written by its own agent, invested with authority to solicit andprocure applications, to deliver policies, and, under certain limitations, to receive premiums, shouldbe held as properly interpreting both the question and the answer as to other insurance. (132 U. S.311-312.)

There is no conflict between the two cases. They were decided differently because the facts weredifferent. Suffice it for us to say that the facts of the instant case are analogous to those of the

Fletcher case and different from those of the Chamberlain case.

We have examined the three cases cited in the majority opinion, from the supreme courts ofColorado, Iowa, and Indiana, respectively, and we find that the facts of each and everyone of thembear no analogy to those of the present case.

5. The majority opinion says: The situation is one in which one of two innocent parties must bear aloss for his reliance upon a third person. We cannot subscribe to this proposition (1) because, as wehave pointed out above, the insured and his relatives, the herein respondents, were not innocent ofbad faith and (2) because, even if the policies in question should be held invalid, the respondentswould not suffer any loss since the Company has offered to return the premiums paid, and it couldbe ordered to make such refund with legal interest. By such judgment neither party would bepermitted to enrich himself at the expense of the other. This, we feel, is urged by justice, reason, and

the common sense of the situation.

G.R. No. L-47593 December 29, 1943

THE INSULAR LIFE ASSURANCE CO., LTD., petitionervs.SERAFIN D. FELICIANO ET AL., respondents.

Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitionerDeflfin Joven and Pablo Lorenzo for respondentsRamirez and Ortigas as amici curiae.

OZAETA, J.:

In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment ofthe Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,representing the value of two insurance policies issued by the petitioner on the life of EvaristoFeliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and

both parties have submitted exhaustive and luminous written arguments in support of theirrespective contentions.

The facts of the case are set forth in the majority and dissenting opinions heretofore handed down bythis Court, the salient points of which may be briefly restated as follows:

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonarytuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondentDr. Serafin D. Feliciano, brother of Evaristo, that the latter was already in a very serious ad



practically hopeless condition. Nevertheless the question contained in the application Have youever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma? appearsto have been answered , No And above the signature of the applicant, following the answers to thevarious questions propounded to him, is the following printed statement:1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in any policyissued hereunder, that each of the above answers is full, complete and true, and that to the best ofmy knowledge and belief I am a proper subject for life insurance. (Exhibit K.)

The false answer above referred to, as well as the others, was written by the Companys solicitingagent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purposeof securing the Companys approval of the application so that the policy to be issued thereon mightbe credited to said agent in connection with the inter-provincial contest which the Company was thenholding among its soliciting agents to boost the sales of its policies. Agent David bribed MedicalExaminer Valdez with money which the former borrowed from the applicants mother by way ofadvanced payment on the premium, according to the finding of the Court of Appeals. Said court alsofound that before the insured signed the application he, as well as the members of his family, toldthe agent and the medical examiner that he had been sick and coughing for some time and that he

had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that inspite of such information the agent and the medical examiner told them that the applicant was a fitsubject for insurance.

Each of the policies sued upon contains the following stipulations:

This policy and the application herefor constitute the entire contract between the parties hereto. . . .Only the President, or the Manager, acting jointly with the Secretary or Assistant Secretary (and thenonly in writing signed by them) have power in behalf of the Company to issue permits, or to modifythis or any contract, or to extend the same time for making any premium payment, and the Companyshall not be bound by any promise or representation heretofore or hereafter given by any person

other than the above-named officials, and by them only in writing and signed conjointly as stated.

The application contains, among others, the following statements:

18. I [the applicant] hereby declare that all the above statements and answers as well as all thosethat I may make to the Companys Medical Examiner in continuation of this application, to becomplete, true and correct to the best of my knowledge and belief, and I hereby agree as follows:

1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be thebasis of the policy and form part of same.

3. That the said policy shall not take effect until the first premium has been paid and the policy hasbeen delivered to and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, orto waive any of the Companys rights or requirements.

5. My acceptance of any policy issued on this application will constitute a ratification by me of anycorrections in or additions to this application made by the Company in the space provided For HomeOffice Corrections or Additions Only. I agree that photographic copy of this applications as correctedor added to shall constitute sufficient notice to me of the changes made. (Emphasis added.)



The petitioner insists that upon the facts of the case the policies in question are null and void ab initioand that all that the respondents are entitled to is the refund of the premiums paid thereon. After acareful re-examination of the facts and the law, we are persuaded that petitioners contention iscorrect. To the reasons adduced in the dissenting opinion heretofore published, we only desire to addthe following considerations:

When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorizedthe soliciting agent and/or medical examiner of the Company to write the answers for him, he made

them his own agents for that purpose, and he was responsible for their acts in that connection. Ifthey falsified the answers for him, he could not evade the responsibility for the falsification. He wasnot supposed to sign the application in blank. He knew that the answers to the questions thereincontained would be the basis of the policy, and for that every reason he was required with hissignature to vouch for truth thereof.

Moreover, from the facts of the case we cannot escape the conclusion that the insured acted inconnivance with the soliciting agent and the medical examiner of the Company in accepting thepolicies in question. Above the signature of the applicant is the printed statement or representation: . . . I am a proper subject for life insurance. In another sheet of the same application and above

another signature of the applicant was also printed this statement: That the said policy shall nottake effect until the first premium has been paid and the policy as been delivered to and accepted byme, while I am in good health. When the applicant signed the application he was having difficulty inbreathing, . . . with a very high fever. He had gone three times to the Santol Sanatorium and had X-ray pictures taken of his lungs. He therefore knew that he was not a proper subject for lifeinsurance. When he accepted the policy, he knew that he was not in good health. Nevertheless, henot only accepted the first policy of P20,000 but then and there applied for and later acceptedanother policy of P5,000.

We cannot bring ourselves to believe that the insured did not take the trouble to read the answerscontained in the photostatic copy of the application attached to and made a part of the policy before

he accepted it and paid the premium thereon. He must have notice that the answers to the questionstherein asked concerning his clinical history were false, and yet he accepted the first policy andapplied for another. In any event, he obligated himself to read the policy when he subscribed to thisstatement: My acceptance of any policy issued on this application will constitute a ratification by meof any corrections in or additions to this application made by the Company . . . By accepting thepolicy he became charged with knowledge of its contents, whether he actually read it or not. Hecould not ostrich-like hide his head from it in order to avoid his part of the bargain and at the sametime claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms ofthe two policies sued upon (one of which is printed in English and the other in Spanish) that thesoliciting agent and the medical examiner had no power to bind the Company by any verbal promiseor oral representation. The insured, therefore, had no right to rely and we cannot believe he relied

in good faith upon the oral representation. The insured, therefore, had no right to rely and wecannot believe he relied in good faith upon the oral representation of said agent and medicaexaminer that he (the applicant) was a fit subject for insurance notwithstanding that he had beenand was still suffering with advanced pulmonary tuberculosis.

From all the facts and circumstances of this case, we are constrained to conclude that the insuredwas a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in thefraudulent procurement of the policies in question and that by reason thereof said policies are void abinitio.



Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals ishereby reversed. Let another judgment be entered in favor of the respondents and against thepetitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from thedate of the complaint, and without any finding as to costs.

Moran, Paras and Bocobo, JJ., concur.

Read case digest here.

Separate Opinions

YULO, C.J., concurring:

I can find no quarrel with the legal considerations and conclusions set forth in the original decisionpromulgated by this Court. As general rules of law they find full support not only in reason and inlogic, but also in simple human sense of justice. More so, modern and complicated practicesattendant to the ever growing trade in life insurance demand the strictest accountability by insurancecompanies for acts of their authorized agents. In this way only may the State afford reasonableprotection to the unwary public from abuse by such organizations as may be found to be ofquestionable moral standards.

But a careful consideration of the evidentiary facts as set forth in the decision of the Court of Appealsleads me to conclude that the ends of justice would not be serve by the application to the presentcase of the rules so enunciated. Rather, to serve the ends of justice the case of the respondents

should be removed from the protection of such rules.

The subject of the insurance policies under consideration is the life of the assured. It is contended byhis beneficiaries that they took these policies on the basis of a life expectancy of a person gravelystricken with tuberculosis. They have consistently made protestations that they had so informed theagents of the insurance company. But the policies were issued upon the life of the assured, as aperfectly normal and healthy person. The error is vital and goes to the very existence of the contractitself. Who is responsible for the error?

The direct cause, of course, is the false recitals in the application for insurance. While it is true that itwas the agents of the insurance company who filled out such application, yet it was the assured who,

by signing the application in blank, made it possible for the said agents to procure the issuance of thepolicies on the basis of false information, in order to suit their own purposes. Upon the admittedfacts, I am of the opinion that in justice and in equity, the responsibility for the falsifications made bythe insurance agents in the preparation of the insurance application should be laid at the door of theassured and his beneficiaries.

I vote with the majority in granting the motion for reconsideration and in reversing the decisionunder review.

HONTIVEROS, J., dissenting:



The reasons given in the dissenting opinion in this case, as published in the Official Gazette ofOctober 4, 1941 (pp. 2847 to 2855), supplemented by those in the resolution of the majority on themotion for reconsideration, do not seem to me sufficient to overthrow the decision rendered by theCourt of First Instance, confirmed by the Court of Appeals, and sustained by this Supreme court in itsdecision of September 18, 1941. The alleged connivance between the insured Evaristo Feliciano, theagent Romulo M. David, and the medical examiner Dr. Gregorio Valdez not only does not clearlyappear of record, but on the contrary is denied in the finding of facts of the courta quo and of theCourt of Appeals which cannot be reviewed or altered by this Court.

The mere fact that the insured signed at the bottom of the application for insurance when some of itslines intended for answers to certain questions were still in blank, answers which according to theevidence and to the findings of the two inferior courts he had grounds to believe will be made inaccordance with the information which he and his family had given to agent David and to Dr. Valdez,does not convert these two persons into agents of the insured in a way as to make the latterresponsible for the acts of the former. That the photostatic copies of said forms which are attachedto the policies object of this case are almost illegible, is a fact which should be taken into account,together with the other fact that Evaristo Feliciano does not know English, the language in whichthose documents are written. In support of this dissenting opinion, the following authorities may be

cited:

The mere failure of the insured to inform himself of the insertion of false answers in the applicationwhich has been filled out by the agent of the insurer does not convict him of lack of good faith. (Vol5, Cooleys Briefs on Insurance, 2nd Ed., p. 4136, and many cases cited.)

The insured is not chargeable with such negligence as will render him liable for false answersinserted by the agent merely because he signed the application in blank and trusted the agent to fillout by the agent, without reading it. (Id., p. 4136, and many cases cited.)

An illiterate person or one who does not understand the English language (as is the case with

Evaristo Feliciano) is not guilty of inexcusable negligence in failing to read the application or having itread to him, nor can it be said that such person deliberately made a false statement because he didnot read over the application. (81 ALR 865, 866, W. 117 ALR 796.)

Nor can it be said that the assured, who has fully, frankly, truthfully, and in good faith answered althe required questions, is guilty of negligence in signing, without reading, the application which isthereupon prepared by the agent. He is justified in assuming that the agent, has, with equal goodfaith, truthfully recorded the answers give. He may well say to the Company: You accredited thisman to me as your representative, and I signed the application thus prepared by him, relying uponthe character which you gave him, when you commissioned him to come to me as your agent. If heacted dishonestly in the matter, you, and not I, must suffer the consequences . . .! (Germania Life

Ins. Co. vs. Lunkeheimer [1931] Ind., 538; 26 N. E., 1052)

In such case the acceptance of the policy, with this application attached, does not require the insuredto institute an investigation into its provisions, or the conditions upon which is was issued, toascertain whether the agent has acted in good faith, since, under such circumstances, the insuredmay rely upon the presumption that he has been honestly dealt with the insurer. (Otto vs. HartfordIns. Co., 38 Minn., 423).

Besides, the principles that the insured is not bound to know the contents of the application, and mayrely on the agents assurances that his answers have been correctly written will, of course, apply with



special force where the insured is illiterate and unable to read, or is ignorant of the language. (Vol. 5,Cooleys Briefs on Insurance, 2nd Ed. p. 4138, cases cited.)

And also where the photostatic copies of the application embodied in the policy are practicallyillegible, the insured is not bound to know the contents of the application. (New York InsCo. vs. Holpem D.C. 57 Fed. 2nd, 200).

According to the great weight of authority, if an agent of the insurer, after obtaining from an

applicant for insurance a correct and truthful answer to interrogations contained in the application forinsurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise,the insurer cannot assert the falsity of such answers as a defense to the liability on the policy andthis is generally without regard to the subject matter of the answers or the nature of the agentsduties or limitations on his authority, at least if not brought to the attention of the applicant. It isequally well settled that if a correct representation is made in a written application, or the insuranceagent issuing the policy is appraised of the true facts concerning the matter in question, as forinstance the title to the insured premises, but the agent inserts an incorrect statement in the policy,the insurer cannot rely upon the error in avoidance of its liability. Home Ins. Co. vs. Mendenhall, 154Ill., 452, 45 NE., 1078, 36 LRA., 374; Phoenix Ins. Co. vs. Tucker, 92 Ill., 64, 34 Am Rep.,

106; Commercial Ins. Co. vs. Spanknoble, 52 Ill., 53, 4 Am. Report, 582; Young vs. Hartford F. Ins.Co. 45 Iowa, 377, 24 Am. Rep., 754; Welsh vs. London Assur. 151 Pa., 607, 25 A, 142, 21 Am StRep., 726 (Taken from Am Juris. on Insurance Vol. 29, par. 843).

An insured may be justified in signing an application in blank at the request of the insurers agent,who agrees to fill it in from data furnished by the insured or from an old application. In fact, aninsurer cannot urge the falsity of representations contained in the policy issued, or in the application,where such representations were inserted therein, either by the company or its agent, after theapplication was signed, without the knowledge or consent of the insured, who has made no suchrepresentations. (Couch on Insurance, Vol. 4, par. 842 b.)

I believe that the motion for reconsideration presented in this case should be denied, not onlybecause of the weighty reasons relied upon in the decision which it attacks, but also because adangerous precedent would otherwise be established, for, with the destruction of the confidencewhich the public has hitherto reposed in the duly accredited agents of insurance companies and intheir examining physicians, this branch of the economic life of the people will have to be unfavorablyaffected.

Imperial, J., dissents.

Footnotes

1 Reported in 40 Off. Gaz., (Oct. 4, 1941) 2842-2855.

G.R. No. L-16163 February 28, 1963

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOSSATURNINO, minor,plaintiffs-appellants,vs.THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.



Eleazaro A. Samson for plaintiffs-appellants Abello & Macias for defendant-appellee.

MAKALINTAL, J.:

Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover the sumof P5,000.00, corresponding to the face value of an insurance policy issued by defendant on the lifeof Estefania A. Saturnino, and the sum of P1,500.00 as attorneys fees. Defendant, now appellee, set

up special defenses in its answer, with a counterclaim for damages allegedly sustained as a result ofthe unwarranted presentation of this case. Both the complaint and the counterclaim were dismissedby the trial court; but appellants were declared entitled to the return of the premium already paid;plus interest at 6% up to January 8, 1959, when a check for the corresponding amount P359.65 was sent to them by appellee.

The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policydispenses with the medical examination of the applicant usually required in ordinary life policies.However, detailed information is called for in the application concerning the applicants health andmedical history. The written application in this case was submitted by Saturnino to appellee onNovember 16, 1957, witnessed by appellees agent Edward A. Santos. The policy was issued on thesame day, upon payment of the first years premium of P339.25. On September 19, 1958 Saturninodied of pneumonia, secondary to influenza. Appellants here, who are her surviving husband andminor child, respectively, demanded payment of the face value of the policy. The claim was rejectedand this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturninowas operated on for cancer, involving complete removal of the right breast, including the pectoralmuscles and the glands found in the right armpit. She stayed in the hospital for a period of eightdays, after which she was discharged, although according to the surgeon who operated on her shecould not be considered definitely cured, her ailment being of the malignant type.

Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof inher application for insurance. On the contrary, she stated therein that she did not have, nor had sheever had, among other ailments listed in the application, cancer or other tumors; that she had notconsulted any physician, undergone any operation or suffered any injury within the preceding fiveyears; and that she had never been treated for nor did she ever have any illness or disease peculiarto her sex, particularly of the breast, ovaries, uterus, and menstrual disorders. The application alsorecites that the foregoing declarations constituted a further basis for the issuance of the policy.

The question at issue is whether or not the insured made such false representations of material factsas to avoid the policy. There can be no dispute that the information given by her in her application

for insurance was false, namely, that she had never had cancer or tumors, or consulted any physicianor undergone any operation within the preceding period of five years. Are the facts then falselyrepresented material? The Insurance Law (Section 30) provides that materiality is to be determinednot by the event, but solely by the probable and reasonable influence of the facts upon the party towhom the communication is due, in forming his estimate of the proposed contract, or in making hisinquiries. It seems to be the contention of appellants that the facts subject of the representationwere not material in view of the non-medical nature of the insurance applied for, which does awaywith the usual requirement of medical examination before the policy is issued. The contention iswithout merit. If anything, the waiver of medical examination renders even more material theinformation required of the applicant concerning previous condition of health and diseases suffered,



for such information necessarily constitutes an important factor which the insurer takes intoconsideration in deciding whether to issue the policy or not. It is logical to assume that if appelleehad been properly apprised of the insureds medical history she would at least have been made toundergo medical examination in order to determine her insurability.

Appellants argue that due information concerning the insureds previous illness and operation hadbeen given to appellees agent Edward A. Santos, who filled the application form after it was signed inblank by Estefania 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 beentaken upon questions of law alone. We do not deem it necessary, therefore, to consider appelleesadditional argument, which was upheld by the trial court, that in signing the application form in blankand leaving it to Edward A. Santos to fill (assuming that to be the truth) the insured in effect madeSantos her agent for that purpose and consequently was responsible for the errors in the entriesmade by him in that capacity.

In the application for insurance signed by the insured in this case, she agreed to submit to a medicaexamination by a duly appointed examiner of appellee if in the latters opinion such examination wasnecessary 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 heractual state of health. No such negligence can be imputed to appellee. It was precisely because theinsured had given herself a clean bill of health that appellee no longer considered an actual medicacheckup necessary.

Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insuredherself did not know, since her doctor never told her, that the disease for which she had beenoperated on was cancer. In the first place the concealment of the fact of the operation itself wasfraudulent, as there could not have been any mistake about it, no matter what the ailment. Secondly,in order to avoid a policy it is not necessary to show actual fraud on the part of the insured. In thecase of Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S. 211, 214, it was held:

Moreover, if it were the law that an insurance company could not depend a policy on the ground ofmisrepresentation, unless it could show actual knowledge on the part of the applicant that thestatements were false, then it is plain that it would be impossible for it to protect itself and its honestpolicyholders against fraudulent and improper claims. It would be wholly at the mercy of any onewho wished to apply for insurance, as it would be impossible to show actual fraud except in theextremest cases. It could not rely on an application as containing information on which it could actThere would be no incentive to an applicant to tell the truth.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted andapproved by this Honorable Court, without prejudice to the parties adducing other evidence to prove

their case not covered by this stipulation of facts.

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescindthe contract of insurance, concealment being defined as negligence to communicate that which aparty 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 ofInsurance, 2nd ed., Vol. 3:

The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives theinsurer 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 presumedknowledge, is misled into a belief that the circumstance withheld does not exist, and he is therebyinduced 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 thepremium already paid, with interest at 6% up to January 29, 1959, affirmed, with costs againstappellants.

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

G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants,vs.MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCEOF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.

K.V. Faylona for petitioners-appellants.

L. L. Reyes for respondents-appellees.

VASQUEZ, J.:

The question of law raised in this case that justified a direct appeal from a decision of the Court of First Instance Rizal, Branch V, Quezon City, to be taken directly to the Supreme Court is whether or

not the acceptance by the private respondent insurance corporation of the premium and the issuanceof the corresponding certificate of insurance should be deemed a waiver of the exclusionary conditionof overage stated in the said certificate of insurance.

The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied withrespondent insurance corporation for insurance coverage against accident and injuries. She filled upthe blank application form given to her and filed the same with the respondent insurance corporation.In the said application form which was dated April 15, 1969, she gave the date of her birth as July11, 1904. On the same date, she paid the sum of P20.00 representing the premium for which shewas issued the corresponding receipt signed by an authorized agent of the respondent insurancecorporation. (Rollo, p. 27.) Upon the filing of said application and the payment of the premium on the

policy applied for, the respondent insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No. 128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.

On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuzdied in a vehicular accident in the North Diversion Road.

On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the namedbeneficiary in the policy, filed her claim for the proceeds of the insurance, submitting all thenecessary papers and other requisites with the private respondent. Her claim having been denied,Regina L. Edillon instituted this action in the Court of First Instance of Rizal on August 27, 1969.



In resisting the claim of the petitioner, the respondent insurance corporation relies on a provisioncontained in the Certificate of Insurance, excluding its liability to pay claims under the policy in behalfof "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years ..."It is pointed out that the insured being over sixty (60) years of age when she applied for theinsurance coverage, the policy was null and void, and no risk on the part of the respondent insurancecorporation had arisen therefrom.

The trial court sustained the contention of the private respondent and dismissed the complaint;ordered the petitioner to pay attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS infavor of the private respondent; and ordered the private respondent to return the sum of TWENTY (P20.00) PESOS received by way of premium on the insurancy policy. It was reasoned out that apolicy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into; the insured in this case, upon learning from its terms that shecould not have been qualified under the conditions stated in said contract, what she should havedone is simply to ask for a refund of the premium that she paid. It was further argued by the trialcourt that the ruling calling for a liberal interpretation of an insurance contract in favor of the insuredand strictly against the insurer may not be applied in the present case in view of the peculiar factsand circumstances obtaining therein.

We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not concealed to the insurance company. Her application for insurance coverage which was on a printedform furnished by private respondent and which contained very few items of information clearlyindicated her age of the time of filing the same to be almost 65 years of age. Despite suchinformation which could hardly be overlooked in the application form, considering its prominencethereon and its materiality to the coverage applied for, the respondent insurance corporation receivedher payment of premium and issued the corresponding certificate of insurance without question. Theaccident which resulted in the death of the insured, a risk covered by the policy, occurred on May 31,1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time for the private respondent to process the application and to notice that the applicant was over

60 years of age and thereby cancel the policy on that ground if it was minded to do so. If the privaterespondent failed to act, it is either because it was willing to waive such disqualification; or, throughthe negligence or incompetence of its employees for which it has only itself to blame, it simplyoverlooked such fact. Under the circumstances, the insurance corporation is already deemed inestoppel. It inaction to revoke the policy despite a departure from the exclusionary conditioncontained in the said policy constituted a waiver of such condition, as was held in the case of "QueChee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case involved a claim on an insurancepolicy which contained a provision as to the installation of fire hydrants the number of whichdepended on the height of the external wan perimeter of the bodega that was insured. When it wasdetermined that the bodega should have eleven (11) fire hydrants in the compound as required by

the terms of the policy, instead of only two (2) that it had, the claim under the policy was resisted onthat ground. In ruling that the said deviation from the terms of the policy did not prevent the claimunder the same, this Court stated the following:

We are in agreement with the trial Court that the appellant is barred by waiver (orrather estoppel) to claim violation of the so-called fire hydrants warranty, for the reasonthat knowing fully an that the number of hydrants demanded therein never existedfrom the very beginning, the appellant nevertheless issued the policies in questionsubject to such warranty, and received the corresponding premiums. It would beperilously close to conniving at fraud upon the insured to allow appellant to claim now



as void ab initio the policies that it had issued to the plaintiff without warning of theirfatal defect, of which it was informed, and after it had misled the defendant intobelieving that the policies were effective.

The insurance company was aware, even before the policies were issued, that in thepremises insured there were only two fire hydrants installed by Que Chee Gan and twoothers nearby, owned by the municipality of Tabaco, contrary to the requirements of the warranty in question. Such fact appears from positive testimony for the insured thatappellant's agents inspected the premises; and the simple denials of appellant'srepresentative (Jamiczon) can not overcome that proof. That such inspection was madeit moreover rendered probable by its being a prerequisite for the fixing of the discount on the premium to which the insured was entitled, since the discount depended on thenumber of hydrants, and the fire fighting equipment available (See"'Scale of

Allowances" to which the policies were expressly made subject). The law, supported bya long line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) tobe as follows:

It is usually held that where the insurer, at the time of the issuance of a

policy of insurance, has knowledge of existing facts which, if insisted on,would invalidate the contract from its very inception, such knowledgeconstitutes a waiver of conditions in the contract inconsistent with theknown facts, and the insurer is stopped thereafter from asserting thebreach of such conditions. The law is charitable enough to assume, in theabsence of any showing to the contrary, that an insurance companyintends to execute a valid contract in return for the premium received;and when the policy contains a condition which renders it voidable at itsinception, and this result is known to the insurer, it will be presumed tohave intended to waive the conditions and to execute a binding contract,rather than to have deceived the insured into thinking he is insured when

in fact he is not, and to have taken is money without consideration.' (29 Am. Jur., Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow acompany to accept one's money for a policy of insurance which it thenknows to be void and of no effect, though it knows as it must, that theassured believes it to be valid and binding, is so contrary to the dictates ofhonesty and fair dealing, and so closely related to positive fraud, as to be

abhorent to fairminded men. It would be to allow the company to treat the policy as valid long enough to get the premium on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be thereal intention of the parties. To hold that a literal construction of thepolicy expressed the true intention of the company would be to indict it,for fraudulent purposes and designs which we cannot believe it to beguilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl. 540,543544).



A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc.,65 SCRA 134, which involved a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The company issued the policy upon theexecution of a promissory note for the payment of the premium. A check given subsequent by theinsured as partial payment of the premium was dishonored for lack of funds. Despite such deviationfrom the terms of the policy, the insurer was held liable.

Significantly, in the case before Us the Capital Insurance accepted the promise of PlasticEra to pay the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has impliedly agreed to modify the tenor of the insurance policyand in effect, waived the provision therein that it would only pay for the loss or damagein case the same occurs after the payment of the premium. Considering that theinsurance policy is silent as to the mode of payment, Capital Insurance is deemed tohave accepted the promissory note in payment of the premium. This rendered thepolicy immediately operative on the date it was delivered. The view taken in most casesin the United States:

... is that although one of conditions of an insurance policy is that "it shall

not be valid or binding until the first premium is paid", if it is silent as tothe mode of payment, promissory notes received by the company must bedeemed to have been accepted in payment of the premium. In otherwords, a requirement for the payment of the first or initial premium inadvance or actual cash may be waived by acceptance of a promissorynote...

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, theprivate respondent insurance corporation is hereby ordered to pay to the petitioner the sum of TENTHOUSAND (P10,000.00) PESOS as proceeds of Insurance Certificate No. 128866 with interest at thelegal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND (P2,000.00) PESOS

as and for attorney's fees, and the costs of suit.

SO ORDERED.

Teehankee (Chairman), Makasiar, Plana, Relova and Gutierrez, Jr., JJ., concur.

Melencio-Herrera, J., took no part.

G.R. No. L-27541

TAN CHAY HENG, plaintiff-appellee,

vs.THE WEST COAST LIFE INSURANCE COMPANY, defendant-appellant.

Gibbs and McDonough and Roman Ozaeta for appellant.

Hilado and Hilado for appellee.

, J.:

AMENDED ANSWER



Comes now the defendant, by its undersigned attorneys, and with leave of court amends its answer

to plaintiff's complaint herein by making it reads as follows:

I

That it admits paragraph 1 of said complaint.

II

That it denies each and every other allegation contained in each and every other paragraph of said

complaint.

SPECIAL DEFENSE

By way of special defense, defendant alleges:

I

That the insurance policy on the life of Tan Ceang, upon which plaintiff's action is based, was

obtained by the plaintiff in confabulation with one Go Chulian, of Bacolod, Negros Occidental;

Francisco Sanchez of the same place; and Dr. V. S. Locsin, of La Carlota, Negros Occidental, thru

fraud and deceit perpetrated against this defendant in the following manner, to wit:

1. That on or about the 22d day of February, 1925, in the municipality of Pulupandan, Occidental

Negros, the present plaintiff and the said Go Chulian, Francisco Sanchez and Dr., V. S. Locsin,conspiring and confederating together for the purpose of defrauding and cheating the defendant in

the sum of P10,000, caused one Tan Caeng to sign an application for insurance with the defendant in

the sum of P10,000, in which application it was falsely represented to the defendant that the said

Tan Ceang was single and was a merchant, and that the plaintiff Tan Chai Heng, the beneficiary, was

his nephew, whereas in truth and in fact and as the plaintiff and his said coconspirators well knew,

the said Tan Ceang was not single but was legally married to Marcelina Patalita with whom he had

several children; and that he was not a merchant but was a mere employee of another Chinaman by

the name of Tan Quina from whom he received only a meager salary, and that the present plaintiff

was not a nephew of the said Tan Ceang.

2. That on said date, February 22, 1925, the said Tan Ceang was seriously ill, suffering from

pulmonary tuberculosis of about three years' duration, which illness was incurable and was well

known to the plaintiff and his said coconspirators.

3. That on or about the same date, February 22, 1925, the said Dr. V. S. Locsin, in his capacity as

medical examiner for the defendant insurance company, pursuant to the conspiracy above

mentioned, prepared and falsified the necessary medical certificate, in which it was made to appear,



among other things, that the said Tan Ceang had never used morphine, cocaine or any other drug;

that he was then in good health and had never consulted any physician; that he had never spit

blood; and that there was no sign of either present or past disease of his lungs; whereas in truth and

in fact, as the plaintiff and his said coconspirators well knew, the said Tan Ceang was addicted to

morphine, cocaine, and opium and had been convicted and imprisoned therefor, and was then, and

for about three year prior thereto had been suffering from pulmonary tuberculosis 85DPkZ1wU.

4. That on or about the same date, to wit, February 22, 1925, the plaintiff and his said

coconspirators, pursuant to the conspiracy above mentioned, cause a confidential report to the

defendant insurance company to be signed by one V. Sy Yock Kian, who was an employee of Go

Chulian, in which confidential report, among other things, it was falsely represented to the defendant

insurance company that the said Tan Ceang was worth about P40,000, had an annual income of from

eight to ten thousand pesos net, had the appearance of good health, and never had tuberculosis;

that the plaintiff and his said coconspirators well knew that said representations were false; and that

they were made for the purpose of deceiving the defendant and inducing it to accept the said

application for insurance.

5. That after the said application for insurance, medical certificate and confidential report had been

prepared and falsified, as aforesaid, the plaintiff and his said coconspirators caused the same to be

forwarded to the defendant at its office in Manila, the medical certificate thru the said Dr. V. S. Locsin

as medical examiner, and said application for insurance and confidential report thru the said

Francisco Sanchez in his capacity as one of the agents of the defendant insurance company in the

Province of Occidental Negros; that the defendant, believing that the representations made in said

document were true, and relying thereon, provisionally accepted the said application for insurance on

the life of Tan Ceang in the sum of P10,000 and issued a temporary policy pending the final approval

or disapproval of said application by defendant's home-office in San Francisco, California, where incase of approval a permanent policy was to be issued; that such permanent policy was never

delivered to the plaintiff because defendant discovered the fraud before its delivery.

6. That the first agreed annual premium on the insurance in question of P936.50 not having been

paid within sixty (60) days after the date of the supposed medical examination of the applicant as

required by the regulations of the defendant insurance company, of which regulations the said

Francisco Sanchez as agent of the defendant had knowledge, the plaintiff and his said coconspirators

in order to secure the delivery to them of said temporary policy, and in accordance with said

regulations of the defendant company, caused the said Tan Ceang on April 10, 1925 to sign thefollowing document:

WEST COAST LIFE INSURANCE COMPANYSAN FRANCISCO, CALIFORNIA

HEALTH CERTIFICATE FOR RE-INSTATEMENT

I herewith request the West Coast Life Insurance Company to re-instate Policy No.

............................. issued by it upon my life, the first unpaid premium on which became due



.............................., 19................

I certify and state that I am now in good and sound health, that since the date of my examination

under the application on which said policy was written, I have had no injury, sickness, impairment of

health or symptom thereof, and that since said date I have neither consulted a physician nor made

any application for life insurance that has not been granted in exact kind and amount applied for,

except:

NADA

(State fully all exceptions to all above statements. If no exceptions insert "NONE.")

I agree that, if said policy re-instated, it shall be only on condition of the truth of the above

statements and such re-instatement shall not operate as a waiver on the part of said Company of its

right to refuse to accept any future overdue premiums or installments thereof.

Witness: (Sgd.)TAN CHAI HENGTAN CAENGSignature of Applicant.

"Dated at Palupandan on this 10 day of April, 1925." that the statements and representations

contained in the application for reinstatement above set forth with regard to the health and physical

condition of the said Tan Ceang were false and known to the plaintiff and his said coconspirators to

be false; that the said temporary policy was delivered by defendant to the insured on April 10, 1925,

in the belief that said statements and representations were true and in reliance thereon.

7. That on May 10, 1925, that is to say, two months and a half after the supposed medical

examination above referred to, and exactly one month after the date of the health certificate forreinstatement above set forth, the said Tan Ceang died in Valladolid, Occidental Negros, of

pulmonary tuberculosis, the same illnes from which suffering at the time it is supposed he was

examined by Dr. V. S. Locsin, but that the plaintiff and his said coconspirators, pursuant to their

conspiracy, caused the said Dr. V. S. Locsin to state falsely in the certificate of death that the said

Tan Ceang had died of cerebral hemorrhage.

II

That the plaintiff Tan Chai Heng, on the dates herein-above mentioned, was, liked V. Sy Yock Kian

who signed the confidential report above mentioned, an employee of the said Go Chulian; that the

latter was the ringleader of a gang of malefactors, who, during, and for some years previous to the

dates above mentioned, were engaged in the illicit enterprise of procuring fraudulent life insurances

from the present defendant, similar to the one in question, and which enterprise was capitalized by

him by furnishing the funds with which to pay the premium on said fraudulent insurance; that the

said Go Chulian was the one who furnished the money with which to pay the first and only annual



premium on the insurance here in question, amounting to P936.50; that the said Go Chulian, on

August 28, 1926, was convicted by the Court of First Instance of the City of Manila, in criminal case

No. 31425 of that court, of the crime of falsification of private documents in connection with an

fraudulent insurance, similar to the present, committed against this defendant in the month of

September, 1924; that in the same case the said Francisco Sanchez was one of the coaccused of the

said Go Chulian but was discharged from the complaint, because he offered himself and was utilized

as a state's witness; that there is another civil action now pending against Go Chulian and Sanchez in

the Court of First Instance of Manila (civil case No. 28680), in which the present defendant is the

plaintiff, for the recovery of the amounts of two insurance policies aggregating P19,000, fraudulently

obtained by the said Go Chulian and Sanchez upon the lives of one Tan Deco, who was also suffering

from and died of tuberculosis, and one Tan Anso, who was suffering from and died of beriberi.

III

That by reason of all the facts above set forth, the temporary policy of insurance on the life of Tan

Caeng for the sum of P10,000 upon which the present action is base is null and void.

Wherefore, defendant prays that it be absolved from plaintiff's complaint, with costs against the

plaintiff.

To this special defense, the plaintiff, claiming that it was a cross-complaint, filed a general demurrer

upon the ground that it does not state facts sufficient to constitute a cause of defense.

After exhaustive arguments and on September 16, 1926, the court rendered the following decision:

After considering the demurrer filed by the plaintiff to the special defense contained in the amendedanswer of the defendant, dated August 31, 1926, without prejudice to writing a more extensive

decision, said demurrer is sustained, and the defendant is given a period of five days within which to

amend its aforesaid answer.

So ordered.

To which the defendant duly excepted.

As a result of the trial the general issues, the lower court rendered judgment for the plaintiff forP10,000, with legal interest from January 4, 1926, and costs, to which the defendant duly excepted

and filed a motion for a new trial, which was overruled. On appeal the defendant assigns the

following errors:

The trial court erred ?

1. In sustaining plaintiff's demurrer to the special defense contained in defendant's amended answer.



2. In holding, in effect, that an insurer cannot avoid a policy which had been procured by fraud

unless he brings an action to rescind it before he is sued thereon.

3. In rejecting all proofs offered by the defendant during the trial for the purpose of defeating

plaintiff's fraudulent claim.

4. In not absolving the defendant from plaintiff's complaint kGMysx.

JOHNS, J.:

It will thus be noted that the premium was paid on April 10, 1925, at which time the temporary policy

was issued; that the plaintiff's action was commenced on January 4, 1926; that the original answer of

the defendant, consisting of a general and specific denial, was filed on February 27, 1926; and that

its amended answer was filed on August 31, 1926.

Based upon those facts the plaintiff vigorously contended in the lower court and now contends in the

court, that section 47 of the Insurance Act should be applied, and that when so applied, defendant is

barred and estopped to plead and set forth the matters alleged in its special defense. That section is

as follows:

Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this

chapter, such right must be exercised previous to the commencement of an action on the contract.

The defendant contended in the lower court and now contends in this court, that section 47 does not apply to the new matters alleged in the special defense. If in legal effect defendant's special defense

is in the nature of an act to rescind "a contract of insurance," then such right must be exercised prior

to an action enforce the contract. That is the real question involved in this appeal.

Defendant's original answer was a general and specific denial. In other words, it specifically denied

that if ever issued the policy in question, or that it ever agreed with Tan Ceang in the even of his

death to pay P10,000 to the plaintiff or any one else. In its amended answer the defendant again

makes a general and specific denial, and alleges the reasons, the specific facts, and the reasons why

it never made or entered into the contract alleged in the complaint, and based upon those allegedfacts, defendant contends that it never did enter into any contract of insurance on the life of Tan

Caeng.

The word "rescind" has a well defined legal meaning, and as applied to contracts, it presupposes the

existence of a contract to rescind.

Word & Phrases, volume 7, page 6139, says:



To rescind is to abrogate, annual, avoid, or cancel a contract.

The word "rescind," as used in a statement by a party to a contrary as follows. "I hereby terminate

and rescind my said written contract," is synonymous with the word `terminate,' and the rescission

therefore relates only to the unfulfilled part, and not to the entire agreement, making the party

rescinding liable on notes executed pursuant to the contract which matured before the rescission.

The rescission is the unmaking of a contract, requiring the same concurrence of wills as that which

made it, and nothing short of this will suffice. There is a wide difference between the rescission of a

contract and its mere termination or cancellation.

After a contract has been broken, whether by an inability to perform it, or by rescinding against right

or otherwise, the party not in fault may sue the other for the damages suffered, or, if the parties can

be placed in status quo, he may, should he prefer, return what he has received and recover in a suit

value of what he has paid or done. The latter remedy is termed "rescission."

In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the

alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the life

of Tan Ceang or that any such a contract ever existed, and that is the question which it seeks to have

litigated by its special defense. In the very nature of things, if the defendant never made or entered

into the contract in question, there is no contract to rescind, and, hence, section 47 upon which the

lower based its decision in sustaining the demurrer does not apply. As stated, an action to rescind a

contract is founded upon and presupposes the existence of the contract which is sought to be

rescinded. If all of the material matters set forth and alleged in the defendant's special plea are true,

there was no valid contract of insurance, for the simple reason that the minds of the parties never

met and never agreed upon the terms and conditions of the contract. We are clearly of the opinionthat, if such matters are known to exist by a preponderance of the evidence, they would constitute a

valid defense to plaintiff's cause of action. Upon the question as to whether or not they or are not

true, we do not at this time have or express any opinion, but we are clear that section 47 does not

apply to the allegations made in the answer, and that the trial court erred in sustaining the demurrer.

The judgment of the lower court is reversed and the case is remanded for such other and further

proceedings as are not inconsistent with this opinion, with costs against the plaintiff. So ordered.

Avanceña, C.J., Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur. .

G.R. No. L-24899 March 19, 1928

BERNARDO ARGENTE, plaintiff-appellant,vs.WEST COAST LIFE INSURANCE CO., defendant-appellee.

Abad Santos, Camus, Delgado & Recto for appellant.Gibbs & McDonough and Roman Ozaeta for appellee.



MALCOLM, J.:

This is an action upon a joint life insurance policy for P15,000 issued by the defendant, the West Coast Life Insurance Co., on May 15, 1925, in favor of the plaintiff, Bernardo Argente, and his wife,

Vicenta de Ocampo, the latter having died on November 18, 1925. Fraud in obtaining the policy waspleaded by way of special defense. On the issue thus suggested, the court adopted the theory of thedefendant, and held the insurance policy null and void, with the result that the complaint wasdismissed, with costs.

On February 9, 1925, Bernardo Argente signed an application for joint insurance with his wife in thesum of P2,000. The wife, Vicenta de Ocampo, signed a like application for the same policy. Bothapplications, with the exception of the names and the signatures of the applicants, were written byJose Geronimo del Rosario, an agent for the West Coast Life Insurance Co. But all the informationcontained in the applications was furnished the agent by Bernardo Argente.

Pursuant to his application, Bernardo Argente was examined by Dr. Cesareo Sta. Ana, a medicalexaminer for the West Coast Life Insurance Co., on February 10, 1925, in the office of the CustomsHouse. The result of such examination was recorded in the Medical Examiner's Report, and with the

exception of the signature of Bernardo Argente, was in the hand-writing of Doctor Sta. Ana. But theinformation or answers to the questions contained on the face of the Medical Examiner's Report werefurnished the doctor by the applicant, Bernardo Argente.

Pursuant to her application, Vicenta de Ocampo, wife of the plaintiff, was examined by Dr. CesareoSta. Ana on February 10, 1925, at her residence in Manila. The result of the medical examination,including among other things, the answers given by Vicenta de Ocampo to the questions propoundedto her by the physician, appears in the Medical Examiner's Report.

On May 9, 1925, Bernardo Argente and his wife submitted to the West Coast Life Insurance Co. anamended application for insurance, increasing the amount thereof to P15,000, and asked that the

policy be dated May 15, 1925. The amended application was accompanied by the documents entitled"Short Form Medical Report." In both of these documents appear certain questions and answers.

A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of May 15, but it wasnot delivered to Bernardo Argente until July 2, 1925, when the first quarterly premium on the policywas paid. In view of the fact that more than thirty days had elapsed since the applicants wereexamined by the company's physician, each of them was required to file a certificate of health beforethe policy was delivered to them.

On November 18, 1925, Vicenta de Ocampo died of cerebral apoplexy. Thereafter Bernardo Argente

presented a claim in due form to the West Coast Life Insurance Co. for the payment of the sum of P15,000 the amount of the joint life Insurance policy. Following investigation conducted by theManager of the Manila office of the insurance company, it was apparently disclosed that the answersgiven by the insured in their medical examinations with regard to their health and previous illnessand medical attendance were untrue. For that reason, the West Coast Life Insurance Co. refused topay the claim of Bernardo Argente, and on May 25, 1926, wrote him to the effect that the claim wasrejected because the insurance was obtained through fraud and misrepresentation.

It is admitted that it appears in the Medical Examiner's Report that Bernardo Argente, in response tothe question asked by the medical examiner, "Have you ever consulted a physician for, or have you



ever suffered from any ailment or disease of, the brain or nervous system?" answered "No." To thequestion, "Have you consulted a physician for any ailment or disease not included in your aboveanswer," answered "Yes. Nature of Ailment, Disease or Injury. Scabies, Number of attacks 1, Date1911. Duration 1 month, Severity Fair, results and, if within five years, name and address of everyphysician consulted. Dr. P. Guazon. Cured. Dr. Guazon is dead now." And to the question, "What physician or physicians, if any, not named above, have you consulted or been treated by, within thelast five years and for what illness or ailment? (If none, so state)" answered "No." It is, however, not disputed that on January 10, 11, and 13, 1923, Bernardo Argente was confined in the PhilippineGeneral Hospital where he was treated by Dr. Agerico B. M. Sison for cerebral congestion and Bell'sPalsy.

It is further admitted that it appears in the Medical Examiner's Report that Vicenta de Ocampo, inresponse to the question asked by the medical examiner, "How frequently, if at all, and in what quantity do you use beer, wine, spirits or other intoxicants?" answered "Beer only in small quantitiesoccasionally." To the question, "Have you ever consulted a physician for or have you ever sufferedfrom any ailment or disease of the brain or nervous system?" answered "No." To the question, "Whatphysician or physicians, if any, not named above, have you consulted or been treated by, within thelast five years and for what illness or ailment? (If none, so state)" answered "None." And to the

question, "Are you in good health as far as you know and believe?" answered "Yes." It is, however,not disputed that Vicenta de Ocampo was taken by a patrolman, at the request of her husband,Bernardo Argente, on May 19, 1924, to the Meisic police station, and from there was transferred tothe San Lazaro Hospital. In San Lazaro Hospital, her case was diagnosed by the admitting physicianas "alcoholism," but later Doctor Domingo made a diagnosis of probable "manic-depressivepsychosis," and still, later in Mary Chiles Hospital, made a final diagnosis of "phycho-neurosis."

The plaintiff, Bernardo Argente, while readily conceding most of the facts herein narrated, yet allegesthat both he and his wife revealed to the company's physician. Doctor Sta. Ana, all the factsconcerning the previous illnesses and medical attendance, but that Doctor Sta. Ana, presumablyacting in collusion, with the insurance agent, Jose Geronimo del Rosario, failed to record them in the

medical reports. The evidence on these points consists of the testimony of the plaintiff and hissubordinate clerk, Apolonio Espiritu, on the one hand, and of the testimony of Doctor Sta. Ana andJose Geronimo del Rosario on the other. On the question of fact thus raised, the trial judge foundwith the insurance company. In so doing, we believe that His Honor gave proper inclination to theweight of the proof. There appears no motive whatever on the part of Doctor Sta. Ana to falsify theMedical Examiner's Reports and thereby not only jeopardize his career as a physician, but alsogravely implicate himself criminally.

What has heretofore been stated in this decision is gleaned to a great extent the carefully prepareddecision of the trial judge, the Honorable George R. Harvey. The court found from the evidence that

the representations made by Bernardo Argente and his wife in their applications to the defendant forlife insurance were false with respect to their estate of health during the period of five yearspreceding the date of such applications, and that they knew the representations made by them intheir applications were false. The court further found from the evidence that the answers given byBernardo Argente and his wife at the time of the medical examination by Doctor Sta. Ana were falsewith respect to the condition of their health at that time and for a period of several years priorthereto. Based on these findings which must here be accepted since the stenographic transcript isincomplete, the question arises as to the estate of the law in relation thereto.



One ground for the rescission of a contract of insurance under the Insurance Act is "a concealment,"which in section 25 is defined as "A neglect to communicate that which a party knows and ought tocommunicate." Appellant argues that the alleged concealment was immaterial and insufficient toavoid the policy. We cannot agree. In an action on a life insurance policy where the evidenceconclusively shows that the answers to questions concerning diseases were untrue, the truth of falsity of the answers become the determining factor. In the policy was procured by fraudulent representations, the contract of insurance apparently set forth therein was never legally existent. It can fairly be assumed that had the true facts been disclosed by the assured, the insurance wouldnever have been granted.

In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:

Concealment exists where the assured has knowledge of a fact material to the risk, andhonesty, good faith, and fair dealing requires that he should communicate it to the assured,but he designated and intentionally with holds the same.

Another rule is that if the assured undertakes to state all the circumstances affecting the risk,a full and fair statement of all is required.

It is also held that the concealment must, in the absence of inquiries, be not only material, butfraudulent, or the fact must have been intentionally withheld; so it is held under English lawthat if no inquiries are made and no fraud or design to conceal enters into the concealment the contract is not avoided. And it is determined that even though silence may constitutemisrepresentation or concealment it is not itself necessarily so as it is a question of fact. Nor isthere a concealment justifying a forfeiture where the fact of insanity is not disclosed noquestions being asked concerning the same. . . .

But it would seem that if a material fact is actually known to the assured, its concealment must of itself necessarily be a fraud, and if the fact is one which the assured ought to know, or

is presumed to know, the presumption of knowledge ought to place the assured in the sameposition as in the former case with relation to material facts; and if the jury in such cases findthe fact material, and one tending to increase the risk, it is difficult to see how the inference ofa fraudulent intent or intentional concealment can be avoided. And it is declared that if amaterial fact concealed by assured it is equivalent to a false representation that it does not exist and that the essentials are the truth of the representations whether they were intendedto mislead and did insurer accept them as true and act upon them to his prejudice. So it isdecided that under a stipulation voiding the policy for concealment or misrepresentation of anymaterial fact or if his interest is not truly stated or is either than the sole and unconditionalownership the facts are unimportant that insured did not intend to deceive or withhold

information as to encumbrances even though no questions were asked. And if insured whilebeing examined for life insurance and knowing that she had heart disease, falsely stated that she was in good health, and though she could not read the application, it was explained to herand the questions asked through an interpreter, and the application like the policy containedand provision that no liability should be incurred unless the policy was delivered while theinsured was in good health, the court properly directed a verdict for the insurer, though awitness who was present at the examination testified that the insured was not asked whethershe had heart disease.

x x x x x x x x x



The basis of the rule vitiating the contract in case of concealment is that it misleads ordeceives the insurer into accepting the risk, or accepting it at the rate of premium agreedupon. The insurer, relying upon the belief that the assured will disclose every material withinhis actual or presumed knowledge, is misled into a belief that the circumstance withheld doesnot exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. The principal question, therefore, must be, Was the assurer misled or deceived intoentering a contract obligation or in fixing the premium of insurance by a withholding of material information of facts within the assured's knowledge or presumed knowledge?

It therefore follows that the assurer in assuming a risk is entitled to know every material fact of which the assured has exclusive or peculiar knowledge, as well as all material facts whichdirectly tend to increase the hazard or risk which are known by the assured, or which ought tobe or are presumed to be known by him. And a concealment of such facts vitiates the policy."It does not seem to be necessary . . . that the . . . suppression of the truth should have beenwillful." If it were but an inadvertent omission, yet if it were material to the risk and such asthe plaintiff should have known to be so, it would render the policy void. But it is held that if untrue or false answers are given in response to inquiries and they relate to material facts thepolicy is avoided without regard to the knowledge or fraud of assured, although under the

statute statements are representations which must be fraudulent to avoid the policy. So undercertain codes the important inquiries are whether the concealment was willful and related to amatter material to the risk.

x x x x x x x x x

If the assured has exclusive knowledge of material facts, he should fully and fairly disclose thesame, whether he believes them material or not. But notwithstanding this general rule it willnot infrequently happen, especially in life risks, that the assured may have a knowledge actualor presumed of material facts, and yet entertain an honest belief that they are not material. . .. The determination of the point whether there has or has not been a material concealment

must rest largely in all cases upon the form of the questions propounded and the exact termsof the contract. Thus, where in addition to specifically named diseases the insured was askedwhether he had any sickness within ten years, to which he answered "No," and it was proventhat within that period he had a slight of pharyngitis, it was held a question properly for the

jury whether such an inflammation of the throat was a "sickness" within the intent of theinquiry, and the court remarked on the appeal decision that if it could be held as a matter of law that the policy was thereby avoided, then it was a mere device on the part of insurancecompanies to obtain money without rendering themselves liable under the policy. . . .

. . . The question should be left to the jury whether the assured truly represented the state of

his health so as not mislead or deceive the insurer; and if he did not deal a good faith withinsurer in that matter, that the inquiry should be made, Did he know the state of his health soas to be able to furnish a proper answer to such questions as are propounded? AMassachusetts case, if construed as it is frequently cited, would be opposed to the aboveconclusion; but, on the contrary, it sustains it, for the reason that symptoms of consumptionhad so far developed themselves within a few months prior to effecting the insurance as toinduce a reasonable belief that the applicant had that fatal disease, and we should furtherconstrue this case as establishing the rule that such a matter cannot rest alone upon theassured's belief irrespective of what is a reasonable belief, but that it ought to be judged bythe criterion whether the belief is one fairly warranted by the circumstances. A case in Indiana,



however, holds that if the assured has some affection or ailment of one or more of the organsinquired about so well-defined and marked as to materially derange for a time the functions of such organ, as in the case of Bright's disease, the policy will be avoided by a nondisclosure,irrespective of the fact whether the assured knew of such ailment or not. . . .

Lastly, appellant contends that even if the insurance company had a right to rescind the contract,such right cannot now be enforced in view of the provisions of section 47 of the Insurance Act providing "Whenever a right to rescind a contract of insurance is given to their insurer by provision ofthis chapter, such right must be exercised previous to the commencement of an action on thecontract." This section was derived from section 2583 of the California Civil Code, but in contrast thereto, makes use of the imperative "must" instead of the permissive "may." Nevertheless, there aretwo answers to the problem as propounded. The first is that the California law as construed by thecode examiners, at whose recommendation it was adopted, conceded that "A failure to exercise theright (of rescission), cannot, of course, prejudice any defense to the action which the concealment may furnish." (Codes of California annotated; Tan Chay Heng vs. West Coast Life Insurance Company[1927], p. 80,ante.) The second answer is that the insurance company more than one monthprevious to the commencement of the present action wrote the plaintiff and informed him that theinsurance contract was void because it had been procured through fraudulent representations, and

offered to refund to the plaintiff the premium which the latter had paid upon the return of the policyfor cancellation. As held in California as to a fire insurance policy, where any of the materialrepresentations are false, the insurer's tender of the premium and notice that the policy is canceled,before the commencement of suit thereon, operate to rescind the contract of insurance.(Rankin vs.Amazon Insurance Co. [1891], 89 Cal., 203.)

We are content to rest our judgment on the findings of the trial court, and on the law governingthose facts, with the result that the various assignments of error are found to be without persuasivemerit.

Judgment affirmed, with the costs of this instance against the appellant.

Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITATRINOS, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coveragewith petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no tothe following question:

Have you or any of your family members ever consulted or been treated for high blood pressure,heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).[1]



The application was approved for a period of one year from March 1, 1988 to March 1,1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,respondents husband was entitled to avail of hospitalization benefits, whether ordinary oremergency, listed therein. He was also entitled to avail of out-patient benefits such as annuaphysical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1,1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was

increased to a maximum sum of P75,000.00 per disability.[2]

During the period of his coverage, Ernani suffered a heart attack and was confined at the ManilaMedical Center (MMC) for one month beginning March 9, 1990. While her husband was in thehospital, respondent tried to claim the benefits under the health care agreement. However,petitioner denied her claim saying that the Health Care Agreement was void. According to petitionerthere was a concealment regarding Ernanis medical history. Doctors at the MMC allegedlydiscovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,contrary to his answer in the application form. Thus, respondent paid the hospitalization expensesherself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist ahome. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,respondent brought her husband home again. In the morning of April 13, 1990, Ernani had feverand was feeling very weak. Respondent was constrained to bring him back to the Chinese GeneraHospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, anaction for damages against petitioner and its president, Dr. Benito Reverente, which was docketed asCivil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages andattorneys fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff JulitaTrinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinosin the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid thesame;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards fordamages and absolved petitioner Reverente.[4] Petitioners motion for reconsideration wasdenied.[5] Hence, petitioner brought the instant petition for review, raising the primary argument thata health care agreement is not an insurance contract; hence the incontestability clause under theInsurance Code[6] does not apply.



Petitioner argues that the agreement grants living benefits, such as medical check-ups andhospitalization which a member may immediately enjoy so long as he is alive upon effectivity of theagreement until its expiration one-year thereafter. Petitioner also points out that only medical andhospitalization benefits are given under the agreement without any indemnification, unlike in aninsurance contract where the insured is indemnified for his loss. Moreover, since Health Care

Agreements are only for a period of one year, as compared to insurance contracts which laslonger,[7] petitioner argues that the incontestability clause does not apply, as the same requires aneffectivity period of at least two years. Petitioner further argues that it is not an insurance companywhich is governed by the Insurance Commission, but a Health Maintenance Organization under theauthority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement wherebyone undertakes for a consideration to indemnify another against loss, damage or liability arising froman unknown or contingent event. An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among alarge group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured pays a premium.[8]

Section 3 of the Insurance Code states that any contingent or unknown event, whether past orfuture, which may damnify a person having an insurable interest against him, may be insuredagainst. Every person has an insurable interest in the life and health of himself. Section 10 provides

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or inwhom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respectingproperty or service, of which death or illness might delay or prevent the performance;and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the health careagreement was his own health. The health care agreement was in the nature of non-life insurance,which is primarily a contract of indemnity.[9] Once the member incurs hospital, medical or any otherexpense arising from sickness, injury or other stipulated contingent, the health care provider mustpay for the same to the extent agreed upon under the contract.

Petitioner argues that respondents husband concealed a material fact in his application. Itappears that in the application for health coverage, petitioners required respondents husband to signan express authorization for any person, organization or entity that has any record or knowledge ofhis health to furnish any and all information relative to any hospitalization, consultation, treatment or



any other medical advice or examination.[10] Specifically, the Health Care Agreement signed byrespondents husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendumannexed to this application are full, complete and true and bind all parties in interest under the

Agreement herein applied for, that there shall be no contract of health care coverage unless and untilan Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCareunless set out in writing in the application; that any physician is, by these presents, expresslyauthorized to disclose or give testimony at anytime relative to any information acquired by him in hisprofessional capacity upon any question affecting the eligibility for health care coverage of theProposed Members and that the acceptance of any Agreement issued on this application shall be aratification of any correction in or addition to this application as stated in the space for Home OfficeEndorsement.[11] (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorizationto inquire about the applicants medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my healthand/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all informationrelative to any hospitalization, consultation, treatment or any other medical advice orexamination. This authorization is in connection with the application for health care coverageonly. A photographic copy of this authorization shall be as valid as the original.[12] (Underscoringours)

Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:

Failure to disclose or misrepresentation of any material information by the member in the application

or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of allMembership Fees paid. An undisclosed or misrepresented information is deemed material if itsrevelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.[13]

The answer assailed by petitioner was in response to the question relating to the medical historyof the applicant. This largely depends on opinion rather than fact, especially coming fromrespondents husband who was not a medical doctor. Where matters of opinion or judgment arecalled for, answers made in good faith and without intent to deceive will not avoid a policy even

though they are untrue.

[14]

Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of theinsured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, orits acceptance at a lower rate of premium, and this is likewise the rule although the statement ismaterial to the risk, if the statement is obviously of the foregoing character, since in such case theinsurer is not justified in relying upon such statement, but is obligated to make further inquiry. Thereis a clear distinction between such a case and one in which the insured is fraudulently andintentionally states to be true, as a matter of expectation or belief, that which he then knows, to be



actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in suchcase the intent to deceive the insurer is obvious and amounts to actual fraud.[15] (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of theinsurance contract.[16] Concealment as a defense for the health care provider or insurer to avoidliability is an affirmative defense and the duty to establish such defense by satisfactory andconvincing evidence rests upon the provider or insurer. In any case, with or without the authority toinvestigate, petitioner is liable for claims made under the contract. Having assumed a responsibilityunder the agreement, petitioner is bound to answer the same to the extent agreed upon. In the endthe liability of the health care provider attaches once the member is hospitalized for the disease orinjury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind acontract of insurance. The right to rescind should be exercised previous to the commencement ofan action on the contract.[17] In this case, no rescission was made. Besides, the cancellation ofhealth care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and uponrequest of insured, to furnish facts on which cancellation is based.[18]

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contractcontain limitations on liability, courts should construe them in such a way as to preclude the insurer

from non-compliance with his obligation.

[19]

Being a contract of adhesion, the terms of an insurancecontract are to be construed strictly against the party which prepared the contract theinsurer.[20] By reason of the exclusive control of the insurance company over the terms andphraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer andliberally in favor of the insured, especially to avoid forfeiture. [21]This is equally applicable to HealthCare Agreements. The phraseology used in medical or hospital service contracts, such as the one atbar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptibleof two interpretations the construction conferring coverage is to be adopted, and exclusionary clausesof doubtful import should be strictly construed against the provider.[22]

Anent the incontestability of the membership of respondents husband, we quote with approva

the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. hadtwelve months from the date of issuance of the Agreement within which to contest the membershipof the patient if he had previous ailment of asthma, and six months from the issuance of theagreement if the patient was sick of diabetes or hypertension. The periods having expired, thedefense of concealment or misrepresentation no longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased memberconsidering that at the time of their marriage, the deceased was previously married to another



woman who was still alive. The health care agreement is in the nature of a contract ofindemnity. Hence, payment should be made to the party who incurred the expenses. It is notcontroverted that respondent paid all the hospital and medical expenses. She is therefore entitled toreimbursement. The records adequately prove the expenses incurred by respondent for thedeceaseds hospitalization, medication and the professional fees of the attending physicians.[24]

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of theCourt of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.

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 INSURANCECOMPANY, 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. Thefacts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing hereinpetitioners' complaint against respondent Philippine American Life Insurance Companyfor 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 lifeinsurance in the amount of P 80,000.00 with respondent company. Said application wasapproved 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 filedwith respondent company their claim for the proceeds of the life insurance policy.However, in a letter dated September 11, 1975, respondent company deniedpetitioners' claim and rescinded the policy by reason of the alleged misrepresentationand concealment of material facts made by the deceased Tan Lee Siong in hisapplication for insurance (Exhibit 3). The premiums paid on the policy were thereuponrefunded .



Alleging that respondent company's refusal to pay them the proceeds of the policy wasunjustified 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 decisionfor 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 torescind the policy contract when insured is already dead is not in accordance withexisting law and applicable jurisprudence.

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

C. The inference of respondent Court that respondent insurer was misled in issuing thepolicy 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 insurerby any provision of this chapter, such right must be exercised previous to thecommencement of an action on the contract.

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

According to the petitioners, the Insurance Law was amended and the second paragraph of Section48 added to prevent the insurance company from exercising a right to rescind after the death of theinsured.



The so-called "incontestability clause" precludes the insurer from raising the defenses of falserepresentations or concealment of material facts insofar as health and previous diseases areconcerned if the insurance has been in force for at least two years during the insured's lifetime. Thephrase "during the lifetime" found in Section 48 simply means that the policy is no longer consideredin force after the insured has died. The key phrase in the second paragraph of Section 48 is "for aperiod 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. Thepolicy 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'sfraudulent concealment or misrepresentation. Moreover, respondent company rescindedthe 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)

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The petitioners contend that there could have been no concealment or misrepresentation by theirlate 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 repeatedvisits and solicitations by the insurer's agent. Assured did not knock at the door of theinsurer 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 inanticipation of death during the two-year period, he certainly could have gotten abigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. UrbanoGuinto. 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 relativeto Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

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This Honorable Supreme Court has had occasion to denounce the pressure and practiceindulged in by agents in selling insurance. At one time or another most of us have beensubjected to that pressure, that practice. This court took judicial cognizance of thewhirlwind pressure of insurance selling-especially of the agent's practice of 'supplying the information, preparing and answering the application, submitting theapplication to their companies, concluding the transactions and otherwisesmoothing 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 thewhirlwind pressure of modern salesmanship.

Insurance companies send detailed instructions to their agents to solicit and procureapplications.

These agents are to be found all over the length and breadth of the land. They arestimulated to more active efforts by contests and by the keen competition offered bythe other rival insurance companies.

They supply all the information, prepare and answer the applications, submit theapplications to their companies, conclude the transactions, and otherwise smooth out aldifficulties.

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 insurancesalesmanship was not overwhelming as it is now; when the population of this countrywas less than one-fourth of what it is now; when the insurance companies competingwith one another could be counted by the fingers. (pp. 140-142, Rollo)

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In the face of all the above, it would be unjust if, having been subjected to thewhirlwind pressure of insurance salesmanship this Court itself has long denounced, theassured 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 suchperiod. After two years, the defenses of concealment or misrepresentation, no matter how patent orwell founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employedby insurance companies to avoid liability. The petitioners' interpretation would give rise to theincongruous situation where the beneficiaries of an insured who dies right after taking out and payingfor a life insurance policy, would be allowed to collect on the policy even if the insured fraudulentlyconcealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were explainedin a layman's language to the insured. They state that the insurer should have presented its twomedical field examiners as witnesses. Moreover, the petitioners allege that the policy intends that themedical examination must be conducted before its issuance otherwise the insurer "waives whateverimperfection 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 forinsurance were asked, explained to and understood by the deceased so as to proveconcealment on his part. The same is not well taken. The deceased, by affixing hissignature on the application form, affirmed the correctness of all the entries andanswers 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 itssignificance. 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 deceasedwas 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 andabdominal 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 thedeceased came to see him on December 14, 1973 for consolation and claimed to havebeen 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 forhypertension, diabetes and liver disorders, respondent company was thus misled intoaccepting the risk and approving his application as medically standard (Exhibit 5- C) anddispensing with further medical investigation and examination (Exhibit 5-A). For as longas no adverse medical history is revealed in the application form, an applicant forinsurance is presumed to be healthy and physically fit and no further medicalinvestigation 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 thiscase. (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 fromignorant persons by companies and associations which adopt high sounding titles andprint the amount of benefits they agree to pay in large black-faced type, following suchundertakings by fine print conditions which destroy the substance of the promise. Allprovisions, conditions, or exceptions which in any way tend to work a forfeiture of thepolicy should be construed most strongly against those for whose benefit they areinserted, 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'smedical history are in smaller print than the rest of the printed form or that they are designed in sucha way as to conceal from the applicant their importance. If a warning in bold red letters or a boxedwarning similar to that required for cigarette advertisements by the Surgeon General of the UnitedStates is necessary, that is for Congress or the Insurance Commission to provide as protectionagainst high pressure insurance salesmanship. We are limited in this petition to ascertaining whetheror not the respondent Court of Appeals committed reversible error. It is the petitioners' burden toshow 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.

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