.R. No.

L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated
April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar
relief, through these petitions for certiorari by way of appeal, from the amended decision of
respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance
of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe Assurance Company
and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing)
the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint,
and the sum of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the
Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-
year endownment policy in the amount of P50,000.00 on the life of his one-year old daughter
Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form
in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application
form which was signed by private respondent Ngo Hing. The latter paid the annual premuim
the sum of P1,077.75 going over to the Company, but he reatined the amount of P1,317.00
as his commission for being a duly authorized agebt of Pacific Life. Upon the payment of the
insurance premuim, the binding deposit receipt (Exhibit E) was issued to private respondent
Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application.
Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the
insurance application (Exhibit 3-M). The letter stated that the said life insurance application
for 20-year endowment plan is not available for minors below seven years old, but Pacific Life
can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customers, especially the Chinese,
were asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of
the proceeds of the insurance, but having failed in his effort, he filed the action for the
recovery of the same before the Court of First Instance of Cebu, which rendered the adverse
decision as earlier refered to against both petitioners.

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

1. At the back of Exhibit E are condition precedents required before a deposit is considered a
BINDING RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and
the insurance application, ON or PRIOR to the date of medical examination
... said insurance shan be in force and in effect from the date of such medical
examination, for such period as is covered by the deposit ..., PROVIDED the
company shall be satisfied that on said date the applicant was insurable on
standard rates under its rule for the amount of insurance and the kind of policy
requested in the application.

D. If the Company does not accept the application on standard rate for the
amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or
amount ..., the insurance shall not be in force and in effect until the applicant
shall have accepted the policy as issued or offered by the Company and shall
have paid the full premium thereof. If the applicant does not accept the policy,
the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and
the Company declines to approve the application the insurance applied for shall
not have been in force at any time and the sum paid be returned to the
applicant upon the surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon compliance
of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers
to issue a policy for a different plan, the insurance contract shall not be binding until the
applicant accepts the policy offered; otherwise, the deposit shall be reftmded; and (3) that if
the applicant is not ble according to the standard rates, and the company disapproves the
application, the insurance applied for shall not be in force at any time, and the premium paid
shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is
merely an acknowledgment, on behalf of the company, that the latter's branch office had
received from the applicant the insurance premium and had accepted the application subject
for processing by the insurance company; and that the latter will either approve or reject the
same on the basis of whether or not the applicant is "insurable on standard rates." Since
petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional
and does not insure outright. As held by this Court, where an agreement is made between
the applicant and the agent, no liability shall attach until the principal approves the risk and
a receipt is given by the agent. The acceptance is merely conditional and is subordinated to
the act of the company in approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit
3-M), Pacific Life disapproved the insurance application in question on the ground that it is
not offering the twenty-year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a meeting of the minds between petitioner
Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in
the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there
could have been no insurance contract duly perfected between thenl Accordingly, the deposit
paid by private respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance,
like other contracts, must be assented to by both parties either in person or by their agents
... The contract, to be binding from the date of the application, must have been a completed
contract, one that leaves nothing to be dione, nothing to be completed, nothing to be passed
upon, or determined, before it shall take effect. There can be no contract of insurance unless
the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not have
any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-
14). In this first place, there was no contract perfected between the parties who had no
meeting of their minds. Private respondet, being an authorized insurance agent of Pacific Life
at Cebu branch office, is indubitably aware that said company does not offer the life insurance
applied for. When he filed the insurance application in dispute, private respondent was,
therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his
proposal that the insurance company starts to offer the 20-year endowment insurance plan
for children less than seven years. Nonetheless, the record discloses that Pacific Life had
rejected the proposal and recommendation. Secondly, having an insurable interest on the life
of his one-year old daughter, aside from being an insurance agent and an offense associate
of petitioner Mondragon, private respondent Ngo Hing must have known and followed the
progress on the processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely reversed
the original decision, the following:

Of course, there is the insinuation that neither the memorandum of rejection

(Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the
desire for applicant's father to have the application considered as one for a 20-
year endowment plan was ever duly communicated to Ngo; Hing, father of the
minor applicant. I am not quite conninced that this was so. Ngo Hing, as father
of the applicant herself, was precisely the "underwriter who wrote this case"
(Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter
of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan be placed on
the 20-year endowment plan." Under these circumstances, it is inconceivable
that the progress in the processing of the application was not brought home to
his knowledge. He must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise Mondragon would not have
asserted that it was Ngo Hing himself who insisted on the application as
originally filed, thereby implictly declining the offer to consider the application
under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that
he was, Ngo Hing should only be presumed to know what kind of policies are
available in the company for minors below 7 years old. What he and Mondragon
were apparently trying to do in the premises was merely to prod the company
into going into the business of issuing endowment policies for minors just as
other insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been bound
at all under the binding slip for a plan of insurance that it could not have, by
then issued at all. (Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that
private respondent had deliberately concealed the state of health and piysical condition of his
daughter Helen Go. Wher private regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his one-year old daughter is typically a
mongoloid child. Such a congenital physical defect could never be ensconced nor disguished.
Nonetheless, private respondent, in apparent bad faith, withheld the fact materal to the risk
to be assumed by the insurance compary. As an insurance agent of Pacific Life, he ought to
know, as he surely must have known. his duty and responsibility to such a material fact. Had
he diamond said significant fact in the insurance application fom Pacific Life would have
verified the same and would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally
so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang
Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties
with the noncompliance of the conditions provided in the binding receipt, and concealment,
as legally defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby
entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance
Company from their civil liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without interest, to private
respondent, Ngo Hing. Costs against private respondent.

SO ORDERED.

G.R. No. L-30685 May 30, 1983

NG GAN ZEE, plaintiff-appellee,

vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.

Alberto Q. Ubay for plaintiff-appellee.

Santiago F. A lidio for defendant-appellant.

ESCOLIN, J.:

This is an appeal from the judgment of the Court of First Instance of Manila, ordering the
appellant Asian-Crusader Life Assurance Corporation to pay the face value of an insurance
policy issued on the life of Kwong Nam the deceased husband of appellee Ng Gan Zee.
Misrepresentation and concealment of material facts in obtaining the policy were pleaded to
avoid the policy. The lower court rejected the appellant's theory and ordered the latter to pay
appellee "the amount of P 20,000.00, with interest at the legal rate from July 24, 1964, the
date of the filing of the complaint, until paid, and the costs. "

The Court of Appeals certified this appeal to Us, as the same involves solely a question of
law.

On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
appellant, upon receipt of the required premium from the insured, approved the application
and issued the corresponding policy. On December 6, 1963, Kwong Nam died of cancer of the
liver with metastasis. All premiums had been religiously paid at the time of his death.

On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for
payment of the face value of the policy. On the same date, she submitted the required proof
of death of the insured. Appellant denied the claim on the ground that the answers given by
the insured to the questions appealing in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner, the Hon.
Francisco Y. Mandamus, and the latter, after conducting an investigation, wrote the appellant
that he had found no material concealment on the part of the insured and that, therefore,
appellee should be paid the full face value of the policy. This opinion of the Insurance
Commissioner notwithstanding, appellant refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to
the following question appearing in the application for life insurance-

Has any life insurance company ever refused your application for insurance or
for reinstatement of a lapsed policy or offered you a policy different from that
applied for? If, so, name company and date.

In its brief, appellant rationalized its thesis thus:

... As pointed out in the foregoing summary of the essential facts in this case,
the insured had in January, 1962, applied for reinstatement of his lapsed life
insurance policy with the Insular Life Insurance Co., Ltd, but this was declined
by the insurance company, although later on approved for reinstatement with
a very high premium as a result of his medical examination. Thus
notwithstanding the said insured answered 'No' to the [above] question
propounded to him. ... 1

The lower court found the argument bereft of factual basis; and We quote with approval its
disquisition on the matter-

On the first question there is no evidence that the Insular Life Assurance Co.,
Ltd. ever refused any application of Kwong Nam for insurance. Neither is there
any evidence that any other insurance company has refused any application of
Kwong Nam for insurance.

... The evidence shows that the Insular Life Assurance Co., Ltd. approved
Kwong Nam's request for reinstatement and amendment of his lapsed
insurance policy on April 24, 1962 [Exh. L-2 Stipulation of Facts, Sept. 22,
1965). The Court notes from said application for reinstatement and
amendment, Exh. 'L', that the amount applied for was P20,000.00 only and not
for P50,000.00 as it was in the lapsed policy. The amount of the reinstated and
amended policy was also for P20,000.00. It results, therefore, that when on
May 12, 1962 Kwong Nam answered 'No' to the question whether any life
insurance company ever refused his application for reinstatement of a lapsed
policy he did not misrepresent any fact.

... the evidence shows that the application of Kwong Nam with the Insular Life
Assurance Co., Ltd. was for the reinstatement and amendment of his lapsed
insurance policy-Policy No. 369531 -not an application for a 'new insurance
policy. The Insular Life Assurance Co., Ltd. approved the said application on
April 24, 1962. Policy No. 369531 was reinstated for the amount of P20,000.00
as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy was
issued by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection with
said application for reinstatement and amendment. Such being the case, the
Court finds that there is no misrepresentation on this matter. 2
Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The alleged false statements given by
Kwong Nam are as follows:

Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has
been associated with ulcer of stomach. Tumor taken out was hard and of a
hen's egg size. Operation was two [2] years ago in Chinese General Hospital
by Dr. Yap. Now, claims he is completely recovered.

To demonstrate the insured's misrepresentation, appellant directs Our attention to:

[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese
General Hospital on May 22, 1960, i.e., about 2 years before he applied for an insurance
policy on May 12, 1962. According to said report, Dr. Fu Sun Yuan had diagnosed the patient's
ailment as 'peptic ulcer' for which, an operation, known as a 'sub-total gastric resection was
performed on the patient by Dr. Pacifico Yap; and

[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed
from the patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm. along
the lesser curvature with a diameter of 15 cm. along the greatest dimension.

On the bases of the above undisputed medical data showing that the insured was operated
on for peptic ulcer", involving the excision of a portion of the stomach, appellant argues that
the insured's statement in his application that a tumor, "hard and of a hen's egg size," was
removed during said operation, constituted material concealment.

The question to be resolved may be propounded thus: Was appellant, because of insured's
aforesaid representation, misled or deceived into entering the contract or in accepting the risk
at the rate of premium agreed upon?

The lower court answered this question in the negative, and We agree.

Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract,
and which the other has not the means of ascertaining, and as to which he
makes no warranty. 3

Thus, "concealment exists where the assured had knowledge of a fact material to the risk,
and honesty, good faith, and fair dealing requires that he should communicate it to the
assurer, but he designedly and intentionally withholds the same." 4

It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld." 5

Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant.
Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on
the part of the insured be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and
convincing evidence rests upon the defendant. The evidence before the Court does not clearly
and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the
tumor for which he was operated on was "associated with ulcer of the stomach." In the
absence of evidence that the insured had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was
"associated with ulcer of the stomach, " should be construed as an expression made in good
faith of his belief as to the nature of his ailment and operation. Indeed, such statement must
be presumed to have been made by him without knowledge of its incorrectness and without
any deliberate intent on his part to mislead the appellant.

While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced appellant
to make further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law [Act No. 24271 provides as follows:

Section 32. The right to information of material facts maybe waived either by
the terms of insurance or by neglect to make inquiries as to such facts where
they are distinctly implied in other facts of which information is communicated.

It has been held that where, upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any
further inquiry, they waive the imperfection of the answer and render the omission to answer
more fully immaterial. 6

As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an
important bearing on the question of whether the defendant would undertake the insurance
or not, the court cannot understand why the defendant or its medical examiner did not make
any further inquiries on such matters from the Chinese General Hospital or require copies of
the hospital records from the appellant before acting on the application for insurance. The
fact of the matter is that the defendant was too eager to accept the application and receive
the insured's premium. It would be inequitable now to allow the defendant to avoid liability
under the circumstances."

Finding no reversible error committed by the trial court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader life Assurance Corporation.

SO ORDERED.

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,

vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE
SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY
CORPORATION, respondents.
REGALADO, J.:

This appeal by certiorari seeks the nullification of the decision 1 of respondent Court of
Appeals in CA-G.R. CV No. 13866 which reversed the decision of the Regional Trial Court,
Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and
consequently ordered the dismissal of the aforesaid actions filed by herein petitioners.

The undisputed background of this case as found by the court a quo and adopted by
respondent court, being sustained by the evidence on record, we hereby reproduce the same
with approval. 2

The antecedents of this case show that Julian Sy and Jose Sy Bang have
formed a business partnership in the City of Lucena. Under the business name
of New Life Enterprises, the partnership engaged in the sale of construction
materials at its place of business, a two storey building situated at Iyam,
Lucena City. The facts show that Julian Sy insured the stocks in trade of New
Life Enterpriseswith Western Guaranty Corporation, Reliance Surety and
Insurance. Co., Inc., and Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation

issued Fire Insurance Policy No. 37201 in the amount of P350,000.00. This
policy was renewed on May, 13, 1982.

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under
Renewal Certificate No. 41997) An additional
insurancewas issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of
P700,000.00.

On February 8, 1982, Equitable Insurance

Corporation issued Fire Insurance Policy No. 39328 in the amount of
P200,000.00.

Thus when the building occupied by the New Life Enterprises

was gutted by fire at about 2:00
o'clock inthe morning of October 19, 1982, the stocks in the
trade inside said building were insured against
fire inthe total amount of P1,550,000.00.
According to the certification issued by the Headquarters, Philippine
Constabulary /Integrated National Police, Camp Crame, the cause of fire was
electrical in nature.According to the plaintiffs,
the building and the stocks inside were burned.
After the fire, Julian Sy wentto the agent of
Reliance Insurance whom he asked to accompany him to the
office of the company sothat he can file
his claim. He averred that in support of his claim, he
submitted the fire clearance, the insurance policies and inventory
of stocks. He further testified that the three insurance companies are sister
companies, and as a matter of fact when he was following-up his claim with
 Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if said company agrees to pay, they would also pay. The same
treatment was given him by the other insurance
companies. Ultimately, thethree insurance companies denied plaintiffs' claim
for payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-

84) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon
told the plaintiff that his claim "is
denied for breach of policyconditions." Reliance Insurance purveyed the same
message in its letter dated November 23, 1982and signed by Executive Vice-
President Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions."
The letter of denial received by the plaintiff fromEquitable Insurance
Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said letter dated
February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain
policyconditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."

In relation to the case against Reliance

Surety and Insurance Company, a certain Atty. Serafin
D.Dator, acting in behalf of the plaintiff, sent a letter dated February 13, 1983
(Exhibit "G-l" No 7-84) toExecutive Vice-President Mary Dee Co asking that he
be informed as to the specific policy conditions allegedly
violated by the plaintiff. In her reply-letter dated March
30, 1983, Executive Vice-PresidentMary Dee Co informed Atty.
Dator that Julian Sy violated Policy Condition No.
"3" which requires theinsured
to give notice of any insurance or insurances already effected covering the
stocks in trade. 3

Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate civilactions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with the following
disposition:

WHEREFORE, judgment in the above-entitled cases is rendered in the following

manner, viz:

1. In Civil Case No. 6-84, judgment is rendered for the

plaintiff New Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insured hasbeen unreasonably d
enied, pursuant to Sec. 244 of the Insurance Code, defendant is further order
ed topay the plaintiff attorney's fees in the amount of Twenty Thousand
(P20,000.00) Pesos. All sums ofmoney to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant
to Sec. 244 of theInsurance Code) from
February 14, 1983, (91st day from November 16,
 1982, when Sworn Statementof Fire Claim
was received from the insured) until they are fully paid;

2. In Civil Case No. 7-

84, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
of P1,000,000.00(P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
and considering thatpayment of the claim of the
insured has been unreasonably denied, pursuant to
Sec. 244 of theInsurance Code, defendant is further ordered
to pay the plaintiff the amount of P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983,
(91st day from November 16,
1982 when SwornStatement of Fire Claim was received from the insured) until
they are fully paid;

3. In Civil Case No. 8-84, judgment is rendered for

the plaintiff New Life Enterprises and against thedefendant Western Guaranty
Corporation ordering the latter to pay the sum of P350,000.00
to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the
face ofPolicy No. 37201, and considering that payment of the
aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered to pay the
plaintiff attorney's fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982,
(91st day from 1st week of November 1983 when
insured filed formal claim for full indemnity according to adjuster
Vetremar Dela Merced) until they are fully paid. 4

As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence
this petition the cruxwherein is whether or not Conditions Nos. 3 and 27 of
the insurance contracts were violated by petitioners thereby resulting in
their forfeiture of all the benefits thereunder.

Condition No. 3 of said insurance policies, otherwise known as

the "Other Insurance Clause," is uniformly contained in all the aforestated
insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Company

of any insurance or insurances already effected, orwhich
may subsequently be effected, covering any of the property or properties
consisting of stocks intrade, goods in process
and/or inventories only hereby insured, and unless
such notice be given andthe particulars of such
 insurance or insurances be stated therein or endorsed on this policy pursuant
to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss ordamage, all benefits under this policy shall
be deemed forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at
the time of loss or damage not morethan P200,000.00. 5

Petitioners admit that the respective insurance policies

issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the same stocks in trade
for the loss of which compensation is claimed by petitioners. 6 The policy
issued by respondent Western Guaranty Corporation(Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent
Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks,
while Reliance's Policies covering the samestocks did not
likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners thatEquitable's policy stated "nil" in the space thereon
requiring indication of any co-insurance although there were three (3) policies subsisting on
the same stocks in trade at the time of the loss, namely, that of Western in
the amount ofP350,000.00 and two (2) policies of Reliance in the total amount of
P1,000,000.00. 7

In other words, the coverage by other insurance or co-insurance effected

or subsequently arranged by petitioners were neither stated nor endorsed in the policies of
the three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No.
3.

Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for
Reliance and Equitable) knew about the existence of the additional insurancecoverage and
that they were not informed about the requirement that such other or additional insurance
should bestated in the policy, as they have not even read policies.8 These contentions cannot
pass judicial muster.

The terms of the contract are clear and unambiguous.

The insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter. The knowledge of such
insurance by the insurer's agents, even assuming the acquisition thereof by the former,
is not the "notice" that would estop the insurers from denying the claim. Besides, the so-
called theory of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being
of dubious applicability here has likewisebeen roundly
refuted by respondent court whose factual findings we find acceptable.

Thus, it points out that while petitioner Julian Sy

claimed that he had informed insurance agent Alvarez regarding the co-insurance on the
property, he contradicted himself by inexplicably claiming that he had not read the terms of
the policies; that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, aside from the fact that
the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam Chuan was
an agent for both companies which also had the
same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear and plain
or readily understandable by an ordinary reader thereof, there is absolutely no room for
interpretation or construction anymore.9 Courts are not allowed to make contracts
for the parties; rather, they will intervene only when the terms of the policy areambiguous,
equivocal, or uncertain. 10 The parties must abide by the
terms of the contract because such termsconstitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured'sright of recovery from the insurer. 11

While it is a cardinal principle of insurance law that a policy or contract

of insurance is to be construed liberally infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If suchterms
are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense. 12Moreover, obligations arising from contracts have the force of law between
the contracting parties and should becomplied with in good faith. 13

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the
ordinary care and prudence that would be exacted in relation to other contracts. The
conformity of the insured to the terms of the policy is implied from his failure to express any
disagreement with what is provided for.14 It may be true that themajority rule, as cited
by petitioners, is that injured persons may accept policies without reading them, and
that this is not negligence per se. 15 But, this is not without any exception. It is and was
incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably
expected of him considering that he has been a businessman since 196516 and the contract
concerns indemnity in case of loss in his money-making trade of which important
consideration he could not have been unaware as it was pre-in case of loss in his money-
making trade of which important consideration he could not have been unaware as it was
precisely the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: 17

. . .
And considering the terms of the policy which required the insured to declare
other insurances, thestatement in question must be deemed to be a statemen
t (warranty) binding on both insurer and insured, that there were no other
insurance on the property. . . .

The annotation then, must be deemed

to be a warranty that the property was not insured by any other policy.
Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Such misrepresentation is fatal in the light of our views in Santa Ana vs.
Commercial Union Assurance Company, Ltd., 55 Phil. 329.
 The materiality of non-disclosure of other insurance policies is not open to
doubt.

xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy

is to prevent over-insurance and thus avert the perpetration of
fraud. The public, as well as the insurer, is interested in preventing the
situation in which a fire would be profitable to the insured. According to Justice
Story: "The insured has no right to complain, for he assents to comply
with all the stipulations on his side, in order to entitlehimself to the
benefit of the contract, which, upon reason or principle, he
has no right to ask the court to dispense with the
performance of his own part of the agreement, and yet to
bind the other party to obligations, which, but for those stipulations, would not
have been entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., 18
we
held:

It is not disputed that the insured failed to reveal before the

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

Petitioner's contention that the allegation of fraud is but

a mere inference or suspicion is untenable. In fact,
concrete evidence of fraud or false declaration by
the insured was furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and
"Other InsuranceClause" are materially different from the actual number of co-
insurances taken over the subjectproperty. Consequently, "the whole
foundation of the contract fails, the
risk does not attach and thepolicy never becomes a contract between the
parties." Representations of facts are the foundation ofthe contract and if
the foundation does not exist, the superstructure does
not arise. Falsehood in suchrepresentations is not shown to vary
or add to the contract, or to terminate a contract which has
oncebeen made, but to show that no contract has ever
existed (Tolentino, Commercial Laws of thePhilippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
force and effectfrom the very beginning, as if it had never been entered into,
and which cannot be validated either bytime or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
 As the insurance policy against fire expressly required that notice should be
given by the insured ofother insurance upon the same property,
the total absence of such notice nullifies the policy.

To further warrant and justify the forfeiture of the

benefits under the insurance contracts involved, we need
merely toturn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used in support thereof, . .

. all benefits under this Policy shall be forfeited . . . . 19

Additionally, insofar as the liability of respondent

Reliance is concerned, it is not denied that the complaint for recovery was filed in court by
petitioners only on January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance contract with
Reliance provides:

27. Action or suit

clause. — If a claim be made and rejected and an action or suit be not comm
enced
either in the Insurance Commission or any court of competent jurisdiction of n
otice of such rejection, orin case of arbitration taking place
as provided herein, within twelve (12) months after due
notice of theaward made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemedto have been abandoned and shall not thereafter be recoverable
hereunder. 20

On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we hesitate

in concluding thatplaintiff's right to ventilate his claim in court has been barre
d by reason of the time constraint provided in the insurance contract. It is
evident that after the plaintiff had received
the letter of denial, he stillfound it necessary to be informed of the specific ca
uses or reasons for the denial of his claim, reasonfor which his lawyer, Atty.
Dator deemed it wise to send a
letter of inquiry to the defendant which wasanswered by
defendant's Executive Vice-President in a letter dated March 30, 1983, . . .
. Assuming,gratuitously, that the letter of Executive Vice-President Mary Dee
Co dated March 30, 1983, was received by plaintiff on the same date, the
period of limitation should start to run only from said date in the spirit of fair
play and equity. . . . 21

We have perforce to reject this theory of the court below for being contrary to what we have
heretofore declared:

It is important to note the principle laid down by this Court in the case of Ang
vs. Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:
 The condition contained in an insurance policy that claims must
be presented within one year
after rejection is not merely a procedural requirement but an im
portant matter essential to a prompt settlement of claims
against insurance companies as it
demandsthat insurance suits be brought by
the insured while the evidence as to the
origin andcause of destruction have not yet disappeared.

In enunciating the above-cited principle, this Court had definitely

settled the rationale for the necessityof bringing suits against the Insurer
within one year from the rejection of the claim. The contention
ofthe respondents that the one-year prescriptive period does
not start to run until the petition forreconsideration had been resolved by the
insurer, runs counter to the declared purpose for requiringthat an
action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction fromthe denial of the claim. To uphold respondents' contention
would contradict and defeat the very principle which this Court had
laid down. Moreover, it can easily be used by insured persons as a scheme or
device to waste time
until any evidence which may be considered against them is destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil. 701),

this Court uses the phrase "final rejection", the
samecannot be taken to mean the rejection of a petition for reconsideration as
insisted by respondents.
Suchwas clearly not the meaning contemplated by this Court. The insurance p
olicy in said case providesthat the insured should file his claim first, with
the carrier and then with the insurer.
The "final rejection"being referred to in said case is the rejection by the
insurance company. 22

Furthermore, assuming arguendo that petitioners felt the

legitimate need to be clarified as to the policy condition violated, there was a considerable
lapse of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to
the time the complaint was filed in court on January 31, 1984. The one-
year prescriptive period was yet to expire on November 29, 1983, or about eight (8) months
from the receipt of the clarificatory letter, but petitioners let the
period lapse without bringing their action in court.
We accordingly find no "peculiar circumstances" sufficient to
relax the enforcement of the one-year prescriptive period and
we, therefore, hold that petitioners' claim was definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same ishereby AFFIRMED.

SO ORDERED.
G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.

QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-
G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.

We grant the petition.

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated beneficiary was his mother, respondent
Bernarda Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he answered
the following questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:

EGG?
X-rays?
blood tests?
other tests?

c) attended or been admitted to any hospital or other medical

facility?
 6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-
sonography and hematology tests.

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list
of exhibits consisting of medical records furnished by the Lung Center of the Philippines.

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).

Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission
of the matters alleged.

Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against

the defendant, condemning the latter to pay the former the amount of One
Hundred Thousand Pesos (P100,000.00) the face value of insured's Insurance
Policy No. 3903766, and the Accidental Death Benefit in the amount of One
Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the
concept of reasonable attorney's fees and costs of suit.

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

In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed. Moreover,
it held that the health history of the insured was immaterial since the insurance policy was
"non-medical".

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment
because the cause of death was unrelated to the facts concealed by the insured. It also
sustained the finding of the trial court that matters relating to the health history of the insured
were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that
the policy was "non-medical" (Rollo, pp. 4-5).

Petitioner's motion for reconsideration was denied; hence, this petition.

II

We reverse the decision of the Court of Appeals.

The rule that factual findings of the lower court and the appellate court are binding on this
Court is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).

In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and the
facts concealed or misrepresented were irrelevant since the policy was "non-medical". We
disagree.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to communicate,

is called concealment.

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 communication is due, in forming his estimate
of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code,
Sec. 31).

The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a
medical examination of the insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of
the information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the
information required of the applicant concerning previous condition 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 . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of death of the insured,
it is well settled that the insured need not die of the disease he had failed to disclose to the
insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of
the risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized that
rescission was exercised within the two-year contestability period as recognized in Section 48
of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED
and SET ASIDE.

SO ORDERED.

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

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

Eleazaro A. Samson for plaintiffs-appellants.

Abello & Macias for defendant-appellee.

MAKALINTAL, J.:

Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover
the sum of P5,000.00, corresponding to the face value of an insurance policy issued by
defendant on the life of Estefania A. Saturnino, and the sum of P1,500.00 as attorney's fees.
Defendant, now appellee, set up special defenses in its answer, with a counterclaim for
damages allegedly sustained as a result of the unwarranted presentation of this case. Both
the complaint and the counterclaim were dismissed by the trial court; but appellants were
declared entitled to the return of the premium already paid; plus interest at 6% up to January
8, 1959, when a check for the corresponding amount — P359.65 — was sent to them by
appellee.
The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy
dispenses with the medical examination of the applicant usually required in ordinary life
policies. However, detailed information is called for in the application concerning the
applicant's health and medical history. The written application in this case was submitted by
Saturnino to appellee on November 16, 1957, witnessed by appellee's agent Edward A.
Santos. The policy was issued on the same day, upon payment of the first year's premium of
P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza.
Appellants here, who 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
instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957,
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. She stayed in the
hospital for a period of eight days, after which she was discharged, although according to the
surgeon who operated on her she could not be considered definitely cured, her ailment being
of the malignant type.

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 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, undergone any operation or suffered any
injury within the preceding five years; and that she had never been treated for nor did she
ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus,
and menstrual disorders. The application also recites that the foregoing declarations
constituted "a further basis for the issuance of the policy."

The question at issue is whether or not the insured made such false representations of
material facts as to avoid the policy. There can be no dispute that the information given by
her in her application for insurance was false, namely, that she had never had cancer or
tumors, or consulted any physician or undergone any operation within the preceding period
of five years. Are the facts then falsely represented material? The Insurance Law (Section 30)
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 in making his inquiries." It seems to be the
contention of appellants 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. It is logical to assume
that if appellee had been properly apprised of the insured's medical history she would at least
have been made to undergo medical examination in order to determine her insurability.

Appellants argue that due information concerning the insured's previous illness and 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 denied by Santos in his testimony,
and the trial court found such testimony to be true. This is a finding of fact which is binding
upon us, this appeal having been taken upon questions of law alone. We do not deem it
necessary, therefore, to consider appellee's additional argument, which was upheld by the
trial court, that in signing the application form in blank and leaving it to Edward A. Santos to
fill (assuming 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:

"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.
THELMA VDA. DE CANILANG, Petitioner, vs. HON. COURT OF APPEALS and GREAT
PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as
suffering from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a
tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on
3 August 1982 and this time was found to have "acute bronchitis."chanrobles virtual law
library

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary. 1Jaime Canilang was issued ordinary life insurance Policy No.
345163, with the face value of P19,700, effective as of 9 August
1982.chanroblesvirtualawlibrarychanrobles virtual law library

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." 2Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific
which the insurer denied on 5 December 1983 upon the ground that the insured had concealed
material information from it.chanroblesvirtualawlibrarychanrobles virtual law library

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds. During the hearing called by the Insurance Commissioner,
petitioner testified that she was not aware of any serious illness suffered by her late
husband 3and that, as far as she knew, her husband had died because of a kidney disorder. 4A
deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr. Claudio stated
that he was the family physician of the deceased Jaime Canilang 5and that he had previously
treated him for "sinus tachycardia" and "acute bronchitis." 6Great Pacific for its part presented
Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific. 7She testified that the deceased's
insurance application had been approved on the basis of his medical declaration. 8She
explained that as a rule, medical examinations are required only in cases where the applicant
has indicated in his application for insurance coverage that he has previously undergone
medical consultation and hospitalization. 9chanrobles virtual law library

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered

Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding
that:

1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;chanrobles virtual law library

2. Great Pacific had waived its right to inquire into the health condition of the applicant by the
issuance of the policy despite the lack of answers to "some of the pertinent questions" in the
insurance application;chanrobles virtual law library
3. there was no intentional concealment on the part of the insured Jaime Canilang as he had
thought that he was merely suffering from a minor ailment and simple cold; 10andchanrobles
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4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment
was intentionally made, was not applicable to Canilang's case as that law became effective
only on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of the word "intentionally" by the
Insurance Commissioner in defining and resolving the issue agreed upon by the parties at
pre-trial before the Insurance Commissioner was not supported by the evidence; that the
issue agreed upon by the parties had been whether the deceased insured, Jaime Canilang,
made a material concealment as the state of his health at the time of the filing of insurance
application, justifying respondent's denial of the claim. The Court of Appeals also found that
the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to
enable the latter to make proper inquiries. The Court of Appeals finally held that the Ng Gan
Zee case which had involved misrepresentation was not applicable in respect of the case at
bar which involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review
on Certiorari alleging that:

1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that
the issue in the case agreed upon between the parties before the Insurance Commission is
whether or not Jaime Canilang "intentionally" made material concealment in stating his state
of health;chanrobles virtual law library

2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions
does not amount to fraud and private respondent is deemed to have waived inquiry
thereto. 11chanrobles virtual law library

The medical declaration which was set out in the application for insurance executed by Jaime
Canilang read as follows:

MEDICAL DECLARATIONchanrobles virtual law library

I hereby declare that:chanrobles virtual law library

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.

(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical
impairment.chanroblesvirtualawlibrarychanrobles virtual law library

(3) I am, to the best of my knowledge, in good health.chanroblesvirtualawlibrarychanrobles

virtual law library
EXCEPTIONS:chanrobles virtual law library

_________________________________________________________________________
_________________________________________________________________________
__________________________________

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true and correct.
I hereby agree that if there be any fraud or misrepresentation in the above statements
material to the risk, the INSURANCE COMPANY upon discovery within two (2) years from the
effective date of insurance shall have the right to declare such insurance null and void. That
the liabilities of the Company under the said Policy/TA/Certificate shall accrue and begin only
from the date of commencement of risk stated in the Policy/TA/Certificate, provided that the
first premium is paid and the Policy/TA/Certificate is delivered to, and accepted by me in
person, when I am in actual good health.chanroblesvirtualawlibrarychanrobles virtual law
library

Signed at Manila his 4th day of August, 1992.

Illegible
----------
Signature of Applicant. 12

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and
2 of the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis."chanrobles virtual law library

The relevant statutory provisions as they stood at the time Great Pacific issued the contract
of insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known
as the Insurance Code of 1978, which went into effect on 11 June 1978. These provisions
read as follows:

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.

xxx xxx xxxchanrobles virtual law library

Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith,
all factors within his knowledge which are material to the contract and as to which he makes
no warranty, and which the other has not the means of ascertaining. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the
concealing party knew and "ought to [have] communicate[d]," that is to say, information
which was "material to the contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:

Sec. 31. Materially 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 disadvantages of the proposed contract, or in making his inquiries.
(Emphasis supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13The symptoms of this condition include pounding in the chest and sometimes
faintness and weakness of the person affected. The following elaboration was offered by Great
Pacific and set out by the Court of Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute.
(Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a
common reaction to heart disease, including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The medication
prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18, 1982, indicates the
condition that said physician was trying to manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety,
anti-convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations
and nervous heart. Such treatment could have been a very material information to the insurer
in determining the action to be take on Canilang's application for life insurance
coverage. 14chanrobles virtual law library

We agree with the Court of Appeals that the information which Jaime Canilang failed to
disclose was material to the ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis
made and medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage. 15The materiality of the information withheld by Great
Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind or
subjective belief is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon
the party to whom the communication should have been made, in assessing the risk involved
in making or omitting to make further inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.chanroblesvirtualawlibrarychanrobles virtual
law library

The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16this Court held that:

. . . if anything, the waiver of medical examination [in a non-medical insurance contract]

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 . . . . 17(Emphasis supplied)

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time
range material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so
as to read as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by deleting
the phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment
by B.P. Blg. 874) intended to limit the kinds of concealment which generate a right to rescind
on the part of the injured party to "intentional concealments." This argument is not
persuasive. As a simple matter of grammar, it may be noted that "intentional" and
"unintentional" cancel each other out. The net result therefore of the phrase "whether
intentional or unitentional" is precisely to leave unqualified the term "concealment." Thus,
Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment"
without regard to whether such concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to
rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely underscored the fact that all throughout (from
1914 to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.chanroblesvirtualawlibrarychanrobles virtual
law library

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such
that the failure to communicate must have been intentional rather than merely inadvertent.
For Jaime Canilang could not have been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a doctor twice in the two (2) months
before applying for non-medical insurance. Indeed, the last medical consultation took place
just the day before the insurance application was filed. In all probability, Jaime Canilang went
to visit his doctor precisely because of the discomfort and concern brought about by his
experiencing "sinus tachycardia."chanrobles virtual law library

We find it difficult to take seriously the argument that Great Pacific had waived inquiry into
the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely
constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would
obviously erase Section 27 from the Insurance Code of
1978.chanroblesvirtualawlibrarychanrobles virtual law library

It remains only to note that the Court of Appeals finding that the parties had not agreed in
the pretrial before the Insurance Commission that the relevant issue was whether or not
Jaime Canilang had intentionally concealed material information from the insurer, was
supported by the evidence of record, i.e., the Pre-trial Order itself dated 17 October 1984 and
the Minutes of the Pre-trial Conference dated 15 October 1984, which "readily shows that the
word "intentional" does not appear in the statement or definition of the issue in the said Order
and Minutes." 18chanrobles virtual law library

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court
of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.