[G.R. No. L-38613. February 25, 1982.

]
PACIFIC TIMBER EXPORT CORPORATION, Petitioner, v. THE
HONORABLE COURT OF APPEALS and WORKMENS INSURANCE
COMPANY, INC., Respondents.
Jose J. Ferrer, Jr. & Augusto Z. Fajardo for Petitioner.
Augustin J. Guillermo for respondent Workmens Ins. Co., Inc.
SYNOPSIS
After respondent insurance company issued to petitioner a Cover Note for
the temporary insurance of 1,250,000 board feet of logs for exportation to
Okinawa and Japan, which included loss during loading operations, but
before the issuance of the regular marine cargo policies which covered only
loss during transit, thirty pieces of said logs were lost while being loaded in
petitioners vessel. Petitioner sought to recover the loss but private
respondent refused on the ground that although said loss was covered
under the Cover Note, nevertheless, the same became null and void upon
the issuance of the marine policies which did not cover said loss. The Court
of First Instance of Manila rendered a decision in favor of petitioner but on
appeal, said decision was reversed by the Court of
Appeals.chanroblesvirtual|awlibrary
On review, the Supreme Court held that a Cover Note is not a mere
application for insurance but in a real sense a contract to be integrated to the
regular policies subsequently issued and the fact that no separate premium
was paid on the Cover Note before the loss occurred does not militate
against recovery thereunder.
Appealed decision, set aside.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; COVER NOTE; NO SEPARATE

PREMIUMS ARE REQUIRED TO BE PAID THEREON. The fact that no
separate premium was paid on the Cover Note before the loss insured
against occurred, does not militate against the validity of petitioners
contention that the Cover Note is not without a consideration, for no such

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FIRST DIVISION

Insurance Part V Cases

Atty. Reyes
premium could have been paid, since by the nature of the Cover Note it did
not contain, as all Cover Notes do not contain, particulars of the shipment
that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are intended or required to be paid on
a Cover Note.
2. ID.; ID.; ID.; A CONTRACT AND NOT A MERE APPLICATION FOR
INSURANCE; DEEMED INTEGRATED TO THE REGULAR POLICIES
SUBSEQUENTLY ISSUED. Where the note is to be treated as a separate
policy instead of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for
insurance which is a mere offer.
3. ID.; ID.; ID.; RISK INSURED AGAINST NOT INCLUDED IN THE
REGULAR MARINE INSURANCE POLICIES; IMMATERIAL AS LOSS CAN
BE DETERMINED INDEPENDENTLY; CASE AT BAR. While it may be
true that the marine insurance policies issued were for logs no longer
including those which had been lost during loading operations, this had to be
so because the risk insured against is not for loss during loading operations
anymore, but for loss during transit, the logs having already been safely
placed aboard. This would make no difference, however, insofar as the
liability on the cover note is concerned, for the number or volume of logs lost
can be determined independently, as in fact it had been so ascertained as
the instance of private respondent itself when it sent its own adjuster to
investigate and assess the lost, after the issuance of the marine insurance
policies.
4. ID.; ID.; ID.; FUNCTIONS AS A "BINDER" ; SUPPORTED BY
PRESUMPTION OF VALIDITY OF POLICY DELIVERED WITHOUT
REQUIRING PAYMENT OF THE PREMIUM. Now payment of premium
on the Cover Note is no cause for the petitioner to lose what is due it as if
there had been payment of premium, for non-payment by it was not
chargeable against its fault. This is how the cover note as a "binder" should
legally operate; otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is delivered
without requiring payment of the premium, the presumption is that a credit
was intended and policy is valid (Miller v. Brooklyn L. Inc., Co. (U.S.) 12
Wall, 285, 20 Led. 39 Am. Jur. New Insurance Sec. 1845, p. 907, note 2;
Sec. 1079, p. 246, note 20.).
5. ID.; ID.; CLAIM ON THE INSURANCE AGREEMENT; DEFENSE OF
DELAY MUST BE PROMPTLY AND SPECIFICALLY ASSERTED; CASE AT
BAR. Section 84 of the Insurance Act requires that the ground of delay
must be promptly and specifically asserted when a claim on the insurance

DECISION

DE CASTRO, J.:

This petition seeks the review of the decision of the Court of Appeals
reversing the decision of the Court of First Instance of Manila in favor of
petitioner and against private respondent which ordered the latter to pay the
sum of P11,042.04 with interest at the rate of 12% interest from receipt of
notice of loss on April 15, 1963 up to the complete payment, the sum of
P3,000.00 as attorneys fees and the costs 1 thereby dismissing petitioners
complaint with costs. 2chanroblesvirtual|awlibrary
The findings of fact of the Court of Appeals, which are generally binding
upon this Court, except as shall be indicated in the discussion of the opinion
of this Court the substantial correctness of such particular finding having
been disputed, thereby raising a question of law reviewable by this Court 3
are as follows:jgc:chanrobles.com.ph
"On March 19, 1963, the plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of Philippine Lauan and
Apitong logs to be shipped from the Diapitan Bay, Quezon Province to
Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note
No. 1010, insuring the said cargo of the plaintiff "Subject to the Terms and
Conditions of the WORKMENS INSURANCE COMPANY, INC. printed
Marine Policy form as filed with and approved by the Office of the Insurance
Commissioner" (Exhibit A).
"The regular marine cargo policies were issued by the defendant in favor of
the plaintiff on April 2, 1963. The two marine policies bore the numbers of 53
HO 1032 and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53

Page

agreement is made. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon which to object
to a claim against it. In the case at bar, where the undisputed facts show that
instead of invoking the ground of delay in objecting to petitioners claim of
recovery on the cover note, respondent company took steps clearly
indicative that this particular ground for objection to the claim was never in
its mind, the Supreme Court is satisfied and convinced, even on the
assumption that there was delay, that waiver can successfully be raised
against private Respondent.

Insurance Part V Cases

Atty. Reyes
HO 1032 (Exhibit B) was for 542 pieces of logs equivalent to 499,950 board
feet. Policy No. 53 HO 1033 was for 853 pieces of logs equivalent to 695,
548 board feet (Exhibit C). The total cargo insured under the two marine
policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498
bd. ft.
"After the issuance of Cover Note No. 1010 (Exhibit A), but before the
issuance of the two marine policies Nos. 53 HO 1032 and 53 HO 1033,
some of the logs intended to be exported were lost during loading operations
in the Diapitan Bay. The logs were to be loaded on the SS Woodlock which
Docked about 500 meters from the shortline of the Diapitan Bay. The logs
were taken from the log pond of the plaintiff and from which they were towed
in rafts to the vessel. At about 10:00 oclock a.m. on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 75
pieces of logs which were rafted together to break loose from each other 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost
or washed away as a result of the accident.
"In a letter dated April 4, 1963, the plaintiff informed the defendant about the
loss of approximately 32 pieces of logs during loading of the SS Woodlock.
The said letter (Exhibit F) reads as follows:chanrob1es virtual 1aw library
April 4, 1963
Workmens Insurance Company, Inc.
Manila, Philippines
Gentlemen:chanrob1es virtual 1aw library
This has reference to Insurance Cover Note No. 1010 for shipment of
1,250,000 bd. ft., Philippine Lauan and Apitong Logs. We would like to
inform you that we have received advance preliminary report from our Office
in Diapitan, Quezon that we have lost approximately 32 pieces of logs during
loading of the S.S. Woodlock.
We will send you an accurate report all the details including values as soon
as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION

Asst. General Manager

Although dated April 4, 1963, the letter was received in the office of the
defendant only on April 15, 1963, as shown by the stamp impression
appearing on the left bottom corner of said letter. The plaintiff subsequently
submitted a Claim Statement demanding payment of the loss under
Policies Nos. 53 HO 1033, and 53 HO 1033, in the total amount of
P19,286.79 (Exhibit G).
"On July 17, 1963, the defendant requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. The adjustment
company submitted its Report on August 23, 1963 (Exhibit H). In said
report, the adjuster found that the loss of 30 pieces of logs is not covered by
Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the
actual number of logs loaded on board the SS Woodlock. However, the loss
of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note No.
1010 insured for $70,000.00.
"On September 14, 1963, the adjustment company submitted a computation
of the defendants probable liability on the loss sustained by the shipment, in
the total amount of P11,042.04 (Exhibit 4).
"On January 13, 1964, the defendant wrote the plaintiff denying the latters
claim, on the ground that defendants investigation revealed that the entire
shipment of logs covered by the two marine policies No. 53 HO 1032 and 53
HO 1033 were received in good order at their point of destination. It was
further stated that the said loss may not be considered as covered under
Cover Note No. 1010 because the said Note had become null and void by
virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033 (Exhibit
J-1). The denial of the claim by the defendant was brought by the plaintiff to
the attention of the Insurance Commissioner by means of a letter dated
March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964, Insurance
Commissioner Francisco Y. Mandanas observed that it is only fair and
equitable to indemnify the insured under Cover Note No. 1010, and advised
early settlement of the said marine loss and salvage claim (Exhibit L).
"On June 26, 1964, the defendant informed the Insurance Commissioner
that, on advice of their attorneys, the claim of the plaintiff is being denied on
the ground that the cover note is null and void for lack of valuable
consideration (Exhibit M)." 4
Petitioner assigned as errors of the Court of Appeals, the
following:chanrob1es virtual 1aw library

Page

(Sgd). EMMANUEL S.ATILANO

Insurance Part V Cases

Atty. Reyes
I
"THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER
NOTE WAS NULL AND VOID FOR LACK OF VALUABLE
CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN
FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED
BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
"THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER
NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT
PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY
OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING
NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT
GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT."
5
1. Petitioner contends that the Cover Note was issued with a consideration
when, by express stipulation, the cover note is made subject to the terms
and conditions of the marine policies, and the payment of premiums is one
of the terms of the policies. From this undisputed fact, We uphold petitioners
submission that the Cover Note was not without consideration for which the
respondent court held the Cover Note as null and void, and denied recovery
therefrom. The fact that no separate premium was paid on the Cover Note
before the loss insured against occurred, does not militate against the
validity of petitioners contention, for no such premium could have been paid,
since by the nature of the Cover Note, it did not contain, as all Cover Notes
do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note. This is a fact
admitted by an official of respondent company, Juan Jose Camacho, in
charge of issuing cover notes of the respondent company (p. 33, tsn,
September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as
called for by the statement issued by private respondent after the issuance
of the two regular marine insurance policies, thereby leaving no account
unpaid by petitioner due on the insurance coverage, which must be deemed

It may be true that the marine insurance policies issued were for logs no
longer including those which had been lost during loading operations. This
had to be so because the risk insured against is not for loss during loading
operations anymore, but for loss during transit, the logs having already been
safely placed aboard. This would make no difference, however, insofar as
the liability on the cover note is concerned, for the number or volume of logs
lost can be determined independently, as in fact it had been so ascertained
at the instance of private respondent itself when it sent its own adjuster to
investigate and assess the loss, after the issuance of the marine insurance
policies.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The adjuster went as far as submitting his report to respondent, as well as its
computation of respondents liability on the insurance coverage. This
coverage could not have been no other than what was stipulated in the
Cover Note, for no loss or damage had to be assessed on the coverage
arising from the marine insurance policies. For obvious reasons, it was not
necessary to ask petitioner to pay premium on the Cover Note, for the loss
insured against having already occurred, the more practical procedure is
simply to deduct the premium from the amount due the petitioner on the
Cover Note. The non-payment of premium on the Cover Note is, therefore,
no cause for the petitioner to lose what is due it as if there had been
payment of premium, for non-payment by it was not chargeable against its
fault. Had all the logs been lost during the loading operations, but after the
issuance of the Cover Note, liability on the note would have already arisen
even before payment of premium. This is how the cover note as a "binder"
should legally operate; otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine that where a policy is
delivered without requiring payment of the premium, the presumption is that
a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the
claim cannot be sustained. The law requires this ground of delay to be
promptly and specifically asserted when a claim on the insurance agreement
is made. The undisputed facts show that instead of invoking the ground of
delay in objecting to petitioners claim of recovery on the cover note, it took
steps clearly indicative that this particular ground for objection to the claim
was never in its mind. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon which to object

Page

to include the Cover Note. If the Note is to be treated as a separate policy

instead of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for
insurance which is a mere offer. 6

Insurance Part V Cases

Atty. Reyes
to a claim against it.
As already stated earlier, private respondents reaction upon receipt of the
notice of loss, which was on April 15, 1963, was to set in motion from July
1963 what would be necessary to determine the cause and extent of the
loss, with a view to the payment thereof on the insurance agreement. Thus it
sent its adjuster to investigate and assess the loss in July, 1963. The
adjuster submitted his report on August 23, 1963 and his computation of
respondents liability on September 14, 1963. From April 15,1963 to July
1963, enough time was available for private respondent to determine if
petitioner was guilty of delay in communicating the loss to respondent
company. In the proceedings that took place later in the Office of the
Insurance Commissioner, private respondent should then have raised this
ground of delay to avoid liability. It did not do so. It must be because it did
not find any delay, as this Court fails to find a real and substantial sign
thereof. But even on the assumption that there was delay, this Court is
satisfied and convinced that as expressly provided by law, waiver can
successfully be raised against private Respondent. Thus Section 84 of the
Insurance Act provides:chanrobles.com.ph : virtual law library
"Section 84. Delay in the presentation to an insurer of notice or proof of
loss is waived if caused by any act of his or if he omits to take objection
promptly and specifically upon that ground."cralaw virtua1aw library
From what has been said, We find duly substantiated petitioners
assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the
Court of First Instance is reinstated in toto with the affirmance of this Court.
No special pronouncement as to costs.
SO ORDERED.
Teehankee, Makasiar, Fernandez, Guerrero, Melencio-Herrera and
Plana, JJ., concur.

GREAT PACIFIC LIFE ASSURANCE COMPANY, Petitioner, v.

HONORABLE COURT OF APPEALS,Respondents.
[G.R. No. L-31878. April 30, 1979.]
LAPULAPU D. MONDRAGON, Petitioner, v. COURT OF APPEALS and
NGO HING, Respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
SYNOPSIS
Private respondent, a duly authorized agent of Pacific Life, applied for a 20year endowment policy on the life of his one-year old daughter, a mongoloid.
He did not divulge each physical defect of his daughter. He paid the
premium and was issued a binding deposit receipt. However, despite the
branch managers favorable recommendation, the Company disapproved
the application, because a 20-year endowment plan is not available for
minors. Instead, it offered the Juvenile Triple Action Plan. The manager
wrote back and again strongly recommended the approval of the application.
At this point, the child died of influenza with complication of bronchopneumonia.
In a suit filed by private respondent to recover the proceeds of the insurance,
the trial court rendered judgment adverse to both petitioners. The Court of
Appeals in its amended decision affirmed the trial courts decision in toto.
The decisive issues in these cases are: (1) whether the binding deposit
receipt constituted a temporary contract of the life insurance in question; and
(2) whether private respondent concealed the state of health and physical
condition of his child.
The Supreme Court held that a "binding receipt" does not insure by itself;
that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in the binding receipt and
concealment having been committed by private Respondent.

Page

[G.R. No. L-31845. April 30, 1979.]

Insurance Part V Cases

Atty. Reyes
SYLLABUS

1. INSURANCE CONTRACT; "BINDING DEPOSIT RECEIPT." Where the

binding deposit receipt is intended to be merely a provisional or temporary
insurance contract, and that the receipt merely acknowledged, on behalf of
the insurance company, that the latters branch office had received from the
applicant the insurance premium and had accepted the application subject
for processing by the insurance company, such binding deposit receipt does
not become in force until the application is approved.
2. ID.; PERFECTION OF CONTRACT. A binding deposit receipt which is
merely conditional does not insure outright. Thus, where an agreement is
made between the applicant and the agent, no liability will attack until the
principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional, and is subordinated to the act of the
company in approving or rejecting the application.
3. ID.; ID.; MEETING OF THE MIND. A contract of insurance, like other
contracts, must be assented to by both parties either in person or by their
agents. The contract, to be binding from the date of the application, must
have been a completed contract, one that leaves nothing to be done, nothing
to be completed, nothing to be passed upon, or determined, before it shall
take effect. There can be no contract of insurance unless the minds of the
parties have met in agreement.
4. ID.; ID.; FAILURE OF AGENT TO COMMUNICATE THE REJECTION TO
APPLICANT. The failure of the insurance companys agent to
communicate to the applicant the rejection of the insurance application
would not have any adverse effect on the allegedly perfected temporary
contract. In the first place, there was no contract perfected between the
parties who had no meeting of their minds. Private respondent, being an
authorized agent is indubitably aware that said company does not offer the
life insurance applied for. When he filed the insurance application in dispute
he was therefore only taking a chance that the company will approve the
recommendation of the agent for the acceptance and approval of the
application in question. Secondly, having an insurable interest on the life of
his daughter, aside from being an insurance agent and office associate of
the branch, the applicant must have known and followed the progress on the
processing of such application and could not pretend ignorance of the
Companys rejection of the 20-year endowment life insurance application.
5. ID.; CONCEALMENT OF MATERIAL FACT. The contract of insurance
is one of perfect good faith (uberrima fides meaning good faith; absolute and
perfect candor or openness and honestly; the absence of any concealment

6. ID.; ID.; CASE AT BAR. The failure of the father who applied for a life
insurance policy on the life of his daughter to divulge the fact that his
daughter is a mongoloid, a congenital physical defect that could never be
disguised, constitutes such concealment as to render the policy void. And
where the applicant himself is an insurance agent, he ought to know, as he
surely must have known, his duty and responsibility to supply such a
material fact, and his failure to divulge such significant fact is deemed to
have been done in bad faith.

DECISION

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution

of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the
petitioners in both cases seek similar relief, through these petitions
for certiorari by way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the Court of First
Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific
Life Assurance Company and Mondragon) jointly and severally to pay
plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the sum of
P10,000.00 as attorneys fees plus costs of suits."cralaw virtua1aw library

Page

or deception, however slight [Blacks Law Dictionary, 2nd Edition], not for the
insured alone but equally so for the insurer. Concealment is a neglect to
communicate that which a party knows and ought to communicate (Section
25, Act 2427). Whether intentional or unintentional, the concealment entities
the insurer to rescind the contract of insurance.

Insurance Part V Cases

Atty. Reyes
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally
type-wrote the data on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual premium, the sum of
P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of Pacific
Life. Upon the payment of the insurance premium, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, Mondragon received a letter
from Pacific Life disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-year endowment
plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if
the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
Company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment life insurance on the
ground that Pacific Life is the only insurance company not selling the 20year endowment insurance plan to children, pointing out that since 1954 the
customers, especially the Chinese, were asking for such coverage (Exhibit
4-M).
It was when things were in such state that on May 28, 1957 Helen Go died
of influenza with complication of broncho-pneumonia. Thereupon, private
respondent sought the payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery of the same before the
Court of First Instance of Cebu, which rendered the adverse decision as
earlier referred to against both petitioners.

In its original decision, the respondent Court of Appeals set aside the
appealed decision of the Court of First Instance of Cebu, and absolved the
petitioners from liability on the insurance policy, but ordered the
reimbursement to appellee (herein private respondent) the amount of
P1,077.75, without interest.

The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance in
question; and (2) whether private respondent Ngo Hing concealed the state
of health and physical condition of Helen Go, which rendered void the
aforesaid Exhibit E.

It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endowment policy in the amount
of P50,000.00 on the life of his one-year old daughter Helen Go. Said
respondent supplied the essential data which petitioner Lapulapu D.

1. At the back of Exhibit E are condition precedents required before a

deposit is considered a BINDING RECEIPT. These conditions state
that:jgc:chanrobles.com.ph
"A. If the Company or its agent, shall have received the premium deposit . . .

D. If the Company does not accept the application on standard rate for the
amount of insurance and/or the kind of policy requested in the application
but issue, or offers to issue a policy for a different plan and/or amount . . .,
the insurance shall not be in force and in effect until the applicant shall have
accepted the policy as issued or offered by the Company and shall have
paid the full premium thereof. If the applicant does not accept the policy, the
deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above,
and the Company declines to approve the application, the insurance applied
for shall not have been in force at any time and the sum paid be returned to
the applicant upon the surrender of this receipt." (Emphasis ours).
The aforequoted provisions printed on Exhibit E show that the binding
deposit receipt is intended to be merely a provisional or temporary insurance
contract and only upon compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was insurable on standard
rates; (2) that if the company does not accept the application and offers to
issue a policy for a different plan, the insurance contract shall not be binding
until the applicant accepts the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the applicant is not insurable according to the
standard rates, and the company disapproves the application, the insurance
applied for shall not be in force at any time, and the premium paid shall be
returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the company,
that the latters branch office had received from the applicant the insurance
premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same
on the basis of whether or not the applicant is "insurable on standard rates."
Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court, where
an agreement is made between the applicant and the agent, no liability shall

Page

and the insurance application, ON or PRIOR to the date of medical

examination . . . said insurance shall be in force and in effect from the date
of such medical examination, for such period as is covered by the
deposit . . ., PROVIDED the company shall be satisfied that on said date the
applicant was insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.

Insurance Part V Cases

Atty. Reyes
attach until the principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional, and is subordinated to the act
of the company in approving or rejecting the application. Thus, in life
insurance, a "binding slip" or "binding receipt" does not insure by itself (De
Lim v. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30,
1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in
question on the ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a meeting of the minds
between petitioner Pacific Life and private respondent Ngo Hing over the 20year endowment life insurance in the amount of P50,000.00 in favor of the
latters one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit receipt, there
could have been no insurance contract duly perfected between them.
Accordingly, the deposit paid by private respondent shall have to be
refunded by Pacific Life.chanrobles law library
As held in De Lim v. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents. . . . The contract, to be binding
from the date of the application, must have been a completed contract, one
that leaves nothing to be done, nothing to be completed, nothing to be
passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in
agreement."cralaw virtua1aw library
We are not impressed with private respondents contention that failure of
petitioner Mondragon to communicate to him the rejection of the insurance
application would not have any adverse effect on the allegedly perfected
temporary contract (Respondents Brief, pp. 13-14). In the first place, there
was no contract perfected between the parties who had no meeting of their
minds. Private respondent, being an authorized insurance agent of Pacific
Life at Cebu branch office, is indubitably aware that said company does not
offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of Mondragon for the
acceptance and approval of the application in question along with his
proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record
discloses that Pacific Life bad rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an office associate of

At this juncture, We find it fit to quote with approval, the very apt observation
of then Appellate Associate Justice Ruperto G. Martin who later came up to
this Court, from his dissenting opinion to the amended decision of the
respondent court which completely reversed the original decision, the
following:chanrob1es virtual 1aw library
Of course, there is the insinuation that neither the memorandum of rejection
(Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the
desire for applicants father to have the application considered as one for a
20-year endowment plan was ever duly communicated to Ngo Hing, father of
the minor applicant. I am not quite convinced that this was so. Ngo Hing, as
father of the applicant herself, was precisely the "underwriter who wrote this
case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in
his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo
Hing was "our associate" and that it was the latter who "insisted that the plan
be placed on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was not
brought home to his knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who
insisted on the application as originally filed thereby implicitly declining the
offer to consider the application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for
minors below 7 years old. What he and Mondragon were apparently trying to
do in the premises was merely to prod the company into going into the
business of issuing endowment policies for minors just as other insurance
companies allegedly do. Until such a definite policy is, however, adopted by
the company, it can hardly be said that it could have been bound at all under
the binding slip for a plan of insurance that it could not have, by then, issued
at all." (Amended Decision, Rollo, pp. 52-53).
2. Relative to the second issue of alleged concealment, this Court is of the
firm belief that private respondent had deliberately concealed the state of
health and physical condition of his daughter Helen Go. When private
respondent supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a
mongoloid child. Such a congenital physical defect could never be
ensconced nor disguised. Nonetheless, private respondent, in apparent bad
faith, withheld the fact material to the risk to be assumed by the insurance

Page

petitioner Mondragon, private respondent Ngo Hing must have known and
followed the progress on the processing of such application and could not
pretend ignorance of the Companys rejection of the 20-year endowment life
insurance application.

Insurance Part V Cases

Atty. Reyes
company. As an insurance agent of Pacific Life, he ought to know, as he
surely must have known, his duty and responsibility to supply such a
material fact. Had he divulged said significant fact in the insurance
application form, Pacific Life would have verified the same and would have
had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith (uberrima fides
meaning good faith; absolute and perfect candor or openness and honesty;
the absence of any concealment or deception, however slight [Blacks Law
Dictionary, 2nd Edition], not for the insured alone but equally so for the
insurer (Field mans Insurance Co., Inc. v. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a party knows and
ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of
insurance (Section 26, id.: Yu Pang Cheng v. Court of Appeals, Et Al., 105
Phil. 930; Saturnino v. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.chanrobles.com : virtual law
library
We are thus constrained to hold that no insurance contract was perfected
between the parties with the noncompliance of the conditions provided in the
binding receipt, and concealment, as legally defined, having been committed
by herein private Respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu
thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon
and Great Pacific Life Assurance Company from their civil liabilities as found
by respondent Court and ordering the aforesaid insurance company to
reimburse the amount of P1,077.75, without interest, to private respondent,
Ngo Hing. Costs against private Respondent.
SO ORDERED.

[G.R. No. 139776. August 1, 2002.]

PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY, Petitioner, v. JUDGE LORE R. VALENCIA-BAGALACSA,
Regional Trial Court of Libmanan, Camarines Sur, Branch 56, and
EDUARDO Z. LUMANIOG, CELSO Z. LUMANIOG and RUBEN Z.
LUMANIOG,Respondents.
DECISION

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Insurance Part V Cases

Atty. Reyes
insured Faustino when he asserted in his application for insurance coverage
that he had not been treated for indication of "chest pain, palpitation, high
blood pressure, rheumatic fever, heart murmur, heart attack or other disorder
of the heart or blood vessel" when in fact he was a known hypertensive
since 1974; private respondents sent a letter dated May 25, 1983 2
requesting for reconsideration of the denial; in a letter dated July 11, 1983, it
reiterated its decision to deny the claim for payment of the proceeds; 3 more
than ten (10) years later, or on December 1, 1994, it received a letter from
Jose C. Claro, a provincial board member of the province of Camarines Sur,
reiterating the early request for reconsideration which it denied in a letter
dated February 14, 1995. 4
Private respondents opposed the motion to dismiss. 5
AUSTRIA-MARTINEZ, J.:

On June 7, 1996, the RTC issued an Order which

reads:jgc:chanrobles.com.ph

Before us is a petition for review on certiorari under Rule 45 of the Rules of

Court. Petitioner Philippine American Life and General Insurance Company
prays that the decision of the Court of Appeals promulgated on April 30,
1999 be reversed and set aside and that the Complaint filed against it by
private respondents Eduardo Z. Lumaniog, Celso Z. Lumaniog and Ruben Z.
Lumaniog before the Regional Trial Court of Libmanan, Camarines Sur,
docketed as Civil Case No. L-787 be ordered dismissed on ground of
prescription of action.chanrob1es virtua1 1aw 1ibrary

"After a perusal of the motion to dismiss filed by defendants counsel and the
objection submitted by plaintiffs counsel, the Court finds that the matters
treated in their respective pleadings are evidentiary in nature, hence, the
necessity of a trial on the merits.

The facts of the case:chanrob1es virtual 1aw library

"SO ORDERED." 6

On June 20, 1995, private respondents, as legitimate children and forced

heirs of their late father, Faustino Lumaniog, filed with the aforesaid RTC, a
complaint for recovery of sum of money against petitioner alleging that: their
father was insured by petitioner under Life Insurance Policy No. 1305486
with a face value of P50,000.00; their father died of "coronary thrombosis"
on November 25, 1980; on June 22, 1981, they claimed and continuously
claimed for all the proceeds and interests under the life insurance policy in
the amount of P641,000.00, despite repeated demands for payment and/or
settlement of the claim due from petitioner, the last of which is on December
1, 1994, petitioner finally refused or disallowed said claim on February 14,
1995; 1 and so, they filed their complaint on June 20, 1995.

Petitioners motion for reconsideration was denied by the RTC in its Order
dated December 12, 1997 upholding however in the same Order the claim of
private respondents counsel that the running of the 10-year period was
"stopped" on May 25, 1983 when private respondents requested for a
reconsideration of the denial and it was only on February 14, 1995 when
petitioner finally decided to deny their claim that the 10-year period began to
run. 7

Petitioner filed an Answer with Counterclaim and Motion to Dismiss,

contending that: the cause of action of private respondents had prescribed
and they are guilty of laches; it had denied private respondents claim in a
letter dated March 12, 1982, signed by its then Assistant Vice President,
Amado Dimalanta, on ground of concealment on the part of the deceased

"Set therefore the hearing in this case on August 1, 1996 at 8:30 a.m.,
considering that the calendar of the Court is already filled up until the end of
July. Notify parties and counsels.chanrob1es virtua1 1aw 1ibrary

Petitioner filed a petition for certiorari (docketed as CA-G.R. SP No. 47885)

under Rule 65 of the Rules of Court in the Court of Appeals and after the
comment of the private respondents and reply of petitioner, the appellate
court rendered its Decision, dated April 30, 1999, portions of which read as
follows:jgc:chanrobles.com.ph
"Thus, this Court of the opinion and so holds that the prescriptive period to
bring the present action commences to run only on February 14, 1995
(Rollo, pp. 25-26), the date when the petitioner finally rejected the claim of

"This fact was supported further by the letter of the petitioner to Atty. Claro
dated December 20, 1994, stating that they were reviewing the claim and
shall advise Atty. Claro of their action regarding his request for
reconsideration (Id., p. 53).
"In the case of Summit Guaranty and Insurance Co., Inc. Vs. De Guzman
(151 SCRA 389, 397-398), citing the case of Eagle Star Insurance Co., Ltd.,
Et. Al. v. Chia Yu, the Supreme Court held that:chanrob1es virtual 1aw
library
The plaintiffs cause of action did not accrue until his claim was finally
rejected by the insurance company. This is because, before such final
rejection, there was no real necessity for bringing suit.
"In the same case, the case of ACCFA v. Alpha Insurance and Surety Co.,
was likewise cited where the Supreme Court ruled in this wise:chanrob1es
virtual 1aw library
Since a cause of action requires, as essential elements, not only a legal
right of the plaintiff and a correlative of the defendant but also an act or
omission of the defendant in violation of said legal right, the cause of action
does not accrue until the party obligated refuses, expressly or impliedly, to
comply with its duty.cralaw : red
"Hence, We find no grave abuse of discretion committed by the court a quo
when it issued the Orders dated June 7, 1996 and dated December 12,
1997.
"WHEREFORE, the instant petition for certiorari with prayer for issuance of
temporary restraining order and/or preliminary injunction is DENIED DUE
COURSE and is accordingly DISMISSED by this Court for lack of merit.
"Costs against the petitioner.
"SO ORDERED." 8
Hence, the present petition for review. Petitioner posits the following
issues:jgc:chanrobles.com.ph
"A. Whether or not the complaint filed by private respondents for payment of
life insurance proceeds is already barred by prescription of action.

10

private respondents and not in 1983. The ten year period should instead be
counted from the date of rejection by the insurer in this case February 14,
1995 since this is the time when the cause of action accrues.

"B. Whether or not an extrajudicial demand made after an action has

prescribed shall cause the revival of the action." 9

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Insurance Part V Cases

Atty. Reyes

Private respondents filed their Comment and petitioners, their Reply.

Before we determine whether the Court of Appeals had committed any
reversible error, we must necessarily first ascertain whether or not the RTC
committed grave abuse of discretion in issuing the Orders dated June 7,
1996 and December 12, 1997.
Notably, the RTC was initially correct in issuing the Order dated June 7,
1996 when it set the case below for hearing as there are matters in the
respective pleadings of the parties "that are evidentiary in nature, hence the
necessity of a trial on the merits "10 , in effect, denying the motion to
dismiss, pursuant to the then prevailing Section 3, Rule 16, of the Rules of
Court, to wit:jgc:chanrobles.com.ph
"Sec. 3. Hearing and order. After hearing the court may deny or grant the
motion or allow amendment of pleading, or may defer the hearing and
determination of the motion until the trial if the ground alleged therein does
not appear to be indubitable."cralaw virtua1aw library
before it was amended by the 1997 Rules of Civil Procedure, effective July
1, 1997. 11
It must be emphasized that petitioner had specifically alleged in the Answer
that it had denied private respondents claim per its letter dated July 11,
1983. 12 Hence, due process demands that it be given the opportunity to
prove that private respondents had received said letter, dated July 11, 1983.
Said letter is crucial to petitioners defense that the filing of the complaint for
recovery of sum of money in June, 1995 is beyond the 10-year prescriptive
period. 13
It is for the above reason that the RTC committed a grave abuse of
discretion when, in resolving the motion for reconsideration of petitioner, it
arbitrarily ruled in its Order dated December 12, 1997, that the period of ten
(10) years had not yet lapsed. It based its finding on a mere explanation of
the private respondents counsel and not on evidence presented by the
parties as to the date when to reckon the prescriptive period. Portions of the
Order dated December 12, 1997 read:jgc:chanrobles.com.ph
"A perusal of the record will likewise reveal that plaintiffs counsel explained
that the running of the ten (10) year period was stopped on May 25, 1983,
upon demand of Celso Lomaniog for the compliance of the contract and

"It is evident from the foregoing that the ten (10) year period for plaintiffs to
claim the insurance proceeds has not yet prescribed. The final determination
denying the claim was made only on February 14, 1995. Hence, when the
instant case was filed on June 20, 1995, the ten year period has not yet
lapsed. Moreover, defendants counsel failed to comply with the
requirements of the Rules in filing his motion for reconsideration." 14
(Emphasis supplied)
The ruling of the RTC that the cause of action of private respondents had not
prescribed, is arbitrary and patently erroneous for not being founded on
evidence on record, and therefore, the same is void. 15
Consequently, while the Court of Appeals did not err in upholding the June 7,
1986 Order of the RTC, it committed a reversible error when it declared that
the RTC did not commit any grave abuse of discretion in issuing the Order

Page

reconsideration of the decision. Counsel also wrote the President of the

Company on December 1, 1994, asking for reconsideration. The letter was
answered by the Assistant Vice President of the Claims Department of
Philamlife, with the advise that the company is reviewing the claim. On
February 14, 1995, Atty. Abis sent a letter to counsel, finally deciding the
plaintiffs claim. Thus, the period of prescription should commence to run
only from February 14, 1995, when Atty. Abis finally decided plaintiffs
claim.chanrob1es virtua1 1aw 1ibrary

11

Insurance Part V Cases

Atty. Reyes
dated December 12, 1997.
The appellate court should have granted the petition for certiorari assailing
said Order of December 12, 1997. Certiorari is an appropriate remedy to
assail an interlocutory order (1) when the tribunal issued such order without
or in excess of jurisdiction or with grave abuse of discretion and (2) when the
assailed interlocutory order is patently erroneous and the remedy of appeal
would not afford adequate and expeditious relief. 16 Said Order was issued
with grave abuse of discretion for being patently erroneous and arbitrary,
thus, depriving petitioner of due process, as discussed earlier.
WHEREFORE, the petition is partly GRANTED. The assailed decision of the
Court of Appeals dated April 30, 1999 insofar only as it upheld the Order
dated December 12, 1997 is REVERSED and SET ASIDE. A new judgment
is entered reversing and setting aside the Order dated December 12, 1997
of the Regional Trial Court of Libmanan, Camarines Sur (Branch 56) and
affirming its Order dated June 20, 1995. Said RTC is directed to proceed
with dispatch with Civil Case No. L-787.chanrob1es virtua1 1aw 1ibrary
No costs.
SO ORDERED.