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EN BANC The defendant, by its answer, admitted the allegations of the residence and status
G.R. No. L-12707 August 10, 1918
MRS. HENRY E. HARDING, and her husband, plaintiffs-appellees,
vs.
COMMERCIAL UNION ASSURANCE COMPANY, defendant-appellant.
FISHER, J.:
This was an action by plaintiffs to recover from defendant the sum of P3,000 and
interest, alleged to be due under the terms of a policy of insurance. The trial court
gave plaintiffs judgment for the amount demanded, with interest and costs, and
from that decision the defendant appeals.
The court below stated the issues made by the pleadings in this case, and its finding
of fact, as follows:
It is alleged by plaintiffs and admitted by defendant that plaintiffs are husband and
wife and residents of the city of Manila; that the defendant is a foreign corporation
organized and existing under and by virtue of the laws of Great Britain and duly
registered in the Philippine Islands, and Smith, Bell & Co. (limited), a corporation
organized and existing under the laws of the Philippine Islands, with its principal
domicile in the city of Manila, is the agent in the Philippine Islands of said
defendant.
The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs. Henry E. Harding
was the owner of a Studebaker automobile, registered number 2063, in the city of
Manila; that on said date; in consideration of the payment to the defendant of the
premium of P150, by said plaintiff, Mrs. Henry E. Harding, with the consent of her
husband, the defendant by its duly authorized agent, Smith, Bell & Company
(limited), made its policy of insurance in writing upon said automobile was set forth
in said policy to be P3,000 that the value of said automobile was set forth in said
policy (Exhibit A) to be P3,000; that on March 24, 1916, said automobile was totally
destroyed by fire; that the loss thereby to plaintiffs was the sum of P3,000; that
thereafter, within the period mentioned in the said policy of insurance, the plaintiff,
Mrs. Henry E. Harding, furnished the defendant the proofs of her said loss and
interest, and otherwise performed all the conditions of said policy on her part, and
that the defendant has not paid said loss nor any part thereof, although due
demand was made upon defendant therefor.
of the parties and denied all the other allegation of the said complaint, and for a
separate and affirmative defense alleged (1) that on February 17, 1916, at the city
of Manila, P.I. the defendant upon request of plaintiff, Mrs. Henry E. Harding, issued
to the said plaintiff the policy of insurance on an automobile alleged by the said
plaintiff to be her property; that the said request for the issuance of said policy of
insurance was made by means of a proposal in writing signed and delivered by said
plaintiff to the defendant, guaranteeing the truth of the statements contained
therein which said proposal is referred to in the said policy of insurance made a part
thereof; (2) that certain of the statements and representations contained in said
proposal and warranted by said plaintiff to be true, to wit: (a) the price paid by the
proposer for the said automobile; (b) the value of said automobile at the time of
the execution and delivery of the said proposal and (c) the ownership of said
automobile, were false and known to be false by the said plaintiff at the time of
signing and delivering the said proposal and were made for the purpose of
misleading and deceiving the defendant, and inducing the defendant, relying upon
the warranties, statements, and representations contained in the said proposal and
believing the same to be true, issued the said policy of insurance.
The defendant prays that judgment be entered declaring the said policy of
insurance to be null and void, and that plaintiffs take nothing by this action; and for
such further relief as to the court may seem just and equitable.
The evidence in this case shows that some time in the year 1913 Levy Hermanos,
the Manila agents for the Studebaker automobile, sold the automobile No. 2063 to
John Canson for P3,200 (testimony of Mr. Diehl); that under date of October 14,
1914, John Canson sold the said automobile to Henry Harding for the sum of P1,500
(Exhibit 2); that under date of November 19, 1914, the said Henry Harding sold the
said automobile No. 2063 to J. Brannigan, of Los 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 Henry Harding gave the said
automobile to his wife; Mrs. Henry E. Harding, one of the plaintiffs, as a present;
that said automobile was repaired and repainted at the Luneta Garage at a cost of
some P900 (testimony of Mr. Server); that while the said automobile was at the
Luneta Garage; the said Luneta Garage, acting as agent for Smith, Bell & Company,
(limited), solicited of the plaintiff Mrs. Harding the insurance of said automobile by
the defendant Company (testimony of Mrs. Henry Harding and Mr. Server); that a
proposal was filled out by the said agent and signed by the plaintiff Mrs. Henry E.
Harding, and in said proposal under the heading "Price paid by proposer," is the

amount of "3,500" and under another heading "Present value" is the amount of
"3,000" (Exhibit 1).
The evidence tends to show that after the said proposal was made a representative
of the Manila agent of defendant went to the Luneta Garage and examined said
automobile No. 2063 and Mr. Server, the General Manager of the Luneta Garage,
an experienced automobile mechanic, testified that at the time this automobile was
insured it was worth about P3,000, and the defendant, by and through its said
agent Smith, Bell & Company (limited), thereafter issued a policy of insurance upon
proposal in which policy the said automobile was described as of the "present
value" of P3,000 and the said defendant charged the said plaintiff Mrs. Henry E.
Harding as premium on said policy the sum of P150, or 5 per cent of the then
estimated value of P3,000. (Exhibit A.)
The "Schedule" in said policy of insurance describes the automobile here in
question, and provides in part of follows:
"Now it is hereby agreed as follows:
"That during the period above set forth and during any period for which
the company may agree to renew this policy the company will subject to
the exception and conditions contained herein or endorsed hereon
indemnify the insured against loss of or damage to any motor car
described in the schedule hereto (including accessories) by whatever cause
such loss or damage may be occasioned and will further indemnify the
insured up to the value of the car or P3,000 whichever is the greater
against any claim at common law made by any person (not being a person
in the said motor car nor in the insured's service) for loss of life or for
accidental bodily injury or damage to property caused by the said motor
car including law costs payable in connection with such claim when
incurred with the consent of the company."
The evidence further shows that on March 24, 1916, the said automobile
was totally destroyed by fire, and that the iron and steel portions of said
automobile which did not burn were taken into the possession of the
defendant by and through its agent Smith, Bell & Company (limited), and
sold by it for a small sum, which had never been tendered to the plaintiff
prior to the trial of this case, but in open court during the trial the sum of
P10 as the proceeds of such sale was tendered to plaintiff and refused.
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Upon the facts so found, which we hold are supported by the evidence, the trial
judge decided that there was no proof of fraud on the part of plaintiff in her
statement of the value of the automobile, or with respect to its ownership; that she
had an insurable interest therein; and that defendant, having agreed to the
estimated value, P3,000, and having insured the automobile for that amount, upon
the basis of which the premium was paid, is bound by it and must pay the loss in
accordance with the stipulated insured value. The assignments of error made on
behalf of appellant put in issue the correctness of those conclusions of law, and
some others of minor importance relating to the exclusion of evidence. Disposing of
the minor objections first, as we have reached the conclusion that the trial court
was right in holding that the defendant is bound by the estimated value of the
automobile upon which policy was issued, and that the plaintiff was not guilty of
fraud in regard thereto, the exclusion of the testimony of the witness Diehl is
without importance. It merely tended to show the alleged actual value of the
automobile, and in the view we take of the case such evidence was irrelevant.
Appellant contends that Mrs. Harding was not the owner of the automobile at the
time of the issuance of the policy, and, therefore, had no insurable interest in it.
The court below found that the automobile was given to plaintiff by her husband
shortly after the issuance of the policy here in question. Appellant does not dispute
the correctness of this finding, but contends that the gift was void, citing article
1334 of the Civil Code which provides that "All gifts between spouses during the
marriage shall be void. Moderate gifts which the spouses bestow on each other on
festive days of the family are not included in this rule."
We are of the opinion that this contention is without merit. In the case of
Cook vs. McMicking 27 Phil. Rep., 10), this court said:
It is claimed by the appellants that the so-called transfer from plaintiff's
husband to her was completely void under article 1458 of the Civil Code
and that, therefore, the property still remains the property of Edward Cook
and subject to levy under execution against him.
In our opinion the position taken by appellants is untenable. They are not
in a position to challenge the validity of the transfer, if it may be called
such. They bore absolutely no relation to the parties to the transfer at the
time it occurred and had no rights or interests inchoate, present, remote,
or otherwise, in the property in question at the time the transfer occurred.
Although certain transfers from husband to wife or from wife to husband
are prohibited in the article referred to, such prohibition can be taken
advantage of only by persons who bear such a relation to the parties

making the transfer or to the property itself that such transfer interferes
with their rights or interests. Unless such a relationship appears the
transfer cannot be attacked.
Even assuming that defendant might have invoked article 1334 as a defense, the
burden would be upon it to show that the gift in question does not fall within the
exception therein established. We cannot say, as a matter of law, that the gift of an
automobile by a husband to his wife is not a moderate one. Whether it is or is not
would depend upon the circumstances of the parties, as to which nothing is
disclosed by the record.
Defendant contends that the statement regarding the cost of the automobile was a
warranty, that the statement was false, and that, therefore, the policy never
attached to the risk. We are of the opinion that it has not been shown by the
evidence that the statement was false — on the contrary we believe that it shows
that the automobile had in fact cost more than the amount mentioned. The court
below found, and the evidence shows, that the automobile was bought by plaintiff's
husband a few weeks before the issuance of the policy in question for the sum of
P2,800, and that between that time and the issuance of the policy some P900 was
spent upon it in repairs and repainting. The witness Server, an expert automobile
mechanic, testified that the automobile was practically as good as new at the time
the insurance was effected. The form of proposal upon which the policy was issued
does not call for a statement regarding the value of the automobile at the time of
its acquisition by the applicant for the insurance, but merely a statement of its cost.
The amount stated was less than the actual outlay which the automobile
represented to Mr. Harding, including repairs, when the insurance policy was
issued. It is true that the printed form calls for a statement of the "price paid by the
proposer," but we are of the opinion that it would be unfair to hold the policy void
simply because the outlay represented by the automobile was made by the
plaintiff's husband and not by his wife, to whom he had given the automobile. It
cannot be assumed that defendant should not have issued the policy unless it were
strictly true that the price representing the cost of the machine had been paid by
the insured and by no other person — that it would no event insure an automobile
acquired by gift, inheritance, exchange, or any other title not requiring the owner to
make a specific cash outlay for its acquisition.
Furthermore, the court below found and the evidence shows, without dispute, that
the proposal upon which the policy in question was issued was made out by
defendant's agent by whom the insurance was solicited, and that appellee simply
signed the same. It also appears that an examiner employed by the defendant
made an inspection of the automobile before the acceptance of the risk, and that
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the sum after this examination. The trial court found that Mrs. Harding, in fixing the
value of the automobile at P3,000, acted upon information given her by her
husband and by Mr. Server, the manager of the Luneta Garage. The Luneta Garage,
it will be remembered, was the agent of the defendant corporation in the
solicitation of the insurance. Mrs. Harding did not state of her own knowledge that
the automobile originally cost P3,000, or that its value at the time of the insurance
was P3,000. She merely repeated the information which had been given her by her
husband, and at the same time disclosed to defendant's agent the source of her
information. There is no evidence to sustain the contention that this
communication was made in bad faith. It appears that the statements in the
proposal as to the price paid for the automobile and as to its value were written by
Mr. Quimby who solicited the insurance on behalf of defendant, in his capacity as
an employee of the Luneta Garage, and wrote out the proposal for Mrs. Harding to
sign. Under these circumstances, we do not think that the facts stated in the
proposal can be held as a warranty of the insured, even if it should have been
shown that they were incorrect in the absence of proof of willful misstatement.
Under such circumstance, the proposal is to be regarded as the act of the insurer
and not of the insured. This question was considered in the case of the Union
Insurance Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in which the
Supreme Court of the United States said:
This question has been decided differently by courts of the highest
respectability in cases precisely analogous to the present. It is not to be
denied that the application logically considered, is the work of the assured,
and if left to himself or to such assistance as he might select, the person so
selected would be his agent, and he alone would be responsible. On the
other hand, it is well-known, so well that no court would be justified in
shutting its eyes to it, that insurance companies organized under the laws
of one State, and having in that State their principal business office, send
these agents all over the land, with directions to solicit and procure
applications for policies furnishing them with printed arguments in favor of
the value and necessity of life insurance, and of the special advantages of
the corporation which the agent represents. They pay these agents large
commissions on the premiums thus obtained, and the policies are
delivered at their hands to the assured. The agents are stimulated by
letters and instructions to activity in procuring contracts, and the party
who is in this manner induced to take out a policy, rarely sees or knows
anything about the company or its officers by whom it is issued, but looks
to and relies upon the agent who has persuaded him to effect insurance as
the full and complete representative of the company, in all that is said or
done in making the contract. Has he not a right to so regard him? It is quite

true that the reports of judicial decisions are filled with the efforts of these
companies, by their counsel, to establish the doctrine for the acts of these
agents to the simple receipt of the premium and delivery of the policy, the
argument being that, as to all other acts of the agent, he is the agent of the
assured. This proposition is not without support in some of the earlier
decision on the subject; and, at a time when insurance companies waited
for parties to come to them to seek assurance, or to forward applications
on their own motion, the doctrine had a reasonable foundation to rest
upon. But to apply such a doctrine, in its full force, to the system of selling
policies through agents, which we have described, would be a snare and a
delusion, leading, as it has done in numerous instances, to the grossest
frauds, of which the insurance corporations receive the benefits, and the
parties supposing themselves insured are the victims. The tendency of the
modern decisions in this country is steadily in the opposite direction. The
powers of the agent are, prima facie, co-extensive with the business
intrusted to his care, and will not be narrowed by limitations not
communicated to the person with whom he deals. (Bebee vs. Ins. Co., 25
Conn., 51; Lycoming Ins. Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins.
Co., 16 Wis., 241; Davenport vs. Ins. Co., 17 Iowa, 276.) An insurance
company, establishing a local agency, must be held responsible to the
parties with whom they transact business, for the acts and declarations of
the agent, within the scope of his employment, as if they proceeded from
the principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517; Hortwitz vs. Ins. Co., 40
Mo., 557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins. Co. vs. Bruner, 23
Pa., 50.)
In the fifth edition of American Leading Cases, 917, after a full consideration of the
authorities, it is said:
"By the interested or officious zeal of the agents employed by the insurance
companies in the wish to outbid each other and procure customers, they not
unfrequently mislead the insured, by a false or erroneous statement of what the
application should contain; or, taking the preparation of it into their own hands,
procure his signature by an assurance that it is properly drawn, and will meet the
requirements of the policy. The better opinion seems to be that, when this course is
pursued, the description of the risk should, though nominally proceeding from the
insured, be regarded as the act of the insurers." (Rowley vs. Empire Ins. Co., 36 N.Y.,
550.)
The modern decisions fully sustain this proposition, and they seem to us founded
on reason and justice, and meet our entire approval. This principle does not admit
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oral testimony to vary or contradict that which is in writing, but it goes upon the
idea that the writing offered in evidence was not the instrument of the party whose
name is signed to it; that it was procured under such circumstances by the other
side as estops that side from using it or relying on its contents; not that it may be
contradicted by oral testimony, but that it may be shown by such testimony that it
cannot be lawfully used against the party whose name is signed to it. (See also Am.
Life Ins. Co. vs. Mahone, 21 Wallace, 152.)
The defendant, upon the information given by plaintiff, and after an inspection of
the automobile by its examiner, having agreed that it was worth P3,000, is bound
by this valuation in the absence of fraud on the part of the insured. All statements
of value are, of necessity, to a large extent matters of opinion, and it would be
outrageous to hold that the validity of all valued policies must depend upon the
absolute correctness of such estimated value. As was said by the Supreme Court of
the United States in the case of the First National Bank vs. Hartford Fire Insurance
Co. (5 Otto, 673; 24 L. ed., 563), at. p. 565 of the Lawyers Edition:
The ordinary test of the value of property is the price it will commend in the market
if offered for sale. But that test cannot, in the very nature of the case, be applied at
the time application is made for insurance. Men may honestly differ about the
value of property, or as to what it will bring in the market; and such differences are
often very marked among those whose special business it is to buy and sell property
of all kinds. The assured could do no more than estimate such value; and that, it
seems, was all that he was required to do in this case. His duty was to deal fairly
with the Company in making such estimate. The special finding shows that he
discharged that duty and observed good faith. We shall not presume that the
Company, after requiring the assured in his application to give the "estimated
value," and then to covenant that he had stated all material facts in regard to such
value, so far as known to him, and after carrying that covenant, by express words,
into the written contract, intended to abandon the theory upon which it sought the
contract, and make the absolute correctness of such estimated value a condition
precedent to any insurance whatever. The application, with its covenant and
stipulations, having been made a part of the policy, that presumption cannot be
indulged without imputing to the Company a purpose, by studied intricacy or an
ingenious framing of the policy, to entrap the assured into incurring obligations
which, perhaps, he had no thought of assuming.
Section 163 of the Insurance Law (Act No. 2427) provides that "the effect of a
valuation in a policy of fire insurance is the same as in a policy of marine insurance."

By the terms of section 149 of the Act cited, the valuation in a policy of marine
insurance is conclusive if the insured had an insurable interest and was not guilty of
fraud.
We are, therefore, of the opinion and hold that plaintiff was the owner of the
automobile in question and had an insurable interest therein; that there was no
fraud on her part in procuring the insurance; that the valuation of the automobile,
for the purposes of the insurance, is binding upon the defendant corporation, and
that the judgment of the court below is, therefore, correct and must be affirmed,
with interest, the costs of this appeal to be paid by the appellant. So ordered.
38 Phil. 464 – Mercantile Law – Insurance Law – Representation – Warranty
In February 1916, Mrs. Harding applied for car insurance for a Studebaker she
received as a gift from her husband. She was assisted by Smith, Bell, and Co. which
was the duly authorized representative (insurance agent) of Commercial Union
Assurance Company in the Philippines. The car’s value was estimated with the help
of an experienced mechanic (Mr. Server) of the Luneta Garage. The car was bought
by Mr. Harding for P2,800.00. The mechanic, considering some repairs done,
estimated the value to be at P3,000.00. This estimated value was the value
disclosed by Mrs. Harding to Smith, Bell, and Co. She also disclosed that the value
was an estimate made by Luneta Garage (which also acts as an agent for Smith, Bell,
and Co).
In March 1916, a fire destroyed the Studebaker. Mrs. Harding filed an insurance
claim but Commercial Union denied it as it insisted that the representations and
averments made as to the cost of the car were false; and that said statement was a
warranty. Commercial Union also stated that the car does not belong to Mrs.
Harding because such a gift [from her husband] is void under the Civil Code.
ISSUE: Whether or not Mrs. Harding is entitled to the insurance claim.
HELD: Yes. Commercial Union is not the proper party to attack the validity of the
gift made by Mr. Harding to his wife.
The statement made by Mrs. Harding as to the cost of the car is not a warranty. The
evidence does not prove that the statement is false. In fact, the evidence shows
that the cost of the car is more than the price of the insurance. The car was bought
for P2,800.00 and then thereafter, Luneta Garage made some repairs and body
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paints which amounted to P900.00. Mr. Server attested that the car is as good as
new at the time the insurance was effected.
Commercial Union, upon the information given by Mrs. Harding, and after an
inspection of the automobile by its examiner, having agreed that it was worth
P3,000, is bound by this valuation in the absence of fraud on the part of the
insured. All statements of value are, of necessity, to a large extent matters of
opinion, and it would be outrageous to hold that the validity of all valued policies
must depend upon the absolute correctness of such estimated value.
Facts:
> Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs.
Harding.
> While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was
an agent of Smith Bell and Co., which in turn is Commercial Union’s agent), the
latter induced Mrs. Harding to insure the care with Commercial.
> Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who
together with the manager of LUneta, appraised the car and declared that its
present value was P3T. This amt was written in the proposal form which Mrs.
Harding signed.
> Subsequently, the car was damaged by fire. Commercial refused to pay because
the car’s present value was only 2.8T and not 3T.
Issue:
Whether or not Commercial is liable.
Held:
Commercial is liable.
Where it appears that the proposal form, while signed by the insured was made out
by the person authorized to solicit the insurance (Luneta and Smith Bell) the facts
stated in the proposal, even if incorrect, will not be regarded as warranted by the
insured, in the absence of willful misstatement. Under such circumstances, the
proposal is to be regarded as the act of the insurer.
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EN BANC Notwithstanding the fact of her operation Estefania A. Saturnino did not make a
disclosure thereof in her application for insurance. On the contrary, she stated
G.R. No. L-16163 February 28, 1963 therein that she did not have, nor had she ever had, among other ailments listed in
the application, cancer or other tumors; that she had not consulted any physician,
IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF undergone any operation or suffered any injury within the preceding five years; and
CARLOS SATURNINO, minor, plaintiffs-appellants, that she had never been treated for nor did she ever have any illness or disease
vs. peculiar to her sex, particularly of the breast, ovaries, uterus, and menstrual
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee. disorders. The application also recites that the foregoing declarations constituted "a
further basis for the issuance of the policy."
MAKALINTAL, J.:
The question at issue is whether or not the insured made such false representations
of material facts as to avoid the policy. There can be no dispute that the
Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to
information given by her in her application for insurance was false, namely, that she
recover the sum of P5,000.00, corresponding to the face value of an insurance
had never had cancer or tumors, or consulted any physician or undergone any
policy issued by defendant on the life of Estefania A. Saturnino, and the sum of
operation within the preceding period of five years. Are the facts then falsely
P1,500.00 as attorney's fees. Defendant, now appellee, set up special defenses in its
represented material? The Insurance Law (Section 30) provides that "materiality is
answer, with a counterclaim for damages allegedly sustained as a result of the
to be determined not by the event, but solely by the probable and reasonable
unwarranted presentation of this case. Both the complaint and the counterclaim
influence of the facts upon the party to whom the communication is due, in forming
were dismissed by the trial court; but appellants were declared entitled to the
his estimate of the proposed contract, or in making his inquiries." It seems to be the
return of the premium already paid; plus interest at 6% up to January 8, 1959, when
contention of appellants that the facts subject of the representation were not
a check for the corresponding amount — P359.65 — was sent to them by appellee.
material in view of the "non-medical" nature of the insurance applied for, which
does away with the usual requirement of medical examination before the policy is
The policy sued upon is one for 20-year endowment non-medical insurance. This
issued. The contention is without merit. If anything, the waiver of medical
kind of policy dispenses with the medical examination of the applicant usually
examination renders even more material the information required of the applicant
required in ordinary life policies. However, detailed information is called for in the
concerning previous condition of health and diseases suffered, for such information
application concerning the applicant's health and medical history. The written
necessarily constitutes an important factor which the insurer takes into
application in this case was submitted by Saturnino to appellee on November 16,
consideration in deciding whether to issue the policy or not. It is logical to assume
1957, witnessed by appellee's agent Edward A. Santos. The policy was issued on the
that if appellee had been properly apprised of the insured's medical history she
same day, upon payment of the first year's premium of P339.25. On September 19,
would at least have been made to undergo medical examination in order to
1958 Saturnino died of pneumonia, secondary to influenza. Appellants here, who
determine her insurability.
are her surviving husband and minor child, respectively, demanded payment of the
face value of the policy. The claim was rejected and this suit was subsequently
Appellants argue that due information concerning the insured's previous illness and
instituted.
operation had been given to appellees agent Edward A. Santos, who filled the
application form after it was signed in blank by Estefania A. Saturnino. This was
It appears that two months prior to the issuance of the policy or on September 9,
denied by Santos in his testimony, and the trial court found such testimony to be
1957, Saturnino was operated on for cancer, involving complete removal of the
true. This is a finding of fact which is binding upon us, this appeal having been taken
right breast, including the pectoral muscles and the glands found in the right
upon questions of law alone. We do not deem it necessary, therefore, to consider
armpit. She stayed in the hospital for a period of eight days, after which she was
appellee's additional argument, which was upheld by the trial court, that in signing
discharged, although according to the surgeon who operated on her she could not
the application form in blank and leaving it to Edward A. Santos to fill (assuming
be considered definitely cured, her ailment being of the malignant type.
that to be the truth) the insured in effect made Santos her agent for that purpose

and consequently was responsible for the errors in the entries made by him in that
capacity.
In the application for insurance signed by the insured in this case, she agreed to
submit to a medical examination by a duly appointed examiner of appellee if in the
latter's opinion such examination was necessary as further evidence of insurability.
In not asking her to submit to a medical examination, appellants maintain, appellee
was guilty of negligence, which precluded it from finding about her actual state of
health. No such negligence can be imputed to appellee. It was precisely because the
insured had given herself a clean bill of health that appellee no longer considered
an actual medical checkup necessary.
Appellants also contend there was no fraudulent concealment of the truth
inasmuch as the insured herself did not know, since her doctor never told her, that
the disease for which she had been operated on was cancer. In the first place the
concealment of the fact of the operation itself was fraudulent, as there could not
have 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
the case 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 of misrepresentation, unless it could show actual
knowledge on the part of the applicant that the statements were false,
then it is plain that it would be impossible for it to protect itself and its
honest policyholders against fraudulent and improper claims. It would be
wholly at the mercy of any one who wished to apply for insurance, as it
would be impossible to show actual fraud except in the extremest cases. It
could not rely on an application as containing information on which it
could act. There would be no incentive to an applicant to tell the truth.
Wherefore, the parties respectfully pray that the foregoing stipulation of
facts be admitted and approved by this Honorable Court, without
prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët
In this jurisdiction a concealment, whether intentional or unintentional, entitles the
insurer to rescind the contract of insurance, concealment being defined as
"negligence to communicate that which a party knows and ought to communicate"
(Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life Insurance
Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd
ed., Vol. 3:
7
"The basis of the rule vitiating the contract in cases of concealment is that
it misleads or deceives the insurer into accepting the risk, or accepting it at
the rate of premium agreed upon. The insurer, relying upon the belief that
the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that
it does not exist."
The judgment appealed from, dismissing the complaint and awarding the return to
appellants of the premium already paid, with interest at 6% up to January 29, 1959,
affirmed, with costs against appellants.
SCRA 316 SATURNINO V. PHILAMLIFE -FALSE REPRESENTATION 7 SCRA 316
Facts:
2 months prior to the insurance of thepolicy, Saturnino was operated on for cancer, involving
complete removal of theright breast, including the pectoral muscles and the glands, found in the
right armpit.> Notwithstanding the fact of her operation, Saturnino did not make a disclosure
thereof in her application for insurance.> She stated therein that she did not have, nor had she ever
had, among others listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding 5 years.> She also
stated that she had never been treated for, nor did she ever have any illness or disease peculiar to
her sex, particularly of the breast, ovaries, uterus and menstrual disorders.> The application
also recited that the declarations of Saturnino constituted a further basis for the issuance of the
policy.
Issue:
Whether or not the insured made such false representation of material facts as to avoid the policy.
Held:
YES. There can be no dispute that the information given by her in the application for insurance was
false, namely, that she never had cancer or tumors or consulted any physician or undergone any
operation within the preceding period of 5 years.
The question to determine is: Are the facts then falsely represented material?
The Insurance Law provides that ―materiality is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon the party to whom the communication
is due, in forming his estimate of the proposed contract, or making his inquiries. The contention of
appellants is that the facts subject of the representation were not material in view of the non-
medical nature ofthe insurance applied for, which does away with the usual requirement of
medical examination before the policy is issued. The contention is without merit. If anything, the
waiver of medical examination renders even more material the information required of the

applicant concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not. Appellants also contend that there was no fraudulent
concealment of the truth in ]asmuch as the insured herself did not know, since her doctor never
told her, that the disease for which she had been operated on was cancer. In the first place,
concealment of the fact of the operation itself was fraudulent, 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 this jurisdiction, concealment, whether
intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment
being defined as ―negligence to communicate that which a party knows and
ought to communicate.
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer,
relying upon the belief that the insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he
is thereby induced to estimate the riskupon a false basis that it does not exist.
Facts:
> 2 months prior to the insurance of the policy, Saturnino was operated on for
cancer, involving complete removal of the right breast, including the pectoral
muscles and the glands, found in the right armpit.
> Notwithstanding the fact of her operation, Saturnino did not make a disclosure
thereof in her application for insurance.
> She stated therein that she did not have, nor had she ever had, among others
listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding 5
years.
> She also stated that she had never been treated for, nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and
menstrual disorders.
> The application also recited that the declarations of Saturnino constituted a
further basis for the issuance of the policy.
Issue:
Whether or not the insured made such false representation of material facts as to
avoid the policy.
8
Held:
YES.
There can be no dispute that the information given by her in the application for
insurance was false, namely, that she never had cancer or tumors or consulted any
physician or undergone any operation within the preceding period of 5 years.
The question to determine is: Are the facts then falsely represented material? The
Insurance Law provides that “materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate of the proposed contract,
or making his inquiries.
The contention of appellants is that the facts subject of the representation were not
material in view of the non-medical nature of the insurance applied for, which does
away with the usual requirement of medical examination before the policy is
issued. The contention is without merit. If anything, the waiver of medical
examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not.
Appellants also contend that there was no fraudulent concealment of the truth
inasmuch as the insured herself did not know, since her doctor never told her, that
the disease for which she had been operated on was cancer. In the first place,
concealment of the fact of the operation itself was fraudulent, 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 this jurisdiction, concealment, whether intentional or
unintentional entitled the insurer to rescind the contract of insurance, concealment
being defined as “negligence to communicate that which a party knows and ought
to communicate.” The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer into accepting the risk, or
accepting it at a rate of premium agreed upon. The insurer, relying upon the belief
that the insured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstances withheld does not exist,
and he is thereby induced to estimate the risk upon a false basis that it does not
exist.

EN BANC
G.R. No. L-41794 August 30, 1935
SEGUNDINA MUSÑGI, ET AL., plaintiffs-appellees,
vs.
WEST COAST LIFE INSURANCE CO., defendant-appellant.
IMPERIAL, J.:
The plaintiffs, as beneficiaries, brought suit against the defendant to recover the
value of two life insurance policies. The defendant appealed from a judgment
sentencing it to pay the plaintiffs the amount of said policies, and the costs.
The principal facts of the case are embodied in the following written stipulation
entered into by the parties:
1. That Arsenio T. Garcia was insured by the defendant company in the
sum of P5,000 as evidenced by Policy No. 129454 effective as of July 25,
1931, hereby attached and marked as Exhibit A;
2. That the said Arsenio T. Garcia was again insured by the defendant
company in the sum of P10,000 effective as of October 20, 1931, as
evidenced by Policy No. 130381 hereby attached and marked as Exhibit B;
3. That the two policies aforementioned were valid and subsisting at the
time of the death of the insured on December 30, 1932; the fact of said
death is evidenced by the accompanying death certificate issued by the
Civil Register of Pasay, Rizal, which is marked as Exhibit C;
4. That the plaintiffs herein are the beneficiaries in said policies, Segundina
Musñgi of Policy No. 129454, and Buenaventura Garcia of Policy No.
130381;
5. That demand was made upon the defendant company for the payment
of the two policies above referred to, but the defendant company refused
to pay on the grounds stated in the answer.
The two policies were issued upon applications filed by the insured on July 20, 1931
and October 15, of the same year, respectively. In both applications, the insured
9
had to answer inquiries as to his state of health and that of his family, which he did
voluntarily. In each of the said applications the following question was asked: "1.
What physician or practitioner or any other person not named above have you
consulted or been treated by, and for what illness, or ailment? (If none, so state.)"
In the first application, the insured answered "None", and in the second, "No".
These answers of the insured as well as his other statements contained in his
applications were one of the causes or considerations for the issuance of the
policies, and they so positively appear therein. After the death of the insured and as
a result of the demand made by the beneficiaries upon the defendant to pay the
value of the policies, the latter discovered that the aforementioned answers were
false and fraudulent, because the truth was that the insured, before answering and
signing the applications and before the issuance of the policies, had been treated in
the General Hospital by a lady physician for different ailments. It indisputably
appears that between May 13 and 19, 1929, the insured had entered the General
Hospital in Manila, and was treated by Doctor Pilar V. Cruz for peptic ulcer and
chronic catarrhal nasopharyngitis; on August 5, 1930, he entered the same hospital
and was treated by the same physician for chronic pyelocystitis and for incipient
pulmonary tuberculosis; on the 13th of the same month he returned to the hospital
and was treated by the same physician for chronic suppurative pyelocystitis and for
chronic bronchitis; on the 20th of the same month he again entered the hospital
and was treated by the same doctor for acute tracheo-bronchitis and chronic
suppurative pyelocystitis; on the 27th of the same month he again entered the
same hospital and was treated for the same ailments; on December 11, 1930, he
again entered the hospital and was treated for the same ailments; on the 18th of
the same month, he again entered the hospital and was treated for the same
ailments; on the 28th of the same month he again entered the hospital and was
treated for the same ailments, and, finally, on January 11, 1931, he again entered
the hospital and was treated by the same doctor for the same ailments.
The defendant contended at the outset that the two policies did not create any
valid obligation because they were fraudulently obtained by the insured. The
appealed decision holds that the health of the insured before the acceptance of his
applications and the issuance of the policies could neither be discussed nor
questioned by the defendant, because the insured was examined by three
physicians of the company and all of them unanimously certified that he was in
good health and that he could be properly insured. The question here is not
whether the physicians' reports or the answers which the insured gave to them
relative to his health were correct or not. It is admitted that such information was
substantially correct, in the sense that the physicians of the defendant who
examined the insured, for failure to make a detailed examination, did not discover
the ailments suffered by the insured. However, the question raised for our

determination is whether the two answers given by the insured in his applications
are false, and if they were the cause, or one of the causes, which induced the
defendant to issue the policies. On the first point, the facts above set out leave no
room for doubt. The insured knew that he had suffered from a number of ailments,
including incipient pulmonary tuberculosis, before subscribing the applications, yet
he concealed them and omitted the hospital where he was confined as well as the
name of the lady physician who treated him. That this concealment and the false
statements constituted fraud, is likewise clear, because the defendant by reason
thereof accepted the risk which it would otherwise have flatly refused. When not
otherwise specially provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regarding contracts. Article 1261 of
the Civil Code provides that there is no contract unless there should be, in addition
to consent and a definite object, a consideration for the obligation established. And
article 1276 provides that the statement of a false consideration shall render the
contract void. The two answers being one of the considerations of the policies, and
it appearing that they are false and fraudulent, it is evident that the insurance
contracts were null and void and did not give rise to any right to recover their value
or amount. A similar case was already decided by this court in Argente vs. West
Coast Life Insurance Co. (51 Phil., 725). In that case the insured concealed from the
physician who examined her that she had consulted and had been treated by
another physician for cerebral congestion and Bell's Palsy, and that she was
addicted to alcohol, so much so that on one occasion she was confined in the San
Lazaro Hospital suffering from "alcoholism"; this court held that such concealments
and false and fraudulent statements rendered the policy null and void. In discussing
the legal phase of the case, this court said:
One ground for the rescission of a contract of insurance under the
Insurance Act is a "concealment", which in section 25 is defined as "A
neglect to communicate that which a party knows and ought to
communicate". Appellant argues that the alleged concealment was
immaterial and insufficient to avoid the policy. We cannot agree. In an
action on a life insurance policy where the evidence conclusively shows
that the answers to questions concerning diseases were untrue, the truth
or falsity of the answers become the determining factor. If the policy was
procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be
assumed that had the true facts been disclosed by the assured, the
insurance would never have been granted.
In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is
found the following:
10
"Concealment exists where the assured has knowledge of a fact material to
the risk, and honesty, good faith and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally
withholds the same.
"Another rule is that if the assured undertakes to state all the
circumstances affecting the risk, a full and fair statement of all is required.
"It is also held that the concealment must, in the absence of inquiries, be
not only material, but fraudulent, or the fact must have been intentionally
withheld; so it is held under English law that if no inquiries are made and
no fraud or design to conceal enters into the concealment the contract is
not avoided. And it is determined that even though silence may constitute
misrepresentation or concealment it is not of itself necessarily so as it is a
question of fact. Nor is there a concealment justifying a forfeiture where
the fact of insanity is not disclosed no questions being asked concerning
the same. . . .
"But it would seem that if a material fact is actually known to the assured,
its concealment must of itself necessarily be a fraud, and if the fact is one
which the assured ought to know, or is presumed to know, the
presumption of knowledge ought to place the assured in the same position
as in the former case with relation to material facts; and if the jury in such
cases find the fact material, and one tending to increase the risk, it is
difficult to see how the inference of a fraudulent intent or intentional
concealment can be avoided. And it is declared that if a material fact is
concealed by assured it is equivalent to a false representation that it does
not exist and that the essentials are the truth of the representations
whether they were intended to mislead and did insurer accept them as
true and act upon them to his prejudice. So it is decided that under a
stipulation voiding the policy for concealment or misrepresentation of any
material fact or if his interest is not truly stated or is other than the sole
and unconditional ownership the facts are unimportant that insured did
not intend to deceive or withhold information as to encumbrances even
though no questions were asked. And if insured while being examined for
life insurance, and knowing that she had heart disease, falsely stated that
she was in good health, and though she could not read the application, it
was explained to her and the questions asked through an interpreter, and
the application like the policy contained a provision that no liability should
be incurred unless the policy was delivered while the insured was in good
health, the court properly directed a verdict for the insurer, though a

witness who was present at the examination testified that the insured was
not asked whether she had heart disease.
"The basis of the rule vitiating the contract in cases of concealment is that
it misleads or deceives the insurer into accepting the risk, or accepting it at
the rate of premium agreed upon. The insurer, relying upon the belief that
the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that
it does not exist. The principal question, therefore, must be, Was the
assurer misled or deceived into entering a contract obligation or in fixing
the premium of insurance by a withholding of material information or facts
within the assured's knowledge or presumed knowledge?
"It therefore follows that the assurer in assuming a risk is entitled to know
every material fact of which the assured has exclusive or peculiar
knowledge, as well as all material facts which directly tend to increase the
hazard or risk which are known by the assured, or which ought to be or are
presumed to be known by him. And a concealment of such facts vitiates
the policy. "It does not seem to be necessary ... that the ... suppression of
the truth should have been willful." If it were but an inadvertent omission,
yet if it were material to the risk and such as the plaintiff should have
known to be so, it would render the policy void. But it is held that if untrue
or false answers are given in response to inquiries and they relate to
material facts the policy is avoided without regard to the knowledge or
fraud of assured, although under the statute statements are
representations which must be fraudulent to avoid the policy. So under
certain codes the important inquiries are whether the concealment was
willful and related to a matter material to the risk.
"If the assured has exclusive knowledge of material facts, he should fully
and fairly disclose the same, whether he believes them material or not. But
notwithstanding this general rule it will not infrequently happen, especially
in life risks, that the assured may have a knowledge actual or presumed of
material facts, and yet entertain an honest belief that they are not
material. ... The determination of the point whether there has or has not
been a material concealment must rest largely in all cases upon the form
of the questions propounded and the exact terms of the contract. Thus,
where in addition to specifically named diseases the insured was asked
whether he had had any sickness within ten years, to which he answered
"No", and it was proven that within that period he had had a slight attack
11
of pharyngitis, it was held a question properly for the jury whether such an
inflammation of the throat was a "sickness" within the intent of the
inquiry, and the court remarked on the appealed decision that if it could be
held as a matter of law that the policy was thereby avoided, then it was a
mere devise on the part of insurance companies to obtain money without
rendering themselves liable under the policy. . . .
". . . The question should be left to the jury whether the assured truly
represented the state of his health so as not to mislead or deceive the
insurer; and if he did not deal in good faith with the insurer in that matter,
then the inquiry should be made, Did he know the state of his health so as
to be able to furnish a proper answer to such questions as are
propounded. A Massachusetts case, if construed as it is frequently cited,
would be opposed to the above conclusion; but, on the contrary, it
sustains it, for the reason that symptoms of consumption had so far
developed themselves within a few months prior to effecting the insurance
as to induce a reasonable belief that the applicant had that fatal disease,
and we should further construe this case as establishing the rule that such
a matter cannot rest alone upon the assured's belief irrespective of what is
a reasonable belief, but that it ought to be judged by the criterion whether
the belief is one fairly warranted by the circumstances. A case in Indiana,
however, holds that if the assured has some affection or ailment of one or
more of the organs inquired about so well-defined and marked as to
materially derange for a time the functions of such organ, as in the case of
Bright's disease, the policy will be avoided by a nondisclosure, irrespective
of the fact whether the assured knew of such ailment or not. . . ."
In view of the foregoing, we are of the opinion that the appellant's first two
assignments of error are well founded, wherefore, the appealed judgment is
reversed and the defendant absolved from the complaint, with the costs of both
instances to the plaintiffs. So ordered.

Facts:
> Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was
asked to answer the question: “what physician or practitioners have you consulted
or been treated by, and for what illness or ailment?
> In both policies, he answered in the negative. It turned out that from 1929 to
1939, he went to see several physicians for a number of ailments. So when he died
in 1942, the company refused to pay the proceeds of the insurance.
Issue:
Whether or not the answer given by Arsenio in the policies justifies the company’s
refusal to pay?
Held:
YES.
Aresenio knew that he was suffering from a number of ailments, yet, he concealed
this. Such concealment and his false statements constituted fraud, because the
insurance company by reasons of such statement accepted the risk which it would
otherwise have rejected.
SEGUNDINA MUSÑGI, ET AL., vs. WEST COASTLIFE INSURANCE CO.
[G.R. No. L-41794 August 30, 1935]
Facts:
The plaintiffs, as beneficiaries, brought suit against thedefendant to recover the
value of two life insurance p o l i c i e s .
A r s e n i o T . G a r c i a w a s i n s u r e d b y t h e defendant company in
the sum of P5, 000. Arsenio T.Garcia was again insured by the defendant company
inthe sum of P10,000. Subsequently, Arsenio died. Even
w i t h t h e d e m a n d m a d e b y t h e p l a i n t i f f s t o t h e defenda
nt company to pay the two policies, defendant refused to pay It is to be noted that in
both applications, the insured had to answer inquiries as to his state of
health and that of his family, which he did voluntarily.
In each of the said applications the following question was asked:
1 . What physician or practitioner or any other person not named above have
you consulted or been treated b y , a n d f o r w h a t i l l n e s s ,
o r a i l m e n t ? ( I f n o n e , s o state.) In the first application, the insured
answered "None", and in the second, "No". These answers of the insured
as well as his other statements contained in his applications were one of
the causes or considerations for the issuance of the policies, and they so
12
positively appear therein. After the death of the insured and as aresult of
the demand made by the beneficiaries upont h e d e f e n d a n t t o p a y
the value of the policies,
t h e latter discovered that the aforementioned answerswere false
and fraudulent, because the truth was that t h e i n s u r e d ,
b e f o r e a n s w e r i n g a n d s i g n i n g t h e applications and
before the issuance of the policies, h a d b e e n t r e a t e d i n t h e
G e n e r a l H o s p i t a l b y a l a d y physician for different ailments. The
defendant contends that the two policies did not
create any valid obligation because they were
fraudulently obtained by the insured.
Issue:
Whether the two answers given by the insured in hisapplications are
false, and if they were the cause,
oro n e o f t h e c a u s e s , w h i c h i n d u c e d t h e d e f e n d a n t t o issue the
policies?
Ruling:
The concealment and the false statements constituted
f r a u d b e c a u s e t h e d e f e n d a n t b y r e a s o n t h e r e o f accepted the
risk which it would otherwise have flatly refused. When not otherwise specially
provided for by the Insurance Law, the contract of life insurance is governed
by the general rules of the civil law regarding contracts. Article 1261 of the Civil Code
provides that there is no contract unless there should be, in addition to consent
and a definite object, a consideration for the obligation established. And
Article 1276 provides that the statement of a false consideration shall render
the contract void. The two answers being one of the
considerations of the policies, and it appearing that they are false and
fraudulent, it is evident that the insurance contracts were null and void
and did not give rise to any right to recover their value or amount. A
s i m i l a r c a s e w a s a l r e a d y d e c i d e d b y t h i s c o u r t i n Argente
vs. West Coast Life Insurance Co. (51 Phil.,725). In discussing the legal
phase of the case, this court said:
O n e g r o u n d f o r t h e r e s c i s s i o n o f a c o n t r a c t o f insuran
ce under the Insurance Act is a "concealment",
w h i c h i n s e c t i o n 2 5 i s d e f i n e d a s " A n e g l e c t t o commu
 13

nicate that which a party knows and ought to communicate". was confined as well as the nam e of the lady
In view of the foregoing, appellant's first two physician who treated him. Concealment and the false statemen
assignments of error are well founded, wherefore, the t s constituted fraud, is likewise clear, because the defendant by reason
thereof accepted the risk which it would otherwise have flatly refused. The contract
a p p e a l e d j u d g m e n t i s r e v e r s e d a n d t h e d e f e n d a n t absolved from the
of life insurance is governed by the general rules of the civil law regarding contracts.
complaint.
Article 1261 of the Civil Code
Musngi vs. West Coast Insurance
providesthat there is no contract unless there should be, in addition to consent
- P (beneficiaries) brought suit against the defendant to recover the valueof two life
anda definite object, a consideration for the obligation established.
insurance policies.- Two policies were issued upon applications filed by the insured
on. In both applications, the insured had to answer injuiries as to his state of health
Article1276
and that of his family, which he did voluntarily.
provides that the statement of a false consideration shall render the contract void.
1. What physician or practitioner or any other person not named abovehave you
The two answers being one of the considerations of the policies, and it appearing
consulted or been treated by, and for what illness, or ailment? (If none, so state.
that they are false and fraudulent, it is evident that the insurance contracts
In the first application, the insured answered “none”, and in the second,
were null and void and did not give rise to any right to recover their value or
“no”.
amount.
- Answers of the insured as well as his other state'ents contained in hisapplications
One ground for the rescission of a contract of insurance under the
were one of the causes or considerations for the issuance of the policies- After the
Insurance Act is a concealment, which in section 25 is defined as
death of the insured, the insurance company discovered that the answers were
“n e g l e c t t o c o m m u n i c a t e t h a t w h i c h a p a r t y k n o w s a n d o u g h t
false and fraudulent, because the truth was that the insured, before answering and
t o communicate! C o n c e a l m e n t e x i s t s w h e r e t h e a s s u r e d h a s k n o w l e
signing the applications and before the issuance of the policies, had been treated in
d g e o f a f a c t material to the risk, and honesty, good faith and fair dealing
the general hospital by a lady physician for different ailments.
requires that he should communicate it to the assured, but he designedly
for peptic ulcer and chronic catarrhal nasopharyngitis &
and intentionally withholds the same.
chronic pyelocystitis and incipient pulmonary tuberculosis & acute tracheo'bronch
Another rule is that if the assured undertakes to state all the circumstances
itis and chronic suppurative pyelocystitis by Mr. Cru)
affecting the risk, a full and fair statement of all is required.
Respondent’s Contention
Two policies did not create any valid obligation because they werefraudulently
obtained by the insured.
Appealed Decision
-The health of the insured before the acceptance of his applications andthe
issuance of the policies could neither be discussed nor &uestioned.- The insured
was e a'ined by three physicians of the co'pany and all of the' unani'ously certified
that he was in good health and that he couldbe properly insured.

Issue
1. The two answers given by the insured in his applications are
false/ If they were the cause, or one of the causes, which
induced thedefendant to issue the policies/
2.
Held
Insured knew that he had suffered from a number of ailments, before subscribing
the applications, yet he concealed them and omitted t h e h o s p i t a l w h e r e h e

FIRST DIVISION
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-
appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST
INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision
of the Court of First Instance Rizal, Branch V, Quezon City, to be taken directly to
the Supreme Court is whether or not the acceptance by the private respondent
insurance corporation of the premium and the issuance of the corresponding
certificate of insurance should be deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz
applied with respondent insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application form given to her and filed
the same with the respondent insurance corporation. In the said application form
which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On
the same date, she paid the sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an authorized agent of the
respondent insurance corporation. (Rollo, p. 27.) Upon the filing of said application
and the payment of the premium on the policy applied for, the respondent
insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No.
128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886,
Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was
the named beneficiary in the policy, filed her claim for the proceeds of the
insurance, submitting all the necessary papers and other requisites with the private
respondent. Her claim having been denied, Regina L. Edillon instituted this action in
the Court of First Instance of Rizal on August 27, 1969.
14
In resisting the claim of the petitioner, the respondent insurance corporation relies
on a provision contained in the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years ..." It is pointed out that the insured
being over sixty (60) years of age when she applied for the insurance coverage, the
policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom.
The trial court sustained the contention of the private respondent and dismissed
the complaint; ordered the petitioner to pay attorney's fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the
private respondent to return the sum of TWENTY (P20.00) PESOS received by way
of premium on the insurancy policy. It was reasoned out that a policy of insurance
being a contract of adhesion, it was the duty of the insured to know the terms of
the contract he or she is entering into; the insured in this case, upon learning from
its terms that she could not have been qualified under the conditions stated in said
contract, what she should have done is simply to ask for a refund of the premium
that she paid. It was further argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of the insured and strictly
against the insurer may not be applied in the present case in view of the peculiar
facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen 0.
Lapuz was not concealed to the insurance company. Her application for insurance
coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age of the time of
filing the same to be almost 65 years of age. Despite such information which could
hardly be overlooked in the application form, considering its prominence thereon
and its materiality to the coverage applied for, the respondent insurance
corporation received her payment of premium and issued the corresponding
certificate of insurance without question. The accident which resulted in the death
of the insured, a risk covered by the policy, occurred on May 31, 1969 or FORTY-
FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient
time for the private respondent to process the application and to notice that the
applicant was over 60 years of age and thereby cancel the policy on that ground if it
was minded to do so. If the private respondent failed to act, it is either because it
was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it simply
overlooked such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel. It inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver of such

condition, as was held in the case of "Que Chee Gan vs. Law Union Insurance Co.,
Ltd.,", 98 Phil. 85. This case involved a claim on an insurance policy which contained
a provision as to the installation of fire hydrants the number of which depended on
the height of the external wan perimeter of the bodega that was insured. When it
was determined that the bodega should have eleven (11) fire hydrants in the
compound as required by the terms of the policy, instead of only two (2) that it had,
the claim under the policy was resisted on that ground. In ruling that the said
deviation from the terms of the policy did not prevent the claim under the same,
this Court stated the following:
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully an that the number of hydrants
demanded therein never existed from the very beginning, the appellant
nevertheless issued the policies in question subject to such warranty, and
received the corresponding premiums. It would be perilously 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 their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued,
that in the premises insured there were only two fire hydrants installed by
Que Chee Gan and two others nearby, owned by the municipality of
Tabaco, contrary to the requirements of the warranty in question. Such
fact appears from positive testimony for the insured that appellant's
agents inspected the premises; and the simple denials of appellant's
representative (Jamiczon) can not overcome that proof. That such
inspection was made it moreover rendered probable by its being a
prerequisite for the fixing of the discount on the premium to which the
insured was entitled, since the discount depended on the number of
hydrants, and the fire fighting equipment available (See"'Scale of
Allowances" to which the policies were expressly made subject). The law,
supported by a long line of cases, is expressed by American Jurisprudence
(Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions
in the contract inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable
15
enough to assume, in the absence of any showing to the contrary, that an insurance
company intends to execute a valid contract in return for the premium received;
and when the policy contains a condition which renders it voidable at its inception,
and this result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in fact he is not, and to have
taken 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 a company
to accept one's money for a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured believes it to be valid and
binding, is so contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to 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 the
real intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of (Wilson vs.
Commercial Union Assurance Co., 96 Atl. 540, 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 the execution of a promissory note
for the payment of the premium. A check given subsequent by the insured as partial
payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.
Significantly, in the case before Us the Capital Insurance accepted the
promise of Plastic Era 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 policy and in effect, waived the provision
therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium. Considering that the insurance
policy is silent as to the mode of payment, Capital Insurance is deemed to
have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered.
The view taken in most cases in 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 to the mode of payment, promissory notes received by
the company must be deemed to have been accepted in payment
of the premium. In other words, a requirement for the payment
of the first or initial premium in advance or actual cash may be
waived by acceptance of a promissory note...
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In
lieu thereof, the private respondent insurance corporation is hereby ordered to pay
to the petitioner the sum of TEN THOUSAND (P10,000.00) PESOS as proceeds of
Insurance Certificate No. 128866 with interest at the legal 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.
Facts:
> In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the
application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The
policy was thereafter issued.
> Subsequently, in May 1969, Carmen died of a car accident. Her sister, as
beneficiary claimed the proceeds of the insurance.
> Manila Bankers refused to pay because the certificate of insurance contained a
provision excluding it’s liability to pay claims to persons under 16 or over 60.
Issue:
Whether or not the policy is void considering that the insured was over 60 when
she applied.
Held:
NO.
The age of Carmen was not concealed to the insurance company. Her application
form indicated her true age. Despite such information, Manila Bankers accepted
the premium and issued the policy. It had all the time to process the application
and notice the applicant’s age. If it failed to act, it was because Manila Bankers was
16
willing to waive such disqualifications or it simply overlooked such fact. It is
therefore estopped from disclaiming any liability.
Facts:
Carmen O, Lapuz applied with Manila Bankers for insurance coverage against
accident and injuries. She gave the date of her birth as July 11, 1904. She paid the
sum of P20.00 representing the premium for which she was issued the
corresponding receipt. The policy was to be effective for 90 days.
During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North
Diversion Road.
Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy,
filed her claim for the proceeds of the insurance. Her claim having been denied,
Regina L. Edillon instituted this action in the trial court.
The insurance corporation relies on a provision contained in the contract excluding
its liability to pay claims under the policy in behalf of "persons who are under the
age of sixteen (16) years of age or over the age of sixty (60) years" They pointed out
that the insured was over sixty (60) years of age when she applied for the
insurance coverage, hence the policy became void.
The trial court dismissed the complaint and ordered edillon to pay P1000. The
reason was that a policy of insurance being a contract of adhesion, it was the duty
of the insured to know the terms of the contract he or she is entering into.
The insured could not have been qualified under the conditions stated in said
contract and should have asked for a refund of the premium.
Issue:
Whether or not the acceptance by the insurance corporation of the premium and
the issuance of the corresponding certificate of insurance should be deemed a
waiver of the exclusionary condition of coverage stated in the policy.
Held: Yes. Petition granted.
Ratio:
The age of Lapuz was not concealed to the insurance company. Her application
clearly indicated her age of the time of filing the same to be almost 65 years of age.
Despite such information which could hardly be overlooked, the insurance
corporation received her payment of premium and issued the corresponding
certificate of insurance without question.
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 cancel the policy.
 17

Under the circumstances, the insurance corporation is already deemed in estoppel. insurance proceeds but Manila Banker denied the claim. Apparently, it is a rule of
It inaction to revoke the policy despite a departure from the exclusionary condition the insurance company that they were not to issue insurance policies to “persons
contained in the said policy constituted a waiver of such condition, similar to Que
who are under the age of sixteen (16) years of age or over the age of sixty (60) years
Chee Gan vs. Law Union Insurance.
…” Note, that Lapuz was already 65 years old when she was applying for the
The insurance company was aware, even before the policies were issued, that in
the premises insured there were only two fire hydrants contrary to the insurance policy.
requirements of the warranty in question. ISSUE:
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 Whether or not Edillon is entitled to the insurance claim as a beneficiary.
contract from its very inception, such knowledge constitutes a waiver of conditions HELD:
in the contract inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance
To allow a company to accept one's money for a policy of insurance which it then company still received premium from Lapuz and issued the corresponding insurance
knows to be void and of no effect, though it knows as it must, that the assured policy to her. When the accident happened, the insurance policy has been in force
believes it to be valid and binding, is so contrary to the dictates of honesty and fair for 45 days already and such time was already sufficient for Manila Banker to notice
dealing. the fact that Lapuz is already over 60 years old and thereby cancel the insurance
Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the
policy. If Manila Banker failed to act, it is either because it was willing to waive such
policy requiring the payment of premiums before the insurance shall become
disqualification; or, through the negligence or incompetence of its employees for
effective. The company issued the policy upon the execution of a promissory
note for the payment of the premium. A check given subsequent by the insured as which it has only itself to blame, it simply overlooked such fact. Under the
partial payment of the premium was dishonored for lack of funds. Despite such circumstances, Manila Banker is already deemed in estoppel.
deviation from the terms of the policy, the insurer was held liable.
“... 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 to the mode of
payment, promissory notes received by the company must be deemed to have
been accepted in payment of the premium. In other words, a requirement for the
payment of the first or initial premium in advance or actual cash may be waived by
acceptance of a promissory note...”

117 SCRA 187 – Mercantile Law – Insurance Law – Representation – Collection of

Premium Even Though Insured is Disqualified (Age)
In April 1969, Carmen Lapuz filled out an application form for insurance under
Manila Banker Life Assurance Corporation. She stated that her date of birth was July
11, 1904. Upon payment of the Php 20.00 premium, she was issued the insurance
policy in April 1969. In May 1969, Carmen Lapuz died in a vehicular accident. Regina
Edillon, who was named a beneficiary in the insurance policy sought to collect the

EN BANC
G.R. No. L-33131 December 13, 1930
EMILIO GONZALES LA O, plaintiff-appellee,
vs.
THE YEK TONG LIN FIRE AND MARINE INSURANCE CO., LTD., defendant-appellant.
VILLAMOR, J.:
This is an action to recover of the defendant the Yek Tong Lin Fire & Marine
Insurance Co., Ltd., the amount of two insurance policies totaling P100,000 upon
leaf tobacco belonging to the plaintiff, which was damaged by the fire that
destroyed the building on Soler Street No. 188, where said tobacco was stored, on
January 11, 1928.
The defendant filed a general and specific denial of each and every allegation of the
complaint, set up three special defenses, and prayed to be absolved from the
complaint with costs against the plaintiff.
After the case was tried, the court below rendered judgment as follows:
In this case and in Nos. 334568, and 33480 of this court, which, by
agreement of the interested parties, were jointly tried, the plaintiff
demands P290,000 from the defendant assurance companies,
alleging that to be the amount of the insurance on his leaf tobacco
which was damaged by the fire that destroyed the warehouse at
No. 188 Soler Street, Manila, where it was stored, on January 11,
1928, the plaintiff's claim against the herein defendant, the Yek
Tong Lin Fire & Marine Insurance Co. being for P100,000, and
against the defendants in the three other cases mentioned above,
for P190,000.
After the plaintiff had presented his evidence, the defendant
companies in cases Nos. 33458, 33868, and 33480, offered to
compromise with him by paying eighty-five per cent of his claim
against them. In view of the fact that said defendants had in their
answer raised the question of warranties A and G of the plaintiff's
policies, providing that the building used for the effects insured
would not be occupied by any other lessee, nor would be used for
18
the deposit of other goods, without the consent of said
defendants, and inasmuch as the latter alleged in their answer that
the owner of the burnt building had leased the warehouse to
several persons for the storage of sundry articles, the plaintiff had
to accept the proposed compromise, and in consequence thereof,
the three cases aforesaid were dismissed.
The present case followed the usual course of procedure because
the plaintiffs refused to accept the compromise which, in the same
terms as those made by the defendants in the three cases
mentioned, was proposed to him by the defendant the Yek Tong
Lin Fire & Marine Insurance Company, the plaintiff contending that
said defendant did not, nor could, raise the question of warranties
A and G heretofore mentioned for the simple reason that it was
the defendant itself, as owner, who had leased the building which
later was destroyed by fire, to another person after having already
ceded a portion of it to said plaintiff.
The only question to be determined, having been raised in the
defendant's answer — both parties agreeing that the plaintiff
insured his leaf tobacco with the defendant assurance company,
and that said goods were damaged by the fire which destroyed the
warehouse where they were stored, on January 11, 1928 — is
whether said goods were worth what the plaintiff claims, that is,
about equal to the amount for which they were insured in the four
above mentioned assurance companies, including the defendant in
this case.
The plaintiff has conclusively shown by the Official Register Book
(Exhibit 1) and the Official Guide (Exhibit J), furnished by the
Bureau of Internal Revenue, and kept under the supervision
thereof in the usual form, in accordance with articles 10, 34 to 38
of the Regulations of the same promulgated under No. 17, by the
Secretary of Finance; the Stock Book for recording the quantity of
tobacco, Exhibit K, kept by the plaintiff and presented as part of
the testimony of witnesses Claveria, Bonete, and Leoncio Jose; the
testimony of Estanislao Lopez, Inspector of Internal Revenue, and
the latter's report (Exhibit N), submitted to the Collector of
Internal Revenue in pursuance of article 33 of the aforementioned
Regulations; the tobacco invoices of stock damaged by the fire,
Exhibits L and L-1 to L-20; and by the testimony of Clemente Uson

who went over the plaintiff's books as auditor and public
accountant, and also prepared Exhibits T and U, attached to the
record, that the plaintiff had in the warehouse at No. 188 Soler at
the time of the fire, not less, but rather more, than 6,200 bales of
leaf tobacco worth over P300,000, which is of course more than
the sum total of all the insurances taken out with the defendant
herein and the defendants in the three aforementioned cases Nos.
33458, 33868, and 33480.lawphi1>net
The reason why the entry showing that 258 bales of tobacco had
been removed from the warehouse, appearing in the Official
Register Book, Exhibit I, was not posted in the Stock Book, Exhibit
K, has been satisfactorily explained by the plaintiff's witnesses,
who stated that it was due to the fact that there was no time to
post it in the Stock Book, because the fire took place and the
plaintiff told them not to touch, and to make no further entries in
the books. Witness White, the defendant company's adjuster, who
carefully examined then plaintiff's books not only immediately
after the fire, but also during the hearing of this case, seems not to
have found any irregularity therein; at least he said nothing on the
point when he took the witness stand. On the contrary, in his
report Exhibit UU sent to the defendant herein in his capacity as
adjuster, appointed by the latter, and in Exhibits WW and XX,
admitted by the Yek Tong Lin Ins. Co., Ltd., he admitted that the
leaf tobacco belonging to the plaintiff in the warehouse when the
fire took place exceeded, in quantity and value, the amount of the
insurance.
The defendant did not present evidence to rebut the plaintiff's
evidence, but only presented witness Rowlands, whose testimony
or opinion as to the probable number of bales of tobacco in the
warehouse at the date of the fire does not deserve serious
consideration, not only because of the plaintiff's evidence, but
because his opinion or estimate is based solely upon photographs
of the place taken after the fire.
In view of the foregoing, the court hereby sentences the
defendant the Yek Tong Lin Fire and Marine Insurance Company,
Ltd., to pay the plaintiff Emilio Gonzales La O, the amount of one
hundred thousand pesos (P100,000), for which it had accepted the
insurance on the leaf tobacco belonging to said plaintiff, damaged
19
by the fire which destroyed the warehouse at No. 188 Soler Street,
where it was stored, on January 11, 1928, and legal interest upon
said amount from June 27, 1928, when the complaint was filed in
this case, plus the costs.
So ordered.
Manila, P. I., this 24th day of December, 1929.
ANACLETO DIAZ
Judge.
The defendant duly appealed from this judgment, alleging that the trial court erred
in making reference to the settlement arrived at by the plaintiff and other insurance
companies, and in declaring that the only question involved in the case is whether
or not the tobacco damaged by the fire is worth at least P290,000.
There is no merit in these assignments of error. Since the settlement between the
plaintiff and the other defendant companies was reached after the plaintiff had
presented his evidence, and as those three cases were tried jointly with the instant
case, there is no valid reason why the trial court should not refer to it in deciding
this case. Furthermore, the court's holding here assigned as error, granting there
were other incidental matters to be decided by the court, does not in itself
constitute a reversible error.
In the third assignment of error, the defendant contends that the plaintiff cannot
recover under the policy as he has failed to prove that the Bank of the Philippine
Islands, to whom the policy was made payable, no longer has any rights and
interests in it. It should be noted that the defendant did not in its answer allege
defect of parties plaintiff, and, besides, it does not appear that the plaintiff ceded to
the bank all his rights or interests in the insurance, the note attached to the policies
merely stating: "There shall be paid to the Bank of the Philippine Islands an
indemnity for any loss caused by fire, according to the interest appearing in its
favor." And the fact that the plaintiff himself presented in evidence the policies
mortgaged to the Bank of the Philippine Islands gives rise to the presumption that
the debt thus secured has been paid, in accordance with article 1191 of the Civil
Code.
Corpus Juris, volume 26, pages 483 et seq., states:

Insured, being the person with whom the contract was made, is primarily
the proper person to bring suit thereon. Subject to some exceptions,
insured may thus sue, although the policy is taken wholly or in part for the
benefit of another person named or unnamed, and although it is expressly
made payable to another as his interest may appear or otherwise.
Although a policy issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor may sue
thereon in his own name, especially where the mortgagee's interest is less
than the full amount recoverable under the policy, . . . .
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has
assigned as collateral security any judgment he may obtain.
It is also contended that the trial court erred in not declaring that in as much as the
plaintiff failed to notify the defendant corporation in writing, of other insurance
policies obtained by him, he has violated article 3 of the conditions of the policies in
question, thereby rendering these policies null and void. Article 3 of the conditions
of the policies in question prescribes:
ART. 3. Any insurance in force upon all or part of the things insured must
be declared in writing by the insured and he should cause the company to
insert or mention it in the policy, and without such requisite said policy will
be regarded as null and void, and the assured deprived of all rights of
indemnity in case of loss.
The following clause has been inserted with a typewriter in the policies: "Subject to
clauses G and A and other insurances with a special short period attached to this
policy." And attached to said policies issued by the defendant there is a sheet of
"Other insurances" with the amount and the assurance companies in blank, which,
according to the appellee, constitutes a notification that there were other
insurances existing at the time.
In the case of Benedict vs. Ocean Insurance Co. (31 N.Y., 391-393), the construction
of the clause, "privilege for $4,500 additional insurance," was discussed. One of the
printed clauses of the policy reads as follows:
If said assured, or his assigns, shall hereafter make any other insurance
upon the same property, and shall not, with all reasonable diligence, give
notice to this corporation, and have the same indorsed on this instrument,
20
or otherwise acknowledged by them, in writing, this policy shall cease and
be of no further effect.
The Supreme Court of New York held that the words "Privilege for $4,500 additional
insurance" made it unnecessary for the assured to inform the insurer of any other
policy up to that amount.
In the case cited the same goods insured by the defendant company were reinsured
to the amount of $4,500 in accordance with the clause "privilege for $4,500
additional insurance;" but in the instant case it may be said that the tobacco
insured in the other companies was different from that insured with the defendant,
since the number of bales of tobacco in the warehouse greatly exceeded that
insured with the defendant and the other companies put together. And according
to the doctrine enunciated in 26 Corpus Juris, 188, "to be insurance of the sort
prohibited the prior policy must have been insurance upon the same subject
matter, and upon the same interest therein.
Furthermore, the appellant cannot invoke the violation of article 3 of the conditions
of the insurance policies for the first time on appeal, having failed to do so in its
answer; besides, as the appellee correctly contends in his brief, Guillermo Cu
Unjieng, who was then president and majority shareholder of the appellant
company, the Yek Tong Lin Fire & Marine Insurance Co., knew that there were other
insurances, at least from the attempt to raise the insurance premium on the
warehouse and the appellee's tobacco deposited therein to 1 per centum, and it
was later reduced upon petition of the appellant itself and other assurance
companies to 0.75 per centum presented to the association of assurance companies
in the year 1927, and notwithstanding this, said appellant did not rescind the
insurance policies in question, but demanded and collected from the appellee the
increased premium.
That the defendant had knowledge of the existence of other policies obtained by
the plaintiff from other insurance companies, is specifically shown by the
defendant's answer wherein it alleges, by way of special defense, the fact that there
exist other policies issued by the companies mentioned therein. If, with the
knowledge of existence of other insurances which the defendant deemed violations
of the contract, it has preferred to continue the policy, its action amounts to a
waiver of the annulment of the contract, in accordance with the following doctrine
in 19 Cyc., 791, 792:.
FAILURE TO ASSERT FORFEITURE — IN GENERAL. — While the weight of
authority is that a policy conditioned to become void upon a breach of a
 21

warranty is void ipso facto upon such a breach without formal proceedings
on the part of the insurer, yet it is true that such conditions are inserted
for the benefit of the insurer and may be waived, and that the insurer may
elect to continue the policy despite the breach. If it does the policy is
revived and restored. Its failure to assert a forfeiture therefore is at least
evidence tending to show a waiver thereof. Many authorities go further,
however, and hold that the failure to assert a forfeiture after knowledge of
a ground thereof will amount of itself to waiver. . . .
The fifth and sixth assignments of error refer to the quantity of tobacco in the Soler
warehouse at the time of the fire, which, according to the appellant, did not exceed
4,930 bales. As may be seen, these assignments of error by the appellant involved
purely questions of fact, and it is for this court to decide whether the findings of the
trial court are supported by the evidence. The judgment appealed from sets forth
clearly the evidence presented to the court in order to determine the quantity of
tobacco in the warehouse at the time of the fire. We have studied the evidence
aforesaid, are fully convinced that the court's findings are well supported by the
same. Inasmuch as it has not, in our opinion, been shown that the trial judge
overlooked any fact, which, if duly considered would have change the result of the
case, we do not feel justified in altering of modifying his findings.
their report: "We therefore are obliged to the conclusion that the value of the
tobacco destroyed was not less than P290,000." And, indeed, said adjusters, in
behalf of the appellant, appraised the appellee's tobacco assured and damaged by
the fire at P303,052.32, collecting from the proceeds of the sale of the tobacco
saved from the fire P3,000, the appellants share in proportion to the to the
insurance of P100,000 belonging to it, and P190,000 belonging to the other
assurance companies, and considered the appellee himself as his own assurer in the
amount of P13,052.32 which was the difference between the total value of the
tobacco damaged and the total amount of the insurance, P290,000, for which
reason the appellee received P129.21, as his proportionate share of the tobacco
saved, as shown by Exhibits UU, WW, and XX.
Hence the last assignment of error is without merit.
Wherefore, the judgment appealed from is in accordance with law, and must be, as
it is hereby, affirmed, with costs against the appellant. So ordered.

Finally, the appellant contends that the trial court erred in arriving at the damages
that plaintiff may recover under the policies in question by the cost price of the
tobacco damaged by the fire, instead of computing the same on the market price of
the said tobacco at the time of the fire; and in declaring that the tobacco damaged
was worth more than P300,000. This error is not well taken, for it is clear that the
cost price is competent evidence tending to show the value of the article in
question. And it was so held the case of Glaser vs. Home Ins. Co. (47 Misc. Rep., 89;
93 N. Y. Supp., 524; Abbott's Proof of Facts, 3d ed., p. 847), where it was declared
that the cost of the goods destroyed by fire is some evidence of value, in an action
against the insurance company. Exhibits L to L-20, which are invoices for tobacco
purchased by the appellee, and the testimony of the public accountant Clemente
Uson, who went over them and the rest of the appellee's books after the fire, taken
in connection with reports T and Z, adduced as part of his testimony, show that the
cost price of each bale of tobacco belonging to the appellee, damaged by the fire,
was P51.8544, which, multiplied by 6,264, the number of bales, yields a total of
over P320,000.

The adjusters of the appellant, White & Page, in ascertaining the market price of
the plaintiff's tobacco deposited in the burnt warehouse, taking the information
furnished by the Tabacalera and by M. Pujalte, S. en C., as a basis, thus conclude
 22

Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf
tobacco prducts.
> They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928,
burned down.
> Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or
part of the things unsured must be declared in writing by the insured and he
(insured) should cause the company to insert or mention it in the policy. Without
such requisite, such policy will be regarded as null and void and the insured will be
deprived of all rights of indemnity in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance contracts.
When he sought to claim from Yek after the fire, the latter denied any liability on
the ground of violation of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies
obtained by him long efore the fire, and the insurer did NOT rescind the insurance
polices in question but demanded and collected from the insured the premiums.

Issue:
Whether or not Yek is still entitled to annul the contract.

Held:
NO.
The action by the insurance company of taking the premiums of the insured
notwithstanding knowledge of violations of the provisions of the policies amounted
to waiver of the right to annul the contract of insurance.

EN BANC
G.R. No. L-27541 November 21, 1927
TAN CHAY HENG, plaintiff-appellee,
vs.
THE WEST COAST LIFE INSURANCE COMPANY, defendant-appellant.
STATEMENT
Plaintiff alleges that he is of age and a resident of Bacolod, Occidental Negros; that
the defendant is a foreign insurance corporation duly organized by the laws of the
Philippines to engage in the insurance business, its main office of which is in the
City of Manila; that in the month of April, 1925, on his application the defendant
accepted and approved a life insurance policy of for the sum of P10,000 in which
the plaintiff was the sole beneficiary; that the policy was issued upon the payment
by the said Tan Ceang of the first year's premium amounting to P936; that in and by
its terms, the defendant agreed to pay the plaintiff as beneficiary the amount of the
policy upon the receipt of the proofs of the death of the insured while the policy
was in force; that without any premium being due or unpaid, Tan Ceang died on
May 10, 1925; that in June, 1925, plaintiff submitted the proofs of the death of Tan
Ceang with a claim for the payment of the policy which the defendant refused to
pay, for which he prays for a corresponding judgment, with legal interest from the
date of the policy, and costs.
In February, 1926, the defendant filed an answer to the complaint in which it made
a general and specific denial, and then announced its intention to file an amended
answer, alleging special defense, and on August 31, 1926, it filed the following:
AMENDED ANSWER
Comes now the defendant, by its undersigned attorneys, and with leave of court
amends its answer to plaintiff's complaint herein by making it reads as follows:
I capacity as medical examiner for the defendant insurance company, pursuant to
That it admits paragraph 1 of said complaint.
II
23
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
the conspiracy above mentioned, prepared and falsified the necessary medical
certificate, in which it was made to appear, among other things, that the said Tan
Ceang had never used morphine, cocaine or any other drug; that he was then in
good health and had never consulted any physician; that he had never spit blood;
and that there was no sign of either present or past disease of his lungs; whereas in
truth and in fact, as the plaintiff and his said coconspirators well knew, the said Tan

Ceang was addicted to morphine, cocaine, and opium and had been convicted and
imprisoned therefor, and was then, and for about three year prior thereto had been
suffering from pulmonary tuberculosis.
4. That on or about the same date, to wit, February 22, 1925, the plaintiff and his
said coconspirators, pursuant to the conspiracy above mentioned, cause a
confidential report to the defendant insurance company to be signed by one V. Sy
Yock Kian, who was an employee of Go Chulian, in which confidential report, among
other things, it was falsely represented to the defendant insurance company that
the said Tan Ceang was worth about P40,000, had an annual income of from eight
to ten thousand pesos net, had the appearance of good health, and never had
tuberculosis; that the plaintiff and his said coconspirators well knew that said
representations were false; and that they were made for the purpose of deceiving
the defendant and inducing it to accept the said application for insurance.
5. That after the said application for insurance, medical certificate and confidential
report had been prepared and falsified, as aforesaid, the plaintiff and his said
coconspirators caused the same to be forwarded to the defendant at its office in
Manila, the medical certificate thru the said Dr. V. S. Locsin as medical examiner,
and said application for insurance and confidential report thru the said Francisco
Sanchez in his capacity as one of the agents of the defendant insurance company in
the Province of Occidental Negros; that the defendant, believing that the
representations made in said document were true, and relying thereon,
provisionally accepted the said application for insurance on the life of Tan Ceang in
the sum of P10,000 and issued a temporary policy pending the final approval or
disapproval of said application by defendant's home-office in San Francisco,
California, where in case of approval a permanent policy was to be issued; that such
permanent policy was never delivered to the plaintiff because defendant
discovered the fraud before its delivery.
6. That the first agreed annual premium on the insurance in question of P936.50
not having been paid within sixty (60) days after the date of the supposed medical
examination of the applicant as required by the regulations of the defendant
insurance company, of which regulations the said Francisco Sanchez as agent of the
defendant had knowledge, the plaintiff and his said coconspirators in order to
secure the delivery to them of said temporary policy, and in accordance with said
regulations of the defendant company, caused the said Tan Ceang on April 10, 1925
to sign the following document: lawphil.net
WEST COAST LIFE INSURANCE COMPANY
SAN FRANCISCO, CALIFORNIA
24
HEALTH CERTIFICATE FOR RE-INSTATEMENT
I herewith request the West Coast Life Insurance Company to re-instate
Policy No. ............................. issued by it upon my life, the first unpaid
premium on which became due .............................., 19................
I certify and state that I am now in good and sound health, that since the
date of my examination under the application on which said policy was
written, I have had no injury, sickness, impairment of health or symptom
thereof, and that since said date I have neither consulted a physician nor
made any application for life insurance that has not been granted in exact
kind and amount applied for, except:
NADA
(State fully all exceptions to all above statements. If no exceptions insert
"NONE.")
I agree that, if said policy re-instated, it shall be only on condition of the
truth of the above statements and such re-instatement shall not operate
as a waiver on the part of said Company of its right to refuse to accept any
future overdue premiums or installments thereof.
Witness: (Sgd.) TAN CHAI HENG
TAN CAENG
Signature of Applicant.
"Dated at Palupandan on this 10 day of April, 1925." that the statements and
representations contained in the application for reinstatement above set forth with
regard to the health and physical condition of the said Tan Ceang were false and
known to the plaintiff and his said coconspirators to be false; that the said
temporary policy was delivered by defendant to the insured on April 10, 1925, in
the belief that said statements and representations were true and in reliance
thereon.
7. That on May 10, 1925, that is to say, two months and a half after the supposed
medical examination above referred to, and exactly one month after the date of the
health certificate for reinstatement above set forth, the said Tan Ceang died in
Valladolid, Occidental Negros, of pulmonary tuberculosis, the same illnes from
which suffering at the time it is supposed he was examined by Dr. V. S. Locsin, but
 25

that the plaintiff and his said coconspirators, pursuant to their conspiracy, caused To this special defense, the plaintiff, claiming that it was a cross-complaint, filed a
the said Dr. V. S. Locsin to state falsely in the certificate of death that the said Tan general demurrer upon the ground that it does not state facts sufficient to
Ceang had died of cerebral hemorrhage. constitute a cause of defense.

II After exhaustive arguments and on September 16, 1926, the court rendered the
following decision:
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 After considering the demurrer filed by the plaintiff to the special defense
of the said Go Chulian; that the latter was the ringleader of a gang of malefactors, contained in the amended answer of the defendant, dated August 31,
who, during, and for some years previous to the dates above mentioned, were 1926, without prejudice to writing a more extensive decision, said
engaged in the illicit enterprise of procuring fraudulent life insurances from the demurrer is sustained, and the defendant is given a period of five days
present defendant, similar to the one in question, and which enterprise was within which to amend its aforesaid answer.
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 So ordered.
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, To which the defendant duly excepted.
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
As a result of the trial the general issues, the lower court rendered judgment for the
connection with an fraudulent insurance, similar to the present, committed against
plaintiff for P10,000, with legal interest from January 4, 1926, and costs, to which
this defendant in the month of September, 1924; that in the same case the said
the defendant duly excepted and filed a motion for a new trial, which was
Francisco Sanchez was one of the coaccused of the said Go Chulian but was
overruled. On appeal the defendant assigns the following errors:
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
The trial court erred —
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 1. In sustaining plaintiff's demurrer to the special defense contained in
Chulian and Sanchez upon the lives of one Tan Deco, who was also suffering from defendant's amended answer.
and died of tuberculosis, and one Tan Anso, who was suffering from and died of
beriberi. 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
III sued thereon.

That by reason of all the facts above set forth, the temporary policy of insurance on 3. In rejecting all proofs offered by the defendant during the trial for the
the life of Tan Caeng for the sum of P10,000 upon which the present action is base purpose of defeating plaintiff's fraudulent claim.
is null and void.
4. In not absolving the defendant from plaintiff's complaint.
Wherefore, defendant prays that it be absolved from plaintiff's complaint,
with costs against the plaintiff.

JOHNS, J.:

It will thus be noted that the premium was paid on April 10, 1925, at which time the
temporary policy was issued; that the plaintiff's action was commenced on January
4, 1926; that the original answer of the defendant, consisting of a general and
specific denial, was filed on February 27, 1926; and that its amended answer was
filed on August 31, 1926.
Based upon those facts the plaintiff vigorously contended in the lower court and
now contends in the court, that section 47 of the Insurance Act should be applied,
and that when so applied, defendant is barred and estopped to plead and set forth
the matters alleged in its special defense. That section is as follows:
Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
The defendant contended in the lower court and now contends in this court, that
section 47 does not apply to the new matters alleged in the special defense. If in
legal effect defendant's special defense is in the nature of an act to rescind "a
contract of insurance," then such right must be exercised prior to an action enforce
the contract. That is the real question involved in this appeal.
Defendant's original answer was a general and specific denial. In other words, it
specifically denied that if ever issued the policy in question, or that it ever agreed
with Tan Ceang in the even of his death to pay P10,000 to the plaintiff or any one
else. In its amended answer the defendant again makes a general and specific
denial, and alleges the reasons, the specific facts, and the reasons why it never
made or entered into the contract alleged in the complaint, and based upon those
alleged facts, defendant contends that it never did enter into any contract of
insurance on the life of Tan Caeng.
The word "rescind" has a well defined legal meaning, and as applied to contracts, it
presupposes the existence of a contract to rescind.
Word & Phrases, volume 7, page 6139, says:
To rescind is to abrogate, annual, avoid, or cancel a contract.
The word "rescind," as used in a statement by a party to a contrary as
follows. "I hereby terminate and rescind my said written contract," is
synonymous with the word `terminate,' and the rescission therefore
26
relates only to the unfulfilled part, and not to the entire agreement,
making the party rescinding liable on notes executed pursuant to the
contract which matured before the rescission.
The rescission is the unmaking of a contract, requiring the same
concurrence of wills as that which made it, and nothing short of this will
suffice. There is a wide difference between the rescission of a contract and
its mere termination or cancellation.
After a contract has been broken, whether by an inability to perform it, or
by rescinding against right or otherwise, the party not in fault may sue the
other for the damages suffered, or, if the parties can be placed in status
quo, he may, should he prefer, return what he has received and recover in
a suit value of what he has paid or done. The latter remedy is termed
"rescission."
In the instant case, it will be noted that even in its prayer, the defendant does not
seek to have the alleged insurance contract rescinded. It denies that it ever made
any contract of insurance on the life of Tan Ceang or that any such a contract ever
existed, and that is the question which it seeks to have litigated by its special
defense. In the very nature of things, if the defendant never made or entered into
the contract in question, there is no contract to rescind, and, hence, section 47
upon which the lower based its decision in sustaining the demurrer does not apply.
As stated, an action to rescind a contract is founded upon and presupposes the
existence of the contract which is sought to be rescinded. If all of the material
matters set forth and alleged in the defendant's special plea are true, there was no
valid contract of insurance, for the simple reason that the minds of the parties
never met and never agreed upon the terms and conditions of the contract. We are
clearly of the opinion that, if such matters are known to exist by a preponderance of
the evidence, they would constitute a valid defense to plaintiff's cause of action.
Upon the question as to whether or not they or are not true, we do not at this time
have or express any opinion, but we are clear that section 47 does not apply to the
allegations made in the answer, and that the trial court erred in sustaining the
demurrer.
The judgment of the lower court is reversed and the case is remanded for such
other and further proceedings as are not inconsistent with this opinion, with costs
against the plaintiff. So ordered.

Facts:
> In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his
“uncle”, Tan Caeng who died in 1925. He was the sole beneficiary thereof.
> West Coast refused on the ground that the policy was obtained by Tan Caeng
with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.
> West Coast said that it was made to appear that Tan Caeng was single, a
merchant, health and not a drug user, when in fact he was married, a laborer,
suffering form tuberculosis and addicted to drugs.
> West Coast now denies liability based on these misrepresentations.
> Tan Chay contends that West Coast may not rescind the contract because an
action for performance has already been filed.
> Trial court found for Tan Chay holding that an insurer cannot avoid a policy which
has been procured by fraud unless he brings an action to rescind it before he is sued
thereon.
Issue:
Whether or not West Coast’s action for rescission is therefore barred by the
collection suit filed by Tan Chay.
Held:
NO.
Precisely, the defense of West Cast was that through fraud in its execution, the
policy is void ab initio, and therefore, no valid contract was ever made. Its action
then cannot be fore rescission because an action to rescind is founded upon and
presupposes the existence of the contract. Hence, West Coast’s defense is not
barred by Sec. 47.
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 Caeng, 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 court based its decision in sustaining the demurrer does not
apply.
27
As stated, an action to rescind a contract is founded upon and presupposes the
existence of the contract which is sought to be rescinded. If all of the material
matters set forth and alleged in the defendant's special plea are true, there was no
valid contract of insurance, for the simple reason that the minds of the parties
never met and never agreed upon the terms and conditions of the contract. We are
clearly of the opinion that, if such matters are known to exist by a preponderance of
the evidence, they would constitute a valid defense to plaintiff's cause of action.
Upon the question as to whether or not they are 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.
51 Phil. 80 – Mercantile Law – Insurance Law – Representation – Rescission of an
Insurance Contract
In April 1925, West Coast Life Insurance Company (West Coast) accepted and issued
a temporary life insurance policy (pending further review) to Tan Ceang. The life
insurance was for P10,000.00 and the premium paid therefor was P936.00. The
beneficiary listed in the policy was Tan Chay Heng. In May 1925, Tan Ceang died.
Tan Chay Heng filed an insurance claim which was denied by West Coast. Tan Chay
Heng sued West Coast. West Coast averred, in its ANSWER that Tan Chay Heng, in
connivance with others made Tan Ceang to enter into an insurance policy and name
Tan Chay Heng as the beneficiary; that Tan Ceang was induced to lie on the
application form about his health and life conditions (he was made to account that
he was not addicted to opium, morphine, and cocaine when in fact he was); that
Tan Chay Heng was a gang leader involved in the racket of fraudulent insurance
schemes; that by reason of these fraud and machinations, the insurance policy
West Coast issued is void; that West Coast seeks to avoid the insurance policy. Tan
Chay Heng filed a demurrer as it claimed that West Coast’s ANSWER is a cross-
complaint and the facts contained therein was not sufficient as a defense. The
lower court directed West Coast to amend its ANSWER which West Coast duly
excepted from and so the lower court ruled in favor of Tan Chay Heng. The lower
court further ruled that under Section 47 of [the old] Insurance Law, if an insurer
 28

(West Coast) has the right to rescind a contract of insurance, it must do so before a
suit is brought against the insurer on the said contract.

ISSUE:
Whether or not Section 47 is applicable in the case at bar.

HELD:
No. West Coast was not seeking for the rescission of the insurance contract. In fact,
West Coast avers that there was no insurance contract at all because the temporary
insurance issued in favor of Tan Ceang was null and void. For West Coast, it was
void ab initio because of the fraudulent circumstances attending to it. Therefore, it
cannot be subject to rescission. The Supreme Court however remanded the case to
the lower court to determine the material allegations made by West Coast against
Tan Chay Heng.
 29

EN BANC From the decision, the defendant Insurance Company appealed directly to this
Court.
G.R. No. L-4611 December 17, 1955
The record shows that before the last war, plaintiff-appellee owned four
QUA CHEE GAN, plaintiff-appellee, warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the municipality of
vs. Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled and
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, loose, in which the appellee dealth extensively. They had been, with their contents,
BARNES AND CO., LTD., defendant-appellant. insured with the defendant Company since 1937, and the lose made payable to the
Philippine National Bank as mortgage of the hemp and crops, to the extent of its
REYES, J. B. L., J.:
Policy No. Property Insured Amount
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of
First Instance of said province, seeking to recover the proceeds of certain fire 2637164 (Exhibit
Bodega No. 1 (Building) P15,000.00
insurance policies totalling P370,000, issued by the Law Union & Rock Insurance "LL")
Co., Ltd., upon certain bodegas and merchandise of the insured that were burned
Bodega No. 2 (Building) 10,000.00
on June 21, 1940. The records of the original case were destroyed during the
liberation of the region, and were reconstituted in 1946. After a trial that lasted Bodega No. 3 (Building) 25,000.00
several years, the Court of First Instance rendered a decision in favor of the plaintiff, 2637165 (Exhibit
the dispositive part whereof reads as follows: "JJ") Bodega No. 4 (Building) 10,000.00

Hemp Press — moved by steam engine 5,000.00

Wherefore, judgment is rendered for the plaintiff and against the
defendant condemning the latter to pay the former — 2637345 (Exhibit Merchandise contents (copra and empty
150,000.00
"X") sacks of Bodega No. 1)
(a) Under the first cause of action, the sum of P146,394.48;
2637346 (Exhibit Merchandise contents (hemp) of Bodega No.
150,000.00
(b) Under the second cause of action, the sum of P150,000; "Y") 3

2637067 (Exhibit Merchandise contents (loose hemp) of

(c) Under the third cause of action, the sum of P5,000; 5,000.00
"GG") Bodega No. 4

(d) Under the fourth cause of action, the sum of P15,000; and
Total P370,000.00
(e) Under the fifth cause of action, the sum of P40,000; interest. On June, 1940, the insurance stood as follows:

all of which shall bear interest at the rate of 8% per annum in accordance with
Section 91 (b) of the Insurance Act from September 26, 1940, until each is paid,
with costs against the defendant.
The complaint in intervention of the Philippine National Bank is dismissed without
costs. (Record on Appeal, 166-167.)
Fire of undetermined origin that broke out in the early morning of July 21, 1940,
and lasted almost one week, gutted and completely destroyed Bodegas Nos. 1, 2
and 4, with the merchandise stored theren. Plaintiff-appellee informed the insurer
by telegram on the same date; and on the next day, the fire adjusters engaged by
appellant insurance company arrived and proceeded to examine and photograph
the premises, pored over the books of the insured and conducted an extensive
investigation. The plaintiff having submitted the corresponding fire claims, totalling

P398,562.81 (but reduced to the full amount of the insurance, P370,000), the
Insurance Company resisted payment, claiming violation of warranties and
conditions, filing of fraudulent claims, and that the fire had been deliberately
caused by the insured or by other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor, Que Chee
Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and
tried in 1940 for the crime of arson, it being claimed that they had set fire to the
destroyed warehouses to collect the insurance. They were, however, acquitted by
the trial court in a final decision dated July 9, 1941 (Exhibit WW). Thereafter, the
civil suit to collect the insurance money proceeded to its trial and termination in the
Court below, with the result noted at the start of this opinion. The Philippine
National Bank's complaint in intervention was dismissed because the appellee had
managed to pay his indebtedness to the Bank during the pendecy of the suit, and
despite the fire losses.
In its first assignment of error, the insurance company alleges that the trial Court
should have held that the policies were avoided for breach of warranty, specifically
the one appearing on a rider pasted (with other similar riders) on the face of the
policies (Exhibits X, Y, JJ and LL). These riders were attached for the first time in
1939, and the pertinent portions read as follows:
Memo. of Warranty. — The undernoted Appliances for the extinction of
fire being kept on the premises insured hereby, and it being declared and
understood that there is an ample and constant water supply with
sufficient pressure available at all seasons for the same, it is hereby
warranted that the said appliances shall be maintained in efficient working
order during the currency of this policy, by reason whereof a discount of 2
1/2 per cent is allowed on the premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each 150 feet
of external wall measurement of building, protected, with not less than
100 feet of hose piping and nozzles for every two hydrants kept under
cover in convenient places, the hydrants being supplied with water
pressure by a pumping engine, or from some other source, capable of
discharging at the rate of not less than 200 gallons of water per minute
into the upper story of the highest building protected, and a trained
brigade of not less than 20 men to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of 500
meters or 1,640 feet, the appellee should have eleven (11) fire hydrants in the
30
compound, and that he actually had only two (2), with a further pair nearby,
belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by waiver (or
rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully all that the number of hydrants demanded therein never
existed from the very beginning, the appellant neverthless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant
to claims now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued, that in
the premises insured there were only two fire hydrants installed by Qua Chee Gan
and two others nearby, owned by the municipality of TAbaco, contrary to the
requirements of the warranty in question. Such fact appears from positive
testimony for the insured that appellant's agents inspected the premises; and the
simple denials of appellant's representative (Jamiczon) can not overcome that
proof. That such inspection was made is moreover rendered probable by its being a
prerequisite for the fixing of the discount on the premium to which the insured was
entitled, since the discount depended on the number of hydrants, and the fire
fighting equipment available (See "Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long line of cases, is expressed by
American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a
policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the
facts, and the insurer is stopped thereafter from asserting the breach of
such conditions. The law is charitable enough to assume, in the absence of
any showing to the contrary, that an insurance company intends to
executed a valid contract in return for the premium received; and when
the policy contains a condition which renders it voidable at its inception,
and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather
than to have deceived the insured into thinking he is insured when in fact
he is not, and to have taken his money without consideration. (29 Am. Jur.,
Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a
company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates of
honesty and fair dealing, and so closely related to positive fraud, as to the
abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the preium on it, and leave it at liberty to
repudiate it the next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for
fraudulent purposes and designs which we cannot believe it to be guilty of
(Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in this case
is heightened by the fact that after the insured had incurred the expense of
installing the two hydrants, the company collected the premiums and issued him a
policy so worded that it gave the insured a discount much smaller than that he was
normaly entitledto. According to the "Scale of Allowances," a policy subject to a
warranty of the existence of one fire hydrant for every 150 feet of external wall
entitled the insured to a discount of 7 1/2 per cent of the premium; while the
existence of "hydrants, in compund" (regardless of number) reduced the allowance
on the premium to a mere 2 1/2 per cent. This schedule was logical, since a greater
number of hydrants and fire fighting appliances reduced the risk of loss. But the
appellant company, in the particular case now before us, so worded the policies
that while exacting the greater number of fire hydrants and appliances, it kept the
premium discount at the minimum of 2 1/2 per cent, thereby giving the insurance
company a double benefit. No reason is shown why appellant's premises, that had
been insured with appellant for several years past, suddenly should be regarded in
1939 as so hazardous as to be accorded a treatment beyond the limits of
appellant's own scale of allowances. Such abnormal treatment of the insured
strongly points at an abuse of the insurance company's selection of the words and
terms of the contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by the
appellant as not applicable to the present case. It is not a question here whether or
not the parties may vary a written contract by oral evidence; but whether
testimony is receivable so that a party may be, by reason of inequitable conduct
shown, estopped from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured.
31
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than
Nonpayment. — It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in force,
receives and accepts a preium on the policy, estopped to take advantage
of the forfeiture. It cannot treat the policy as void for the purpose of
defense to an action to recover for a loss thereafter occurring and at the
same time treat it as valid for the purpose of earning and collecting further
premiums." (29 Am. Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy under
circumstances which it knew rendered the policy void and then to accept
and retain premiums under such a void policy. Neither law nor good
morals would justify such conduct and the doctrine of equitable estoppel is
peculiarly applicable to the situation. (McGuire vs. Home Life Ins. Co. 94
Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or obscurities
must be strictly interpreted aganst the prty that caused them, 1the "memo of
warranty" invoked by appellant bars the latter from questioning the existence of
the appliances called for in the insured premises, since its initial expression, "the
undernoted appliances for the extinction of fire being kept on the premises insured
hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of
the existence of such appliances which appellant cannot now contradict, should the
parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two
hydrants, must be equally rejected, since the appellant's argument thereon is based
on the assumption that the insured was bound to maintain no less than eleven
hydrants (one per 150 feet of wall), which requirement appellant is estopped from
enforcing. The supposed breach of the wter pressure condition is made to rest on
the testimony of witness Serra, that the water supply could fill a 5-gallon can in 3
seconds; appellant thereupon inferring that the maximum quantity obtainable from
the hydrants was 100 gallons a minute, when the warranty called for 200 gallons a
minute. The transcript shows, however, that Serra repeatedly refused and
professed inability to estimate the rate of discharge of the water, and only gave the
"5-gallon per 3-second" rate because the insistence of appellant's counsel forced
the witness to hazard a guess. Obviously, the testimony is worthless and insufficient
to establish the violation claimed, specially since the burden of its proof lay on
appellant.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant
that the same was organized, and drilled, from time to give, altho not maintained as
a permanently separate unit, which the warranty did not require. Anyway, it would
be unreasonable to expect the insured to maintain for his compound alone a fire
fighting force that many municipalities in the Islands do not even possess. There is
no merit in appellant's claim that subordinate membership of the business manager
(Co Cuan) in the fire brigade, while its direction was entrusted to a minor employee
unders the testimony improbable. A business manager is not necessarily adept at
fire fighting, the qualities required being different for both activities.
Under the second assignment of error, appellant insurance company avers, that the
insured violated the "Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ),
against the storage of gasoline, since appellee admitted that there were 36 cans
(latas) of gasoline in the building designed as "Bodega No. 2" that was a separate
structure not affected by the fire. It is well to note that gasoline is not specifically
mentioned among the prohibited articles listed in the so-called "hemp warranty."
The cause relied upon by the insurer speaks of "oils (animal and/or vegetable
and/or mineral and/or their liquid products having a flash point below 300o
Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance,
"Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it
may well be wondered, are in a position to understand or determine "flash point
below 003o Fahrenheit. Here, again, by reason of the exclusive control of the
insurance company over the terms and phraseology of the contract, the ambiguity
must be held strictly against the insurer and liberraly in favor of the insured,
specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate
the hearing and possible complications of every contingency. So long as
insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance,
construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was procured
(Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises could not
be expressed clearly and unmistakably, in the language and terms that the general
32
public can readily understand, without resort to obscure esoteric expression (now
derisively termed "gobbledygook"). We reiterate the rule stated in Bachrach vs.
British American Assurance Co. (17 Phil. 555, 561):
If the company intended to rely upon a condition of that character, it
ought to have been plainly expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in view of
current business practices. The courts cannot ignore that nowadays monopolies,
cartels and concentrations of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared
"agreements" that the weaker party may not change one whit, his participation in
the "agreement" being reduced to the alternative to take it or leave it" labelled
since Raymond Baloilles" contracts by adherence" (con tracts d'adhesion), in
contrast to these entered into by parties bargaining on an equal footing, such
contracts (of which policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the part of courts of
justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia
alguna oscuridad, habra de ser tenido en cuenta que al seguro es,
practicamente un contrato de los llamados de adhesion y por consiguiente
en caso de duda sobre la significacion de las clausulas generales de una
poliza — redactada por las compafijas sin la intervencion alguna de sus
clientes — se ha de adoptar de acuerdo con el articulo 1268 del Codigo
Civil, la interpretacion mas favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse explicado mas
claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the
insured alone, but equally so for the insurer; in fact, it is mere so for the latter, since
its dominant bargaining position carries with it stricter responsibility.
Another point that is in favor of the insured is that the gasoline kept in Bodega No.
2 was only incidental to his business, being no more than a customary 2 day's
supply for the five or six motor vehicles used for transporting of the stored
merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of
inflammable oils on the premises though prohibited by the policy does not void it if
such keeping is incidental to the business." Bachrach vs. British American Ass. Co.,

17 Phil. 555, 560); and "according to the weight of authority, even though there are
printed prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the prohibited
articles are necessary or in customary use in carrying on the trade or business
conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section
966b). It should also be noted that the "Hemp Warranty" forbade storage only "in
the building to which this insurance applies and/or in any building communicating
therewith", and it is undisputed that no gasoline was stored in the burned bodegas,
and that "Bodega No. 2" which was not burned and where the gasoline was found,
stood isolated from the other insured bodegas.
The charge that the insured failed or refused to submit to the examiners of the
insurer the books, vouchers, etc. demanded by them was found unsubstantiated by
the trial Court, and no reason has been shown to alter this finding. The insured gave
the insurance examiner all the date he asked for (Exhibits AA, BB, CCC and Z), and
the examiner even kept and photographed some of the examined books in his
possession. What does appear to have been rejected by the insured was the
demand that he should submit "a list of all books, vouchers, receiptsand other
records" (Age 4, Exhibit 9-c); but the refusal of the insured in this instance was well
justified, since the demand for a list of all the vouchers (which were not in use by
the insured) and receipts was positively unreasonable, considering that such listing
was superfluous because the insurer was not denied access to the records, that the
volume of Qua Chee Gan's business ran into millions, and that the demand was
made just after the fire when everything was in turmoil. That the representatives of
the insurance company were able to secure all the date they needed is proved by
the fact that the adjuster Alexander Stewart was able to prepare his own balance
sheet (Exhibit L of the criminal case) that did not differ from that submitted by the
insured (Exhibit J) except for the valuation of the merchandise, as expressly found
by the Court in the criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was strikingly
illustrated in the decision of the arson case (Exhibit WW) acquiting Qua Choc Gan,
appellee in the present proceedings. The decision states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc
Gan en Tabaco asi como su existencia de copra y abaca en las bodega al
tiempo del incendio durante el periodo comprendido desde el 1.o de
enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico
una perdida de P1,750.76 en su negocio en Tabaco. Segun Steward al llegar
a este conclusion el ha tenidoen cuenta el balance de comprobacion
Exhibit 'J' que le ha entregado el mismo acusado Que Choc Gan en relacion
33
con sus libros y lo ha encontrado correcto a excepcion de los precios de
abaca y copra que alli aparecen que no estan de acuerdo con los precios en
el mercado. Esta comprobacion aparece en el balance mercado exhibit J
que fue preparado por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the adjuster
Stewart for the insurer, the Court referred the controversy to a government
auditor, Apolonio Ramos; but the latter reached a different result from the other
two. Not only that, but Ramos reported two different valuations that could be
reached according to the methods employed (Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos
buenos para promovar el comercio y la finanza, pero en el caso presente
ha resultado un tanto cumplicada y acomodaticia, como lo prueba el
resultado del examen hecho por los contadores Stewart y Ramos, pues el
juzgado no alcanza a ver como habiendo examinado las mismas partidas y
los mismos libros dichos contadores hayan de llegara dos conclusiones que
difieron sustancialmente entre si. En otras palabras, no solamente la
comprobacion hecha por Stewart difiere de la comprobacion hecha por
Ramos sino que, segun este ultimo, su comprobacion ha dado lugar a dos
resultados diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged photographs of
certain pages of the insurance book (destroyed by the war) of insured Qua Chee
Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal purchases of hemp
and copra from June 11 to June 20, 1940. The Court below remained unconvinced
of the authenticity of those photographs, and rejected them, because they were
not mentioned not introduced in the criminal case; and considering the evident
importance of said exhibits in establishing the motive of the insured in committing
the arson charged, and the absence of adequate explanation for their omission in
the criminal case, we cannot say that their rejection in the civil case constituted
reversible error.
The next two defenses pleaded by the insurer, — that the insured connived at the
loss and that the fraudulently inflated the quantity of the insured stock in the burnt
bodegas, — are closely related to each other. Both defenses are predicted on the
assumption that the insured was in financial difficulties and set the fire to defraud
the insurance company, presumably in order to pay off the Philippine National
Bank, to which most of the insured hemp and copra was pledged. Both defenses are
fatally undermined by the established fact that, notwithstanding the insurer's

refusal to pay the value of the policies the extensive resources of the insured
(Exhibit WW) enabled him to pay off the National Bank in a short time; and if he
was able to do so, no motive appears for attempt to defraud the insurer. While the
acquittal of the insured in the arson case is not res judicata on the present civil
action, the insurer's evidence, to judge from the decision in the criminal case, is
practically identical in both cases and must lead to the same result, since the proof
to establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict the
insured of the crime of arson"(Bachrach vs. British American Assurance Co., 17 Phil.
536).
As to the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer's case rests
almost exclusively on the estimates, inferences and conclusionsAs to the defense
that the burned bodegas could not possibly have contained the quantities of copra
and hemp stated in the fire claims, the insurer's case rests almost exclusively on the
estimates, inferences and conclusions of its adjuster investigator, Alexander D.
Stewart, who examined the premises during and after the fire. His testimony,
however, was based on inferences from the photographs and traces found after the
fire, and must yield to the contradictory testimony of engineer Andres Bolinas, and
specially of the then Chief of the Loan Department of the National Bank's Legaspi
branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw the
contents of the bodegas shortly before the fire, while inspecting them for the
mortgagee Bank. The lower Court was satisfied of the veracity and accuracy of
these witnesses, and the appellant insurer has failed to substantiate its charges
aganst their character. In fact, the insurer's repeated accusations that these
witnesses were later "suspended for fraudulent transactions" without giving any
details, is a plain attempt to create prejudice against them, without the least
support in fact.
Stewart himself, in testifying that it is impossible to determine from the remains the
quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted appellant's attacks on
the refusal of the Court below to accept its inferences from the remains shown in
the photographs of the burned premises. It appears, likewise, that the adjuster's
calculations of the maximum contents of the destroyed warehouses rested on the
assumption that all the copra and hemp were in sacks, and on the result of his
experiments to determine the space occupied by definite amounts of sacked copra.
The error in the estimates thus arrived at proceeds from the fact that a large
amount of the insured's stock were in loose form, occupying less space than when
kept in sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964, 1967) due
34
to the weight of the overlying stock, as shown by engineer Bolinas. It is probable
that the errors were due to inexperience (Stewart himself admitted that this was
the first copra fire he had investigated); but it is clear that such errors render
valueles Stewart's computations. These were in fact twice passed upon and twice
rejected by different judges (in the criminal and civil cases) and their concordant
opinion is practically conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court
below, since the opinions stated therein were based on ex parte investigations
made at the back of the insured; and the appellant did not present at the trial the
original testimony and documents from which the conclusions in the report were
drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the insured
contained false and fraudulent statements that avoided the insurance policy. But
the trial Court found that the discrepancies were a result of the insured's erroneous
interpretation of the provisions of the insurance policies and claim forms, caused by
his imperfect knowledge of English, and that the misstatements were innocently
made and without intent to defraud. Our review of the lengthy record fails to
disclose reasons for rejecting these conclusions of the Court below. For example,
the occurrence of previous fires in the premises insured in 1939, altho omitted in
the claims, Exhibits EE and FF, were nevertheless revealed by the insured in his
claims Exhibits Q (filed simultaneously with them), KK and WW. Considering that all
these claims were submitted to the smae agent, and that this same agent had paid
the loss caused by the 1939 fire, we find no error in the trial Court's acceptance of
the insured's explanation that the omission in Exhibits EE and FF was due to
inadvertance, for the insured could hardly expect under such circumstances, that
the 1939 would pass unnoticed by the insurance agents. Similarly, the 20 per cent
overclaim on 70 per cent of the hemo stock, was explained by the insured as caused
by his belief that he was entitled to include in the claim his expected profit on the
70 per cent of the hemp, because the same was already contracted for and sold to
other parties before the fire occurred. Compared with other cases of over-valuation
recorded in our judicial annals, the 20 per cent excess in the case of the insured is
not by itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South
British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times (1,400 per cent)
bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight
(8) times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times
(600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalled
P31,860.85 while the goods insured were inventoried at O13,113. Certainly, the
insured's overclaim of 20 per cent in the case at bar, duly explained by him to the
Court a quo, appears puny by comparison, and can not be regarded as "more than

misstatement, more than inadvertence of mistake, more than a mere error in
opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance Office, ante) that
would entitle the insurer to avoid the policy. It is well to note that the overchange
of 20 per cent was claimed only on apart (70 per cent) of the hemp stock; had the
insured acted with fraudulent intent, nothing prevented him from increasing the
value of all of his copra, hemp and buildings in the same proportion. This also
applies to the alleged fraudulent claim for burned empty sacks, that was likewise
explained to our satisfaction and that of the trial Court. The rule is that to avoid a
policy, the false swearing must be wilful and with intent to defraud (29 Am. Jur., pp.
849-851) which was not the cause. Of course, the lack of fraudulent intent would
not authorize the collection of the expected profit under the terms of the polices,
and the trial Court correctly deducte the same from its award.
We find no reversible error in the judgment appealed from, wherefore the smae is
hereby affirmed. Costs against the appellant. So ordered.
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for
the storage or copra and hemp in which the appelle deals with exclusively.
> The warehouses together with the contents were insured with Law Union since
1937 and the loss made payable to PNB as mortgagee of the hemp and copra.
> A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1
whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed
completely.
> Insured then informed insurer of the unfortunate event and submitted the
corresponding fire claims, which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and conditions, filing
of fraudulent claims and that the fire had been deliberately caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of the
insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason that there was a
breach of warranty.
35
Under the Memorandum of Warranty, there should be no less than 1 hydrant for
each 150 feet of external wall measurements of the compound, and since bodegas
insured had an external wall per meter of 1640 feet, the insured should have 11
hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire hydrants
warranty, because knowing that the number of hydrants it demanded never existed
from the very beginning, appellant nevertheless issued the policies subject to such
warranty and received the corresponding premiums. The insurance company was
aware, even before the policies were issued, that in the premises there were only 2
hydrants and 2 others were owned by the Municipality, contrary to the
requirements of the warranties in question.
It should be close to conniving at fraud upon the insured to allow the insurer to
claim now as void the policies it issued to the insured, without warning him of the
fatal defect, of which the insurer was informed, and after it had misled the insured
into believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the
time of the issuance of a policy has the knowledge of existing facts, which if
insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with known facts,
and the insurer is stopped thereafter from asserting the breach of such conditions.
The reason for the rule is: To allow a company to accept one’s money for a policy of
insurance which it knows to be void and of no effect, though it knows as it must
that the insured believes it to be valid and binding is so contrary to the dictates of
honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent
to fair-minded 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.
Moreover, taking into account the well-known rule that ambiguities or obscurities
must strictly be interpreted against the party that cause them, the memorandum of
warranty invoked by the insurer bars the latter from questioning the existence of
the appliances called for, since its initial expression “the undernoted appliances for
the extinction of fire being kept on the premises insured hereby..” admits of the
interpretation as an admission of the existence of such appliances which insurer
cannot now contradict, should the parole evidence apply.

(2) Whether or not the insured violated the hemp warranty provision against the
storage of gasoline since insured admitted there were 36 cans of gasoline in Bodega
2 which was a separate structure and not affected by the fire.
It is well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called hemp warranty. The clause relied upon by the insurer
speaks of “oils”. Ordinarily, oils mean lubricants and not gasoline or kerosene.
Here again, by reason of the exclusive control of the insurance company over the
terms of the contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured, specially to avoid a forfeiture.
Furthermore, the gasoline kept was only incidental to the insured’s business. It is a
well settled rule that keeping of inflammable oils in the premises though prohibited
by the policy does NOT void it if such keeping is incidental to the business. Also, the
hemp warranty forbade the storage only in the building to which the insurance
applies, and/or in any building communicating therewith; and it is undisputed that
no gasoline was stored in the burnt bodegas and that Bodega No. 2 which was
where the gasoline was found stood isolated from the other bodegas.
Facts:
Qua owned 4 warehouses used for the storage of copra and hemp. They were
insured with the Law Union. Fire broke out and completely destroyed 3 bodegas.
The plaintiff submitted claims totalling P398,562.81. The Insurance
Company resisted payment on the grounds that the fire had been deliberately
caused by the insured or by other persons in connivance with him.
Que Chee Gan and his brother were tried for arson, but were acquitted by the trial
court. As regards the insurance claim, the trial court ruled in favor of Qua and
entitled him to recover more than Php 300,000 for indemnities from the insurance
company. Hence, the company appealed to the SC.
In its first assignment of error, the insurance company alleged that the trial Court
should have held that the policies were avoided for breach of warranty. The
contract noted that fire hydrants were required in a particular measurement of
space (every 150 feet). Hence, they argued that since the bodegas insured had an
external wall perimeter of 500 meters, the appellee should have 11 fire hydrants in
the compound, and that he actually had only 2, with a further pair.
Issues:
1. WON the insurance company can void the policies it had issued
2. WON the insured violated the "Hemp Warranty" provisions of the policy against
the storage of gasoline
3. WON the insured planned the destruction of the bodega
36
Held: No. No. No.
Ratio:
1. The insurer, who at the time of issuance, has knowledge of existing facts which
would invalidate the contract from the beginning, such constitutes a waiver of
conditions in the contract inconsistent with the facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. Also, an insurance
company intends to executed a valid contract in return for the premium received;
and when the policy contains a condition which renders it voidable at its inception,
and this result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in fact he is not.
The appellant is barred estoppel to claim violation of the so-called fire hydrants
warranty, because it knew the number of hydrants demanded therein never
existed from the very beginning and issued the policies.
To allow a company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the assured
believes it to be valid and binding, is so contrary to the dictates of honesty and fair
dealing, and so closely related to positive fraud, as to the abhorrent to fair-minded
men.
The appellant company so worded the policies that while exacting the greater
number of fire hydrants and appliances, it kept the premium discount at the
minimum of 2 1/2%, thereby giving the insurance company a double benefit. Such
abnormal treatment of the insured strongly points at an abuse of the insurance
company's selection of the words and terms of the contract, over which it had
absolute control.
Receipt of Premiums or Assessments after Cause for Forfeiture Other than
Nonpayment. — It is a well settled rule of law that an insurer which with knowledge
of facts entitling it to treat a policy as no longer in force, receives and accepts a
premium on the policy, estopped to take advantage of the forfeiture. It cannot treat
the policy as void for the purpose of defense to an action to recover for a loss
thereafter occurring and at the same time treat it as valid for the purpose of
earning and collecting further premiums.
Moreover, taking into account the well known rule that ambiguities or obscurities
must be strictly interpreted against the party that caused them, the "memo of
warranty" invoked by appellant bars the latter from questioning the existence of
the appliances called for in the insured premises
2. The ambiguity must be held strictly against the insurer and liberally in favor of
the insured, specially to avoid a forfeiture. So long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal rather

than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured.
Appellee admitted that there were 36 cans of gasoline in the building designed. It
However, gasoline is not specifically mentioned among the prohibited articles listed
in the so-called "hemp warranty." The cause relied upon by the insurer speaks of
"oils", and is uncertain because, "Oils" usually mean "lubricants" and not gasoline or
kerosene.
If the company intended to rely upon a condition of that character, it ought to have
been plainly expressed in the policy.
The contract of insurance is one of perfect good faith not for the insured alone, but
equally so for the insurer; in fact, it is mere so for the latter, since its dominant
bargaining position carries with it stricter responsibility.
Also, the gasoline kept in Bodega No. 2 was only incidental to his business, being no
more than a customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise. "It is well settled that the keeping of
inflammable oils on the premises though prohibited by the policy does not void it if
such keeping is incidental to the business."
3. It was unlikely that Qua burned the warehouse to defraud the company because
he had the resources to pay off the National Bank in a short time. Also, no motive
appears for attempt to defraud the insurer. While the acquittal of the insured in
the arson case is not res judicata on the present civil action, the insurer's evidence,
to judge from the decision in the criminal case, is practically identical in both cases
and must lead to the same result, since the proof to establish the defense of
connivance at the fire in order to defraud the insurer "cannot be materially less
convincing than that required in order to convict the insured of the crime of arson."
As to the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer relied on
its adjuster investigator who examined the premises during and after the fire. His
testimony, however, was based on inferences from the photographs and traces
found after the fire, and must yield to the contradictory testimony of those who
actually saw the contents of the bodegas shortly before the fire, while inspecting
them for the mortgagee Bank.
QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE
Qua Chee Gan owned 4 warehouses or bodegas used for the storage of copra and
hemp, which were insured with Law Union, and the lose made payable to PNB as
mortgage of the hemp and copra. Fire broke out and destroyed bodegas 1, 3 ad 4.
QCG informed LU by telegram, and the next day, fire adjusters arrived to conduct
37
an investigation. LU resisted payment, claiming violation of warranties and
conditions, filing of fraudulent claims, and that the fire had been deliberately
caused by QCG or by other persons in connivance with him.
QCG, his brother, and some employees were indicted and tried for arson, but they
were acquitted. Thereafter, the civil suit to collect the insurance money proceeded
to its trial. CFI rendered a decision in QCG’s favor.
CFI AFFIRMED; LAW UNION LIABLE
On false and fraudulent claims
CFI found that the discrepancies were a result of QCG’s erroneous interpretation of
the provisions of the insurance policies and claim forms, caused by his imperfect
English, and that the misstatements were innocently made and without intent to
defraud. The rule is that to avoid a policy, the false swearing must be willful and
with intent to defraud which was not the cause.
On the storage of gasoline
Ambiguities or obscurities must be strictly interpreted against the party that
caused them. This rigid application of the rule has become necessary in view of
current business practices. In contrast to contracts entered into by parties
bargaining on an equal footing, a contract of insurance calls for greater strictness
and vigilance on the part of courts of justice with a view to protect the weaker party
from abuses and imposition, and prevent their becoming traps for the unwary. The
contract of insurance is one of perfect good faith (uferrimal fidei) not for the
insured alone, but equally so for the insurer; in fact, it is more so for the latter,
since its dominant bargaining position carries with it stricter responsibility.
QCG admitted that there were 36 cans of gasoline in Bodega 2. Gasoline is not
specifically mentioned among the prohibited articles listed in the hemp warranty.
The cause relied upon LU speaks of oils. In ordinary parlance, “oils” means
“lubricants” and not gasoline or kerosene. The prohibition of keeping gasoline could
have been expressed clearly and unmistakably.
On fire hydrants warranty
LU is estopped from claiming that there was a violation of such warranty, since it
knew that from the start, the number of hydrants it demanded never existed, yet it
issued policies and received premiums.
 38

98 Phil. 85 – Mercantile Law – Insurance Law – Ambiguity – Contract of Adherence

Qua Chee Gan owns four warehouses in Albay. He was using these warehouses to
house crops like copra and hemp. All warehouses were insured by Law Union and
Rock Insurance for the amount of P370,000.00. The insurance states that Qua Chee
Gan should install 11 hydrants in the warehouses’ premises. Qua Chee Gan installed
only two, but Law Union nevertheless went on with the insurance policy and
collected premiums from Qua Chee Gan. The insurance contract also provides that
“oil” should not be stored within the premises of the warehouses.
In 1940, three of the warehouses were destroyed by fire. The damage caused
amounted to P398k. Qua Chee Gan demanded insurance pay from Law Union but
the latter refused as it alleged that after investigation from their part, they found
out that Qua Chee Gan caused the fire. Law Union in fact sued Qua Chee Gan for
Arson.
Qua Chee Gan was acquitted in the arson case. He then demanded that Law Union
pay up. This time, Law Union averred that the insurance contract is void because
Qua Chee Gan failed to install 11 hydrants; and that gasoline was found in one of
the warehouses.
ISSUE:
Whether or not the insurance contract is void.
HELD:
No. Law Union cannot exempt itself from paying Qua Chee Gan because it is
estopped from invoking the same. It is a well settled rule of law that an insurer
which with knowledge of facts entitling it to treat a policy as no longer in force,
receives and accepts a premium on the policy, estopped to take advantage of the
forfeiture.
Also, gasoline is not one of those items specifically prohibited from the premises of
the warehouses. What was mentioned was the word “oil” which could mean
anything (from palm oil to lubricant and not gasoline or kerosene). This ambiguity is
to be interpreted against Law Union because a contract of insurance is a contract of
adhesion. Further, oil is incidental to Qua Chee Gan’s business, it being used for
motor fuel.

THE UNITED STATES, Plaintiff-Appellee, vs. GABINO
SOLIMAN,Defendant-Appellant.
Francisco Sevilla for appellant.
Attorney-General Avanceña for appellee.
CARSON, J.:
The evidence of record conclusively discloses that
the defendant and appellant in this case, Gabino
Soliman, testifying in his on behalf in the course of
another criminal case in which he, with several
others, was charged with estafa, swore falsely to
certain material allegations of
fact.chanroblesvirtualawlibrary chanrobles virtual
law library
On that occasion he testified falsely that a sworn
statement offered in evidence in support of the
charge of estafa, which was in effect an extrajudicial
confession of his guilt, had not been executed
voluntarily, and that its execution had not been
procured by the police by the use of force,
intimidation and prolonged
torture.chanroblesvirtualawlibrary chanrobles
virtual law library
The trial judge who presided in the former case
acquitted the accused on the ground that there was
room for reasonable doubt as to whether the
extrajudicial confession had been made voluntarily,
and his action in this regard clearly establishes the
materiality of the false testimony submitted in that
case; moreover, the materiality of the evidence is
manifest without considering the judgment in the
case in which it was submitted, since, if accepted as
true, this false testimony necessarily had the effect
of rendering wholly incompetent the evidence as to
39
the extrajudicial confession which otherwise would
almost conclusively sustain and necessitate a
conviction. (U. S. vs. Estraña, 16 Phil. Rep.,
520.) chanrobles virtual law library
There can be no doubt that the accused was guilty
of the crime of perjury as defined and penalized in
section 3 of Act No. 1697 and that the sentence of
six months' imprisonment and P300 fine imposed by
the trial judge was correctly imposed under the
provisions of that
statute.chanroblesvirtualawlibrary chanrobles
virtual law library
It appears however that since judgment was entered
in this case on November 23, 1915, section 3 of Act
No. 1697 has been expressly repealed by the
enactment of the Administrative Code, which
became effective on July 1, 1916, and it has been
suggested that the judgment convicting and
sentencing the accused under the provisions of that
statute should not be sustained, and that the repeal
of the statute should be held to have the effect of
remitting and extinguishing the criminal
responsibility of the accused incurred under the
provisions of the repealed law prior to the
enactment of the Administrative Code. We cannot
agree with the proposition thus
stated.chanroblesvirtualawlibrary chanrobles virtual
law library
In the case of United States vs. Cuna (12 Phil. Rep.,
241), we held as follows:
The rule of interpretation of English and American
common law, by virtue of which the repeal of a law
prescribing penalties is held to have the effect of
remitting or extinguishing any penalty, loss of rights
or responsibility incurred under such law, as to all
persons who have not been convicted and
sentenced under the provisions of such law prior to

the enactment of the repealing law, is not and has
not been the accepted doctrine in these
Islands.chanroblesvirtualawlibrary chanrobles virtual
law library
Where an Act of the Commission or of the Philippine
Legislature which penalizes an offense, such repeal
does not have the effect of thereafter depriving the
courts of jurisdiction to try, convict and sentence
offenders charged with violations of the old law
prior to its repeal.
A question does arise, however, as to the penalty
which should be impose upon the
convict.chanroblesvirtualawlibrary chanrobles
virtual law library
If the repealing statute provides or has the effect of
providing new penalties for the commission of the
acts penalized under the repealed statute, should
the penalty be imposed in accordance with the old
or the new statute? chanrobles virtual law library
Article 1 of the Penal Code in force in these Islands
defines crimes and misdemeanors as voluntary acts
or omissions penalized by law; and complementary
to this provision, article 21 provides that no crime or
misdemeanor shall be punished with a penalty
which has not been prescribed by law prior to its
commission. In accordance with these provisions the
question whether an act is punishable or not
depends upon the question whether or not at the
time of its commission, there was a law in force
which penalized it; this rule being modified,
however, by article 22 of the same code, which
provides that penal laws shall have a retroactive
effect in so far as they favor persons convicted of a
crime or
misdemeanor.chanroblesvirtualawlibrary chanrobles
40
virtual law library
The courts of Spain and the learned commentators
on Spanish law have construed these provisions to
mean that such penal laws are to be given a
retroactive effect only in so far as they favor the
defendant charged with a crime or a misdemeanor,
and that, when a penal law is enacted repealing a
prior law, such repeal does not have the effect of
relieving an offender in whole or in part of penalties
already incurred under the old law, unless the new
law favors the defendant by diminishing the penalty
or doing away with it altogether, and then only to
the extent to which the new law is favorable to the
offender. In other words, that the enactment of new
penal laws, notwithstanding the fact that they
contain general repealing clauses, doe not deprive
the courts of jurisdiction to try, convict and
sentence persons charged with violations of the old
law prior to the date when the repealing law goes
into effect, unless the new law wholly fails to
penalties the acts which constituted the offense
defined and penalized in the repealed
law.chanroblesvirtualawlibrary chanrobles virtual
law library
Thus Pacheco, commenting upon the new Penal
Code of 1848-1850, of which article 506 provided
that all general penal laws were repealed by its
publication, says:
At this time when the Penal Code is being put into
effect and given force, we have in fact two criminal
laws in Spain, and close attention is necessary to
apply them properly. There may be prosecutions
which it is necessary to dismiss, as, for example,
those for sodomy; others which it may be necessary
to decide in conformity with the provisions of the
new codes, as, for example, those for carrying
concealed weapons; and others which must be
judged in accordance with the old provisions, as, for

example. many cases of robbery. The rules of
procedure in one or other manner being furnished
us by the former article (article 19 of the Penal Code
of Spain identical with article 21 of the Penal Code
of the Philippines), and the present article (article 20
of the Penal Code of Spain and article 22 of the
Philippine Code). Has the code increased the
penalty? Then it is not applicable to crimes
committed prior to its enactment. Has it
extinguished or diminished them? Then it is clearly
applicable to them. (1 Pacheco, 296.)
And a similar construction was placed upon the
provisions of the Penal Code of 1870 by the
supreme court of Spain. Article 626 of this code
(which is substantially identical with article 506 of
the Penal Code of 1848 and article 611 of the Penal
Code of the Philippine Islands) repealed all general
penal laws prior to its promulgation, but the court
held that, where a crime was committed prior to the
publication of the reformed code, the penalty
prescribed by the code of 1850 (the code prior to
that of 1870) being more favorable to the accused,
that must be applied. (Decision of the supreme
court of Spain, 17th of January, 1873.) chanrobles
virtual law library
We conclude therefore that in any case in which a
statute prescribing a penalty for the commission of a
specific offense is repealed, and in which the new
statute provides new and distinct penalties for the
commission of such offense, the penalty which must
be imposed on one who committed the offense
prior to the enactment of the repealing statute is
that one which is more favorable to the convict. (U.
S. vs. Cuna, 12 Phil. Rep., 241.) chanrobles virtual
law library
It seems important, then, to determine whether the
repeal of section 3 of Act No. 1697 by the
enactment of the Administrative Code had the
41
effect of providing new and distinct penalties for the
commission of the crime of perjury, and whether
the new penalties are or are not more favorable to
the convict in the case at bar than those imposed by
the trial
judge.chanroblesvirtualawlibrary chanrobles virtual
law library
Section 3 of Act No. 1697, which defined and
penalized the crime of perjury, repealed the
provisions of the Penal Code defining and penalizing
the crime of perjury, not expressly, but by
implication, and we are of opinion that the repeal of
Act No. 1697 revived those provisions of the code.
(U. S. vs. Concepcion, 13 Phil. Rep., 424; U.
S. vs. Estraña, 16 Phil. Rep., 520.) chanrobles virtual
law library
In the absence of the most express language to the
contrary it will not be presumed that it was the
intention of the legislator to let false swearing as to
a material matter in a court of justice go
unpunished, and such would be the effect of the
repeal of section 3 of Act No. 1697, unless we held
that the repeal had the effect of reviving the old
statute.chanroblesvirtualawlibrary chanrobles
virtual law library
At the common law the repeal of a repealing act
revived the former act (6 Co., 199; 1 Gray, 163; 7 W.
& S., 263; 2 Blackstone, 32; 54 N. J. L. J., 175); and
the Supreme Court of the United States has held
that the repeal of a repealing law has this effect,
unless the language of the repealing statute or some
general statute provides otherwise. (U. S. vs.Otis,
120 U. S., 52 [115].) chanrobles virtual law library
Manifestly, with this rule in mind, section 12 of the
Administrative Code (Act No. 2657) which is found in
Article III, [Chapter I] dealing with the form and
effect of laws in general, provides that "when a law

which expressly repeals a prior law is itself repealed
the law first repealed shall not be thereby revived
unless expressly so provided." From which it may
fairly be inferred that the old rule continues in force
where a law which repeals a prior law, not expressly
but by implication, it itself repealed; and that in such
cases the repeal of the repealing law revives the
prior law, unless the language of the repealing
statute provides
otherwise.chanroblesvirtualawlibrary chanrobles
virtual law library
Applying this rule, we conclude that the express
repeal of section 3 of Act No. 1697 by the
enactment of the Administrative Code (Act No.
2657) revived the provisions of the Penal Code
touching perjury, which were themselves repealed,
not expressly but by implication, by the enactment
of Act No.
1697.chanroblesvirtualawlibrary chanrobles virtual
law library
A comparison of the penalties prescribed in the
Penal Code for the commission of the acts of which
the accused in the case at bar was convicted, giving
him as we should the benefit of the provisions of Act
No. 2142, discloses that the penalty prescribed
therein is less than that imposed upon the appellant
under the provisions of section 3 of Act No. 1697,
and we conclude from what has been said already
that the penalty imposed by the court below should
be revoked and that in lieu thereof the penalty
prescribed in the Penal Code should be imposed
upon the
convict.chanroblesvirtualawlibrary chanrobles
virtual law library
A question has been raised as to whether, admitting
that the provisions of the Penal Code touching
perjury have been revived, the accused can be
convicted and penalized thereunder, it appearing
42
that at the time when he testified falsely he was
testifying in his own behalf in a criminal case in
which he himself was the accused, on trial for the
commission of a grave
offense.chanroblesvirtualawlibrary chanrobles
virtual law library
In the case of United States vs. Gutierrez (12 Phil.
Rep., 529), we said, speaking through Chief Justice
Arellano, that, "Perjury committed by a party in his
own cause would not be punishable under Spanish
legislation, because in said legislation no one was a
witness in his own cause, and could not therefore
become guilty of giving false testimony in a civil
cause in which he was either the plaintiff or the
defendant; but under the procedure in force by
virtue of Act No. 190, a party to a suit may testify in
his own behalf, and if he declares falsely under oath
as a witness in his own cause, like any other witness,
he incurs the penalty by which false testimony in
civil matters is repressed and punished. This court
has so held, it being a settled rule, that the false
testimony given by a litigant as a witness constitutes
the crime of giving false testimony inasmuch as such
a declaration, according to the new laws in force,
may determine a judgment in his favor and to the
prejudice of the adverse party, and that a litigant
who, in sworn testimony given by him as a witness
in a civil cause, shall pervert the truth and give false
testimony, incurs as such witness the penalties
imposed by article 321 of the Penal
Code." chanrobles virtual law library
Analogous reasoning leads to a like conclusion as to
the criminal liability for perjury of a defendant in a
criminal case testifying falsely in his own behalf.
Under the provisions of General Orders No. 58 an
accused person may, if he so desires, testify under
oath in his own behalf, and in that event, "if he
declares falsely as a witness in his own cause, like
any other witness, he incurs the penalty by which

false testimony" in criminal matters "is repressed
and punished." chanrobles virtual law library
It has been suggested that such a ruling will have a
tendency to expose accused persons to vexatious
criminal prosecutions by prosecuting officers, who,
having failed to secure a conviction on the original
charge, may be disposed to institute criminal
prosecutions for perjury from a vindictive
unwillingness to let the defendant escape scot free
from the meshes of the law. It is said also that the
fear of subsequent prosecution for perjury will tend
to embarrass accused persons in their efforts to
defend themselves by testifying in their own behalf.
But similar objections may be advanced against the
prosecution of any of the witnesses called for the
defense on charges of perjury, and it must not be
forgotten that the right of an accused person to
testify under oath in his own behalf is secured to
him, not that he may be enabled to introduce false
testimony into the record, but to enable him to
spread upon the record the truth as to any matter
within his knowledge which will tend to establish his
innocence.chanroblesvirtualawlibrary chanrobles
virtual law library
Of course much must be left to the good sense and
sound judgment of the prosecuting officer in
determining whether a prosecution for perjury
should be instituted against an accused person
whose testimony in his own behalf would seem to
be perjured.chanroblesvirtualawlibrary chanrobles
virtual law library
Due regard for the situation in which an accused
person finds himself when testifying in his own
behalf in a criminal proceeding will restrain a
prudent prosecuting officer from the filing of
charges of perjury in every case in which he may
have reason to believe that the accused has not
adhered strictly to the truth, in his anxiety to shield
43
himself from punishment. But when, as in the case
at bar, an accused person voluntarily goes upon the
witness stand and falsely imputes some other
person the commission of a grave offense, it would
seem to be highly proper that he should be called to
account in a criminal action for perjury upon the
complaint of the person against whom such false
charges are
made.chanroblesvirtualawlibrary chanrobles virtual
law library
Article 319 of the Penal Code is as follows:
Any person who shall give false testimony in favor of
a defendant in a criminal case shall suffer a penalty
ranging fromarresto mayor in its maximum degree
to prision correccional in its medium degree and a
fine of not less than three hundred and seventy-five
and not more than three thousand seven hundred
and fifty pesetas, if the case were for a felony, and
the penalty of arresto mayor if it were for a
misdemeanor.
We conclude that the judgment of conviction
entered in the court below should be affirmed but
that the sentence imposed therein should be
reversed, and that giving the accused the benefit of
the provisions of Act No. 2142, a penalty of 4
months and 1 day of arresto mayor and a fine of P75
with subsidiary imprisonment as prescribed by law
should be imposed upon him in lieu of that imposed
by the trial judge, with the costs of this instance de
officio. So ordered.
Facts:
Soliman, testifying in his on behalf in the course of another criminal case in which
he, with several others, was charged with estafa, swore falsely to certain material
allegations of fact. He testified falsely that a sworn statement offered in evidence in
support of the charge of estafa, which was in effect an extrajudicial confession of
 44

his guilt, had not been executed voluntarily, and that its execution had not been
procured by the police by the use of force, intimidation and prolonged torture. The
trial judge who presided in the former case acquitted him on the ground that there
was room for reasonable doubt. Soliman is however, guilty of perjury as defined
and penalized in Section 3 of Act No. 1697. However, since judgement was entered
on November 1915, section 3 of Act No. 1697 was expressly repealed by the
enactment of the Administrative Code which was effective on july 1, 1916 and it has
been suggested that the judgement convicting and sentencing the accused under
the provisions of that statute should not be sustained and the repeal of the statute
should be held to have the effect of remitting and extinguishing the criminal liability
of the accused incurred under the provisions of the repealed law prior to the
enactment of the Administrative Code.
Issues:
(1) Whether or not the repeal of Section 3 of Act No. 1697 by the enactment of the
Administrative code had the effect of providing new and distinct penalties for the
commission of the crime of perjury.
(2) Whether or not the new penalties are more favorable to the convict in the case
at bar than those imposed by the trial judge.
Facts:
> US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman
and his wife Rosario, each of them being the beneficiary of the other.
> In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still
unpaid notwithstanding that the 31-day grace period has already expired, and they
were furnished at the same time long-form health certificates for the reinstatement
of the policies.
> In Apr 1949, they submitted the certificates and paid the premiums.
> In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio
filed a claim for the proceeds of the insurance.
> US life denied the claim and filed for the rescission of the contract on the ground
that the certificates failed to disclose that Rosario had been suffering from
bronchial asthma for 3 years prior to their submission.
Issue:
Whether or not the contract can still be rescinded.
Held:

Held: Yes.
(1) Section 3 of Act No. 1697, which defined and penalized the crime of perjury, The insurer is once again given two years from the date of reinstatement to
repealed the provisions of the Penal Code defining and penalizing the crime of investigate into the veracity of the facts represented by the insured in the
perjury, not expressly, but by implication, and we are of opinion that the repeal of application for reinstatement. When US life sought to rescind the contract on the
Act No. 1697 revived those provisions of the code. The old rule continues in force ground of concealment/misrepresentation, two years had not yet elapsed. Hence,
where a law which repeals a prior law, not expressly but by implication, it itself the contract can still be rescinded.
repealed; and that in such cases the repeal of the repealing law revives the prior
law, unless the language of the repealing statute provides otherwise. In the case at
bar, the express repeal of section 3 of Act No. 1697 by the enactment of the
Administrative Code (Act No. 2657) revived the provisions of the Penal Code
touching perjury, which were themselves repealed, not expressly but by
implication, by the enactment of Act No. 1697.
(2) The penalties prescribed in the Penal Code is less than that imposed in Section 3
of Act # 1697. Hence, the penalty imposed by the court below must be revoked and
the penalty prescribed in the Penal Code should be imposed.

THIRD DIVISION
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals' decision affirming
the decision of the Insurance Commissioner which dismissed the petitioners'
complaint against respondent Philippine American Life Insurance Company for the
recovery of the proceeds from their late father's policy. The facts of the case as
found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner
dismissing herein petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds of
Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied
for life insurance in the amount of P 80,000.00 with respondent company.
Said application was approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners
then filed with respondent company their claim for the proceeds of the life
insurance policy. However, in a letter dated September 11, 1975,
respondent company denied petitioners' claim and rescinded the policy by
reason of the alleged misrepresentation and concealment of material facts
made by the deceased Tan Lee Siong in his application for insurance
(Exhibit 3). The premiums paid on the policy were thereupon refunded.
Alleging that respondent company's refusal to pay them the proceeds of
the policy was unjustified and unreasonable, petitioners filed on November
27, 1975, a complaint against the former with the Office of the Insurance
Commissioner, docketed as I.C. Case No. 218.
45
After hearing the evidence of both parties, the Insurance Commissioner
rendered judgment on August 9, 1977, dismissing petitioners' complaint.
(Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has
the right to rescind the policy contract when insured is already dead is not
in accordance with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may
be allowed to avoid the policy on grounds of concealment by the deceased
assured, is contrary to the provisions of the policy contract itself, as well
as, of applicable legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled
in issuing the policy are manifestly mistaken and contrary to admitted
evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to
rescind the contract of insurance as rescission must allegedly be done during the
lifetime of the insured within two years and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to
the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindable by reason of

the fraudulent concealment or misrepresentation of the insured or his
agent.
According to the petitioners, the Insurance Law was amended and the second
paragraph of Section 48 added to prevent the insurance company from exercising a
right to rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health
and previous diseases are concerned if the insurance has been in force for at least
two years during the insured's lifetime. The phrase "during the lifetime" found in
Section 48 simply means that the policy is no longer considered in force after the
insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April
26,1975. The policy was thus in force for a period of only one year and five
months. Considering that the insured died before the two-year period had
lapsed, respondent company is not, therefore, barred from proving that
the policy is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover, respondent company
rescinded the contract of insurance and refunded the premiums paid on
September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)
The petitioners contend that there could have been no concealment or
misrepresentation by their late father because Tan Lee Siong did not have to buy
insurance. He was only pressured by insistent salesmen to do so. The petitioners
state:
Here then is a case of an assured whose application was submitted
because of repeated visits and solicitations by the insurer's agent. Assured
did not knock at the door of the insurer to buy insurance. He was the
object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance,
not just P 80,000.00. If his purpose were to misrepresent and to conceal
his ailments in anticipation of death during the two-year period, he
certainly could have gotten a bigger insurance. He did not.
46
Insurer Philamlife could have presented as witness its Medical Examiner
Dr. Urbano Guinto. It was he who accomplished the application, Part II,
medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S.
Guinto, a relative to Dr. Guinto, Again Philamlife did not. (pp. 138139,
Rollo)
This Honorable Supreme Court has had occasion to denounce the pressure
and practice indulged in by agents in selling insurance. At one time or
another most of us have been subjected to that pressure, that practice.
This court took judicial cognizance of the whirlwind pressure of insurance
selling-especially of the agent's practice of 'supplying the
information, preparing and answering the application, submitting the
application to their companies, concluding the transactions and
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 the whirlwind pressureof modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit
and procure applications.
These agents are to be found all over the length and breadth of the land.
They are stimulated to more active efforts by contests and by the keen
competition offered by the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth
out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure
of insurance salesmanship was not overwhelming as it is now; when the
population of this country was less than one-fourth of what it is now; when

the insurance companies competing with one another could be counted by
the fingers. (pp. 140-142, Rollo)
In the face of all the above, it would be unjust if, having been subjected to
the whirlwind pressure of insurance salesmanship this Court itself has long
denounced, the assured who dies within the two-year period, should stand
charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the
"incontestability clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of
its last reinstatement within which to contest the policy, whether or not, the
insured still lives within such period. After two years, the defenses of concealment
or misrepresentation, no matter how patent or well founded, no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by
insurance companies to avoid liability. The petitioners' interpretation would give
rise to the incongruous situation where the beneficiaries of an insured who dies
right after taking out and paying for a life insurance policy, would be allowed to
collect on the policy even if the insured fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the medical
terms were explained in a layman's language to the insured. They state that the
insurer should have presented its two medical field examiners as witnesses.
Moreover, the petitioners allege that the policy intends that the medical
examination must be conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by
respondent company to show that the questions appearing in Part II of the
application for insurance were asked, explained to and understood by the
deceased so as to prove concealment on his part. The same is not well
taken. The deceased, by affixing his signature on the application form,
affirmed the correctness of all the entries and answers appearing therein.
It is but to be expected that he, a businessman, would not have affixed his
signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary care of his concerns.
[Sec. 5(c) and (d), Rule 131, Rules of Court].
47
The evidence for respondent company shows that on September 19,1972,
the deceased was examined by Dr. Victoriano Lim and was found to be
diabetic and hypertensive; that by January, 1973, the deceased was
complaining of progressive weight loss and abdominal pain and was
diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-
10; Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the
deceased came to see him on December 14, 1973 for consolation and
claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5;
Exhibit 6) Because of the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes and liver
disorders, respondent company was thus misled into accepting the risk and
approving his application as medically standard (Exhibit 5- C) and
dispensing with further medical investigation and examination (Exhibit 5-
A). For as long as no adverse medical history is revealed in the application
form, an applicant for insurance is presumed to be healthy and physically
fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of
adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The
petitioners cite:
It is a matter of common knowledge that large amounts of money are
collected from ignorant persons by companies and associations which
adopt high sounding titles and print the amount of benefits they agree to
pay in large black-faced type, following such undertakings by fine print
conditions which destroy the substance of the promise. All provisions,
conditions, or exceptions which in any way tend to work a forfeiture of the
policy should be construed most strongly against those for whose benefit
they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil.
184)
There is no showing that the questions in the application form for insurance
regarding the insured's medical history are in smaller print than the rest of the
printed form or that they are designed in such a way as to conceal from the
applicant their importance. If a warning in bold red letters or a boxed warning
similar to that required for cigarette advertisements by the Surgeon General of the
United States is necessary, that is for Congress or the Insurance Commission to
provide as protection against high pressure insurance salesmanship. We are limited
in this petition to ascertaining whether or not the respondent Court of Appeals

committed reversible error. It is the petitioners' burden to show that the factual
findings of the respondent court are not based on substantial evidence or that its
conclusions are contrary to applicable law and jurisprudence. They have failed to
discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Facts:
> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.
> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with
Philamlife for the proceeds of the insurance.
> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding
the contract on the ground of misrepresentation. The beneficiaries contend that
Philamlife can no longer rescind the contract on the ground of misrepresentation as
rescission must allegedly be done “during the lifetime of the insured” within two
years and prior to the commencement of the action following the wording of Sec.
48, par. 2.
Issue:
Whether or not Philamlife can rescind the contract.
Held:
YES.
The phrase “during the lifetime” found in Sec. 48 simply means that the policy is no
longer in force after the insured has died. The key phrase in the second paragraph
is “for a period of two years”.
What is a simpler illustration of the ruling in Tan v. CA?
The period to consider in a life insurance poiicy is “two years” from the date of issue
or of the last reinstatement. So if for example the policy was issued/reinstated on
Jan 1, 2000, the insurer can still exercise his right to rescind up to Jan. 1, 2003 or
48
two years from the date of issue/reinstatement, REGARDLESS of whether the
insured died before or after Jan. 1, 2003.
174 SCRA 403 – Mercantile Law – Insurance Law – Representation – Concealment
– Rescission of an Insurance Contract
In September 1973, Tan Lee Siong applied for a life insurance under the Philippine
American Life Insurance Company (PHILAMLIFE). He stated in the application form
that he has no health issues whatsoever and so in November 1973 he was issued a
life insurance policy in the amount of P80,000.00. He listed his sons as beneficiaries
(Emilio Tan et al). In April 1975, Tan Lee Siong died due to hepatoma. His sons filed
an insurance claim but PHILAMLIFE denied the same as it alleged that Tan Lee Siong
concealed the fact that he was hypertensive, diabetic, and was suffering from
hepatoma at the time of his application for the insurance.
The beneficiaries averred that PHILAMLIFE can no longer rescind the insurance
contract because the insured is already dead. They invoke Section 48 of the
Insurance Code which they interpreted to mean that an insurer can only rescind an
insurance contract during the lifetime of the insured; and that such rescission
should be done within two years prior to the filing of a suit involving the insurance.
ISSUE: Whether or not the interpretation of the Tan brothers is correct.
HELD: No. The pertinent section in the Insurance Code provides:
Section 48: Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insure shall have
been in force during the lifetime of the insured for a priod of two years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
The so-called “incontestability clause” precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health
and previous diseases are concerned if the insurance has been in force for at least
 49

two years during the insured’s lifetime. The phrase “during the lifetime” found in
Section 48 is “for a period of two years.”
Note that the policy was in force for only one year and 5 months when Tan Lee
Siong died. This means that PHILAMLIFE can still contest and rescind the policy
issued by reason of the misrepresentation made by Tan Lee Siong.
Further, because of Tan Lee Siong’s statement that he does not have any health
issues, the insurance company was misled into believing that he was healthy and so
it did not deem a medical checkup to be necessary and that ultimately led to the
issuance of the life insurance policy.