Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-32986 November 11, 1930
FRANCISCO JARQUE, plaintiff-appellee,
vs.
SMITH, BELL & CO., LTD., ET AL., defendants.
UNION FIRE INSURANCE CO., appellant.
Benj. S. Ohnick for appellant.
Vicente Pelaez for appellee.

OSTRAND, J .:
The plaintiff was the owner of the motorboat Pandan and held a marine insurance policy for the sum
of P45,000 on the boat, the policy being issued by the National Union Fire Insurance Company and
according to the provisions of a "rider" attached to the policy, the insurance was against the
"absolute total loss of the vessel only." On October 31, 1928, the ship ran into very heavy sea off the
Islands of Ticlin, and it became necessary to jettison a portion of the cargo. As a result of the
jettison, the National Union Fire Insurance Company was assessed in the sum of P2,610.86 as its
contribution to the general average. The insurance company, insisting that its obligation did not
extend beyond the insurance of the "absolute total loss of the vessel only, and to pay proportionate
salvage of the declared value," refused to contribute to the settlement of the general average. The
present action was thereupon instituted, and after trial the court below rendered judgment in favor of
the plaintiff and ordered the defendant National Union Fire Insurance Company to pay the plaintiff
the sum of P2,610.86 as its part of the indemnity for the general average brought about by the
jettison of cargo. The insurance company appealed to this court and assigns as errors (1) "that the
lower court erred in disregarding the typewritten clause endorsed upon the policy, Exhibit A,
expressly limiting insurer's liability thereunder of the total loss of the wooden vessel Pandanand to
proportionate salvage charges," and (2) "that the lower court erred in concluding that defendant and
appellant, National Union Fire Insurance Company is liable to contribute to the general average
resulting from the jettison of a part of said vessel's cargo."
I. As to the first assignment of error, little need be said. The insurance contract, Exhibit A, is printed
in the English common form of marine policies. One of the clauses of the document originally read
as follows:
Touching the Adventures and Perils which the said National Union Fire Insurance Company
is content to bear, and to take upon them in this Voyage; they are of the Seas, Men-of-War,
Fire, Pirates, Rovers, Thieves, Jettison, Letters of Mart and Countermart, Surprisals, and
Takings at Sea. Arrest, Restraint and Detainments, of all Kings Princes and People of what
Nation, Condition or Quality so ever; Barratry of the Master and Marines, and of all other
Perils, Losses and Misfortunes, that have or shall come to the Hurt, Detriment, or Damage of
the said Vessel or any part thereof; and in case of any Loss or Misfortunes, it shall be lawful
for the Assured, his or their Factors, Servants, or assigns, to sue, labour and travel for, in
and about the Defense. Safeguard, and recovery of the said Vessel or any Charges whereof
the said Company, will contribute, according to the rate and quantity of the sum herein
assured shall be of as much force and Virtue as the surest Writing or Policy of Insurance
made in LONDON.
Attached to the policy over and above the said clause is a "rider" containing typewritten provisions,
among which appears in capitalized type the following clause:
AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY, AND TO PAY
PROPORTIONATE SALVAGE CHARGES OF TEH DECLARED VALUE.
At the bottom of the same rider following the type written provisions therein set forth are the following
words: "Attaching to and forming part of the National Union Fire Insurance Co., Hull Policy No.
1055."
It is a well settled rule that in case repugnance exists between written and printed portions of a
policy, the written portion prevails, and there can be no question that as far as any inconsistency
exists, the above-mentioned typed "rider" prevails over the printed clause it covers. Section 291 of
the Code of Civil Procedure provides that "when an instrument consists partly of written words and
partly of a printed form and the two are inconsistent, the former controls the latter." (See also Joyce
on Insurance, 2d ed., sec. 224, page 600; Arnould on Marine Insurance, 9th ed., sec. 73; Marine
Equipment Corporation vs. Automobile Insurance Co., 24 Fed. (2d), 600; and Marine Insurance
Company vs. McLahanan, 290 Fed., 685, 688.)
II. In the absence of positive legislation to the contrary, the liability of the defendant insurance
company on its policy would, perhaps, be limited to "absolute loss of the vessel only, and to pay
proportionate salvage of the declared value." But the policy was executed in this jurisdiction and
"warranted to trade within the waters of the Philippine Archipelago only." Here the liability for
contribution in general average is not based on the express terms of the policy, but rest upon the
theory that from the relation of the parties and for their benefit, a quasi contract is implied by law.
Article 859 of the Code of Commerce is still in force and reads as follows:
ART. 859. The underwriters of the vessel, of the freight, and of the cargo shall be obliged to
pay for the indemnity of the gross average in so far as is required of each one of these
objects respectively.
The article is mandatory in its terms, and the insurers, whether for the vessel or for the freight or for
the cargo, are bound to contribute to the indemnity of the general average. And there is nothing
unfair in that provisions; it simply places the insurer on the same footing as other persons who have
an interest in the vessel, or the cargo therein at the time of the occurrence of the general average
and who are compelled to contribute (art. 812, Code of Commerce).
In the present case it is not disputed that the ship was in grave peril and that the jettison of part of
the cargo was necessary. If the cargo was in peril to the extent of call for general average, the ship
must also have been in great danger, possibly sufficient to cause its absolute loss. The jettison was
therefore as much to the benefit of the underwriter as to the owner of the cargo. The latter was
compelled to contribute to the indemnity; why should not the insurer be required to do likewise? If no
jettison had take place and if the ship by reason thereof had foundered, the underwriter's loss would
have been many times as large as the contribution now demanded. lawphil. net
The appealed judgment is affirmed with the cost against the appellant. So ordered.
Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.



Separate Opinions

JOHNSON and STREET, J J ., dissenting:
In view of the fact that the policy of marine insurance which is the subject of this action contained a
provision to the effect that the risk insured against was "the absolute total loss of the vessel only,"
the undersigned are of the opinion that the defendant insurance company is not liable to contribute
to the gross average incident to the jettison of some of the freight embarked on the vessel which was
the subject of insurance. It is true that article 859 of the Code of Commerce declares that the
underwriters of the vessel, of the freight, and of the cargo shall be obliged to pay for the indemnity of
the gross average in so far as is required of each one of these objects respectively, but that
provision evidently states a general rule to be applied where there are no words in the contract in
any wise qualifying the risk. This article, we think, should not be interpreted as abridging the freedom
of contract between insurer and the insured; and where, as in the case before us, the words defining
the risk plainly show that the risk is limited so as to exclude the obligation to contribute in case of
jettison, the intention expressed in the contract ought to be given effect. If the insurance had been
written upon the cargo, the case for the plaintiff would have been stronger; but it is certainly
anomalous that an insurer of "the vessel only" should be held liable for the jettison of cargo, to which
a contract of insurance done not extend. The language used in the policy of insurance in this case
clearly limits the risk affirmatively to the vessel only, and the contract should be given effect
according to the intention of the parties.
The opinion of the court appears to proceed in part at least upon the idea that the insurer had a real
interest in the vessel, and that the insurance company was necessarily benefited by a jettison of
cargo, since the act may possibly have resulted in saving the vessel from destruction. This idea
appears to us to ignore the most fundamental conception underlying the law of insurance, which is
that the contract of insurance is of an aleatory nature. By this is meant that the contract is essentially
a wager. It results that the insurer has no real interest whatever in the thing insured; and the
question of the liability of the insurer limits itself to the question whether the contingency insured may
have been saved by jettison of the cargo is irrelevant to the risk. We are of the opinion that the
judgment appealed from should be reversed and the defendant absolved from the complaint.






Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J .:
The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends
otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner
Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum
of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to
its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page 1 thereof,
"General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and contends
that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery.
1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of
P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction
and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of
P30,000.00 as and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED.
2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, their services as armored car driver and as security guard
having been merely offered by PRC Management and by Unicorn Security and which
latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to
dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such — in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance
of defendant's liability under the policy, particularly the general exceptions therein
embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy.
3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision
4
promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were
neither employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insured
and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). 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 such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain,
ordinary and simple. No other interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-
appellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors.
5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and
the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within
the general exceptions clause considering that driver Magalong and security guard Atiga were
Producers' authorized representatives or employees in the transfer of the money and payroll from its
branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from
one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers
with PRC Management System for Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor.
6
It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the
person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC
7
that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the project
and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct. Producers argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to prevent any violation or circumvention
of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President Lines
vs. Clave,
8
to wit:
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of
his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no sense employees of the
CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in accordance with the general principles
of insurance law.
9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against."
10
Persons frequently excluded
under such provisions are those in the insured's service and employment.
11
The purpose of the exception
is to guard against liability should the theft be committed by one having unrestricted access to the
property.
12
In such cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech.
13
The terms "service" and "employment" are generally associated with
the idea of selection, control, and compensation.
14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer,
15
or it should be construed liberally in favor of the insured and strictly against the
insurer.
16
Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation.
17
It goes without saying
then that if the terms of the contract are clear and unambiguous, there is no room for construction and
such terms cannot be enlarged or diminished by judicial construction.
18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein.
19
It
is settled that the terms of the policy constitute the measure of the insurer's liability.
20
In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship,
21
or as statutorily declared even in a limited sense as in the case
of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer.
22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for
in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific
duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent."
23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court
of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No.
1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Padilla, J., took no part.
Quiason, J., is on leave.













FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

Facts: On June 29, 1987, Producer’s Bank of the Philippines’ armored vehicle was robbed, in
transit, of seven hundred twenty-fivethousand pesos (Php 725,000.00) that it was transferring
from its branch in Pasay to its main branch in Makati. To mitigate their loss, they claim
the amount from their insurer, namely Fortune Insurance and Surety Co..

Fortune Insurance, however, assails that the general exemptionclause in the Casualty
Insurance coverage had a general exemptionclause, to wit:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting
alone or in conjunction with others. . . .

And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were
charged with three others as liable for the robbery, Fortune denies Producer’s Bank of its
insurance claim.

The trial court and the court appeals ruled in favor of recovery, hence, the case at bar.

Issue: Whether recovery is precluded under the general exemptionclause.

Held: Yes, recovery is precluded under the general exemptionclause.

Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in transit; Magalong to
drive the armored vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In short, for these particular
tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of
the insurance policy.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15774 November 29, 1920
PILAR C. DE LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Sanz and Luzuriaga for appellant.
Cohn and Fisher for appellee.

MALCOLM, J .:
This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga sustaining a
demurrer to plaintiff's complaint upon the ground that it fails to state a cause of action.
As the demurrer had the effect of admitting the material facts set forth in the complaint, the facts are
those alleged by the plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga made application to
the Sun Life Assurance Company of Canada for a policy of insurance on his life in the sum of
P5,000. In his application Lim designated his wife, Pilar C. de Lim, the plaintiff herein, as the
beneficiary. The first premium of P433 was paid by Lim, and upon such payment the company
issued what was called a "provisional policy." Luis Lim y Garcia died on August 23, 1917, after the
issuance of the provisional policy but before approval of the application by the home office of the
insurance company. The instant action is brought by the beneficiary, Pilar C. de Lim, to recover from
the Sun Life Assurance Company of Canada the sum of P5,000, the amount named in the
provisional policy.
The "provisional policy" upon which this action rests reads as follows:
Received (subject to the following stipulations and agreements) the sum of four hundred and
thirty-three pesos, being the amount of the first year's premium for a Life Assurance Policy
on the life of Mr. Luis D. Lim y Garcia of Zamboanga for P5,000, for which an application
dated the 6th day of July, 1917, has been made to the Sun Life Assurance Company of
Canada.
The above-mentioned life is to be assured in accordance with the terms and conditions
contained or inserted by the Company in the policy which may be granted by it in this
particular case for four months only from the date of the application, provided that the
Company shall confirm this agreement by issuing a policy on said application when the same
shall be submitted to the Head Office in Montreal. Should the Company not issue such a
policy, then this agreement shall be null and void ab initio, and the Company shall be held
not to have been on the risk at all, but in such case the amount herein acknowledged shall
be returned.
[SEAL.] (Sgd.) T. B. MACAULAY, President.
(Sgd.) A. F. Peters, Agent.
Our duty in this case is to ascertain the correct meaning of the document above quoted. A perusal of
the same many times by the writer and by other members of the court leaves a decided impression
of vagueness in the mind. Apparently it is to be a provisional policy "for four months only from the
date of this application." We use the term "apparently" advisedly, because immediately following the
words fixing the four months period comes the word "provided" which has the meaning of "if."
Otherwise stated, the policy for four months is expressly made subjected to the affirmative condition
that "the company shall confirm this agreement by issuing a policy on said application when the
same shall be submitted to the head office in Montreal." To reenforce the same there follows the
negative condition —
Should the company not issue such a policy, then this agreement shall be null and void ab initio, and
the company shall be held not to have been on the risk." Certainly, language could hardly be used
which would more clearly stipulate that the agreement should not go into effect until the home office
of the company should confirm it by issuing a policy. As we read and understand the so-called
provisional policy it amounts to nothing but an acknowledgment on behalf of the company, that it has
received from the person named therein the sum of money agreed upon as the first year's premium
upon a policy to be issued upon the application, if the application is accepted by the company.
It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents. So long as an application for insurance has not been
either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the parties have met in
agreement. Our view is, that a contract of insurance was not here consummated by the parties.lawph!l .net
Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states the
general rule concerning the agent's receipt pending approval or issuance of policy. The first rule
which Joyce lays down is this: If the act of acceptance of the risk by the agent and the giving by him
of a receipt, is within the scope of the agent's authority, and nothing remains but to issue a policy,
then the receipt will bind the company. This rule does not apply, for while here nothing remained but
to issue the policy, this was made an express condition to the contract. The second rule laid down by
Joyce is this: Where an agreement is made between the applicant and the agent whether by signing
an application containing such condition, or otherwise, that no liability shall attach until the principal
approves the risk and a receipt is given buy the agent, such acceptance is merely conditional, and it
subordinated to the act of the company in approving or rejecting; so in life insurance a "binding slip"
or "binding receipt" does not insure of itself. This is the rule which we believe applies to the instant
case. The third rule announced by Joyce is this: Where the acceptance by the agent is within the
scope of his authority a receipt containing a contract for insurance for a specific time which is not
absolute but conditional, upon acceptance or rejection by the principal, covers the specified period
unless the risk is declined within that period. The case cited by Joyce to substantiate the last
principle is that a Goodfellow vs. Times & Beacon Assurance Com. (17 U. C. Q. B., 411), not
available.
The two cases most nearly in point come from the federal courts and the Supreme Court of
Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489} the facts were that the
amount of the first premium had been paid to an insurance agent and a receipt given therefor. The
receipt, however, expressly declared that if the application was accepted by the company, the
insurance shall take effect from the date of the application but that if the application was not
accepted, the money shall be returned. The trite decision of the circuit court of appeal was, "On the
conceded facts of this case, there was no contract to life insurance perfected and the judgment of
the circuit court must be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person applying for
the life insurance paid and amount equal to the first premium, but the application and the receipt for
the money paid, stipulated that the insurance was to become effective only when the application was
approved and the policy issued. The court held that the transaction did not amount to an agreement
for preliminary or temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies in the operation of the business, upon
receipt of an application for insurance, to enter into a contract with the applicant in the shape of a so-
called "binding receipt" for temporary insurance pending the consideration of the application, to last
until the policy be issued or the application rejected, and such contracts are upheld and enforced
when the applicant dies before the issuance of a policy or final rejection of the application. It is held,
too, that such contracts may rest in parol. Counsel for appellant insists that such a preliminary
contract for temporary insurance was entered into in this instance, but we do not think so. On the
contrary, the clause in the application and the receipt given by the solicitor, which are to be read
together, stipulate expressly that the insurance shall become effective only when the "application
shall be approved and the policy duly signed by the secretary at the head office of the company and
issued." It constituted no agreement at all for preliminary or temporary insurance; Mohrstadt vs.
Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins. Co., 81 Fed., 489,
26 C. C. A., 491." (See further Weinfeld vs. Mutual Reserve Fund Life Ass'n. [1892], 53 Fed, 208'
Mohrstadt vs. Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance co. vs. Young's
Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential Insurance Company of America
[1901], 109 Wis., 4; Shawnee Mut. Fire Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs.
Connecticut Fire Ins. Co. [1914], 51 contra, Starr vs. Mutual Life Ins. Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in sustaining the demurrer and
dismissing the case. It is to be noted, however, that counsel for appellee admits the liability of the
company for the return of the first premium to the estate of the deceased. It is not to be doubted but
that the Sun Life Assurance Company of Canada will immediately, on the promulgation of this
decision, pay to the estate of the late Luis Lim y Garcia the of P433.
The order appealed from, in the nature of a final judgment is affirmed, without special finding as to
costs in this instance. So ordered.
Mapa, C.J., Johnson, Araullo, Avanceña and Villamor, JJ., concur.






Lim v. Sun Life
41 PHIL 263
Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with Sunlife in
the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by Lim and
company issued a “provisional policy”
> Such policy contained the following provisions “xx the abovementioned life is to be assured in
accordance with the terms and conditions contained or inserted by the Company in the policy which may
be granted by it in this particular case for 4 months only from the date of the application, PROVIDED that
the company shall confirm this agreement by issuing a policy on said application xxx. Should the
company NOT issue such a policy, then this agreement shall be null and void ab initio and the Company
shall be held not to have been on the risk at all, but in such case, the amount herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval of the
application by the home office of the insurance company.
> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:
Whether or not the beneficiary can collect the 5T.

Held:
NO.
The contract of insurance was not consummated by the parties. The above quoted agreement clearly
stated that the agreement should NOT go into effect until the home office of the Company shall confirm it
by issuing a policy. It was nothing but an acknowledgment by the Company that it has received a sum of
money agreed upon as the first year’s premium upon a policy to be issued upon the application if it is
accepted by the Company.

When an agreement is made between the applicant and the agent whether by signing an application
containing such condition or otherwise, that no liability shall attach until the principal approves the risk
and a receipt is given by the agent, such acceptance is merely conditional and is subordinated to the
company’s act in approving or rejecting; so in life insurance a “binding slip or receipt” does not insure
itself.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 3069 January 23, 1907
VIOLA BADGER, plaintiff-appellant,
vs.
THE NEW YORK LIFE INSURANCE COMPANY, defendant-appellee.
Condert Brothers for appellant.
Hartigan, Rohde & Gutierrez for appellee.
WILLARD, J .:
On July 5, 1902, William H. Badger made out a written application for a policy of insurance upon his
life for $5,000 in favor of his wife, Harriet Viola Badger. The first premium on this policy amounted to
$312.50. Badger sent the application and $297.60 to R. E. Herdman, who received the application
and the money on the 9th of July, 1902.
Herdman sent the papers on July 24 to the office of the defendant company in Shanghai, where they
were received on August 11. Badger executed a promissory note for $14.90, the balance of the first
premium, which was sent to Herdman on July 17, 1902. On the 31st of July, Mrs. Badger, acting for
her husband, sent to Herdman $14.90, cash, in payment of said note. Badger died on the 1st day of
August, 1902, of cholera. No policy was ever issued upon his application.
The plaintiff brought this action to recover the sum of $5,000, alleging that a contract of insurance
had been made by the company with Badger. Judgment was rendered in the court below in favor of
the defendant to the effect that no such contract was ever made, from which judgment the plaintiff
appealed.
The only person who acted in any way for the company in this transaction was Herdman. The only
evidence in the case to show what his powers were is found in an admission in the answer which
states that he was "a special agent and cashier of the defendant company in Manila," and in his
evidence, testifying as a witness, he said that at the time of the trial on September 6, 1905, he was
the agency director of the defendant company in the city of Manila.
The action can not be maintained unless the plaintiff proves a contract between the company and
Badger, made by a person authorized to act for the company. The authority of this person must, of
course, be proven. There is no evidence in the case to show that Herdman had any authority to
make any contract, either parol or in writing, that would bind the company. There is no evidence to
show that he had any policies in his possession.
Nor is there any evidence that Herdman ever undertook to make any parol contract with Badger for
this insurance. There had been some correspondence between the parties prior to the making of the
application on July 5. On that day Herdman, writing to Badger in regard to the medical examination,
said:
I will send you an official receipt when your remittance reaches the office, and then a new
examination will not be necessary when the policies are delivered; otherwise this would be
necessary.
After Badger had received the receipt of Herdman for the money sent to him and on July 11, he
wrote to Herdman, saying:
Yours of the 9th instant received. Is the receipt you sent official or not? I do not wish to take
another examination, and so desire an official receipt.
xxx xxx xxx
Shall I be obliged to wait until you receive an answer from the office in New York, or do you
have authority to issue policies at the Manila office?
xxx xxx xxx
If my application is accepted does insurance begin July 5, 1902?
In reply to this letter, Herdman, on July 15, wrote, saying:
The receipt I sent you is official, being signed by me as cashier and not personally, and of
course there will not be another examination required.
xxx xxx xxx
We issue an interim policy from our Shanghai office, which stands until the definite policy
comes from New York. We hope soon to have an advisory board here in Manila, so that we
will be entirely free from Shanghai, all our other business being transacted directly with the
home officer at New York.
If your examination is acceptable, your policy will date from July 5, the date of your
application.
This evidence shows conclusively that there was no parol agreement between the parties that the
insurance had commenced on July 5, 1902. In fact, the claim of the appellant reduced to its lowest
terms is that the mere signing of an application for life insurance and the payment of a first premium,
without any parol agreement as to when the insurance shall commence, constitutes a contract
between the parties binding from that date. Such a contention as this can not be sustained.
Moreover, there is evidence in the case in addition to that already referred to, showing that the
company expressly refused to be bound until the application had been accepted either by its office in
Shanghai or its office in New York. In the application which Badger signed on the 5th day of July it is
said:
I agree, on behalf of myself and of any person who shall have or claim any interest in any
policy issued under this application, as follows: That inasmuch as only the officers at the
home office of the company in the city of New York have authority to determine whether or
nor a policy shall issue on any application, no statements, etc., shall be binding on the
company.
In the report of the medical examiner there is found this printed statement:
The examiner is requested to send direct to the company in New York City any information
which, for any reason, he prefers not to embody in this report. He can also mail this report
direct to the company if he prefers.
Herdman testifies that when he sent to Badger a receipt for the money paid, it was on one of two
printed blanks, which one he could not say. The court below found that the receipt was sent upon
the blank which contained a reference to the Shanghai office. Whether it was upon this form of
receipt or upon the other one is of no consequence. In one of them it is stated "that the company
shall incur no liability under the application until it has been received, approved by the resident board
of the company at Shanghai, and a policy issued thereon by the resident board, and the full premium
has actually been paid to and accepted by the company or its authorized agent during the lifetime
and good health of the person upon whose life the insurance is applied for. The company reserves
the absolute right of disapproval of such application."
The other form contains the statement that "the company shall incur no liability under the application
until it has been received, approved at the house office of the company, and a policy issued
thereon." This is then followed by the words of the first form. Upon both of these forms are printed
the words "conditional receipt."
It seems very clear that no liability was incurred by the company in this case. The judgment of the
court below is accordingly affirmed, with the costs of this instance against the appellant.
After expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter the record remanded to the court below for proper action. So ordered.
Arellano, C.J., Torres, Mapa, Carson and Tracey, JJ., concur.











Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-
appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.

MALCOLM, J .:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer
to recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased
for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the
Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later
he paid the sum of P6,000 to the manager of the company's Manila office and was given a receipt
reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina
Central de la Compañia.
The application was immediately forwarded to the head office of the company at Montreal, Canada.
On November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on
the same day the cable was received notice was sent by the Manila office of Herrer that the
application had been accepted, is a disputed point, which will be discussed later.) On December 4,
1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to
the Manila office of the company stating that Herrer desired to withdraw his application. The
following day the local office replied to Mr. Torres, stating that the policy had been issued, and called
attention to the notification of November 26, 1917. This letter was received by Mr. Torres on the
morning of December 21, 1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the
trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26,
1917, and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on
cross-examination that after preparing the letter and giving it to he manager, he new nothing of what
became of it. The local manager, Mr. White, testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on November 26, 1917. He said that on the same day
he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after
being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The
witness could not tell if the letter had every actually been placed in the mails. Mr. Tuason, who was
the chief clerk, on November 26, 1917, was not called as a witness. For the defense, attorney
Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr.
Herrer mentioned his application for a life annuity, and that he said that the only document relating to
the transaction in his possession was the provisional receipt. Rafael Enriquez, the administrator of
the estate, testified that he had gone through the effects of the deceased and had found no letter of
notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the local
office of the insurance company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should
be applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be
noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title
VIII of Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil
Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance
contracts and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health
insurance. The Act expressly repealed Title VIII of Book II and Section III of Title III of Book III of the
code of Commerce. The law of insurance is consequently now found in the Insurance Act and the
Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in
article 1802, not only describes a contact of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper disposition of the case. For
instance, article 16 of the Civil Code provides that "In matters which are governed by special laws,
any deficiency of the latter shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of insurance is deficient in
enunciating the principles governing acceptance, the subject-matter of the Civil code, if there be any,
would be controlling. In the Civil Code is found article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The contract, in such case, is presumed to have
been entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code
of Commerce on the same subject, and having thus left a void in the commercial law, it would seem
logical to make use of the only pertinent provision of law found in the Civil code, closely related to
the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of modern commercial
usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not
only this, but in order that the principle may not be taken too lightly, let it be noticed that it is identical
with the principles announced by a considerable number of respectable courts in the United States.
The courts who take this view have expressly held that an acceptance of an offer of insurance not
actually or constructively communicated to the proposer does not make a contract. Only the mailing
of acceptance, it has been said, completes the contract of insurance, as the locus poenitentiae is
ended when the acceptance has passed beyond the control of the party. (I Joyce, The Law of
Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of article
1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge. The pertinent fact is, that according to the
provisional receipt, three things had to be accomplished by the insurance company before there was
a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval
of the application by the head office of the company; and (3) this approval had in some way to be
communicated by the company to the applicant. The further admitted facts are that the head office in
Montreal did accept the application, did cable the Manila office to that effect, did actually issue the
policy and did, through its agent in Manila, actually write the letter of notification and place it in the
usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to
concur with the essential elements of the general rule pertaining to the mailing and delivery of mail
matter as announced by the American courts, namely, when a letter or other mail matter is
addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was
received by the addressee as soon as it could have been transmitted to him in the ordinary course of
the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For
instance, a letter will not be presumed to have been received by the addressee unless it is shown
that it was deposited in the post-office, properly addressed and stamped. (See 22 C.J., 96, and 49 L.
R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000
with legal interest from November 20, 1918, until paid, without special finding as to costs in either
instance. So ordered.
Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
Johnson, J., dissents.



Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 41702 September 4, 1935
FORTUNATA LUCERO VIUDA DE SINDAYEN, plaintiff-appellant,
vs.
THE INSULAR LIFE ASSURANCE CO., LTD., defendant-appellee.
Jos. N. Wolfson for appellant.
Araneta, Zaragoza and Araneta for appellee.
BUTTE, J .:
This if, an appeal from a judgment of the Court of First Instance of Manila in an action brought by the
plaintiff-appellant as beneficiary to recover P1,000 upon a life insurance policy issued by the
defendant on the life of her deceased husband, Arturo Sindayen.
The essential facts upon which this case turns are not in dispute and may be stated as follows:
Arturo Sindayen, up to the time of his death on January 19, 1933, was employed as a linotype
operator in the Bureau of Printing at Manila and had been such for eleven years prior thereto. He
and his wife went to Camiling, Tarlac, to spend the Christmas vacation with his aunt, Felicidad
Estrada. While there he made a written application on December 26, 1932, to the defendant Insular
Life Assurance Co., Ltd., through its agent, Cristobal Mendoza, for a policy of insurance on his life in
the sum of P1,000 and he paid to the agent P15 cash as part of the first premium. It was agreed with
the agent that the policy, when and if issued, should be delivered to his aunt. Felicidad Estrada, with
whom Sindayen left the sum of P26.06 to complete the payment of the first annual premium of
P40.06. On January 1, 1933, Sindayen, who was then twenty-nine years of age, was examined by
the company's doctor who made a favorable report, to the company. On January 2, 1933, Sindayen
returned to Manila and resumed his work a linotype operator in the Bureau of Printing. On January
11, 1933, The company accepted the risk and issued policy No. 47710 dated back to December 1,
1932, and mailed the same to its agent, Cristobal Mendoza, in Camiling, Tarlac, for delivery to the
insured. On January 11, 1933, Sindayen was at work in the Bureau of Printing. On January 12, he
complained of a severe headache and remained at home. On January 15, he called a physician who
found that he was suffering from acute nephritis and uremia. His illness did not yield to treatment
and on January 19, 1933, he died.
The policy which the company issued and mailed in Manila on January 11, 1933, was received by its
agent in Camiling, Tarlac, on January 16, 1933. On January 18, 1933, the agent, in accordance with
his agreement with the insured, delivered the policy to Felicidad Estrada upon her payment of the
balance of the first year's annual premium. The agent asked Felicidad Estrada if her nephew was in
good health and she replied that she believed so because she had no information that he was sick
and he thereupon delivered to her the policy.
On January 20, 1933, the agent learned of the death of Arturo Sindayen and called on Felicidad
Estrada and asked her to return the policy. He testified: "pedia a ella que me devolviera a poliza
para traerla a Manila para esperar la de decision de la compañia" (t. s. n. p. 19). But he did not
return or offer to return the premium paid. Felicidad Estrada on his aforesaid statement gave him the
policy.
On February 4, 1933, under circumstances which it is not necessary to relate here, the company
obtained from the beneficiary, the widow of Arturo Sindayen, her signature to a legal document
entitled "ACCORD, SATISFACTION AND RELEASE" whereby in consideration of the sum of P40.06
paid to her by a check of the company, she "assigns, releases and forever discharges said Isular
Life Assurance Co., Ltd., its successors and assigns, of all claims, obligation in or indebtedness
which she, as such beneficiary ever had or now has, hereafter ca, shall, or may have, for, upon, or
by reason of said policy of life insurance numbered 47710 upon the life of said Arturo Sindayen, the
latter now deceased, or arising therefrom or connected therewith in any manner", which appears in
the record as Exhibit A, attached to the deposition of the notary who executed th fraudulent
acknowledgment to Exhibit A. The said check for P40.06 was never cashed but returned to the
company and appears in the record of this case as Exhibit D. Thereupon this action was brought to
enforce payment of the policy.
By the terms of the policy, an annual premium of P40.06 is due on the first day of December of each
year, the first premium already paid by the insured covering the period from December 1, 1932. It is
to December 1, 1933. It is to be noted that the policy was not issued and the company assumed no
actual risk prior to January 11, 1933.
The policy contains the following paragraph:
THE CONTRACT. This Policy and the application herefor constitute the entire contract
between the parties hereto. All statements made by the Insured shall, in the absence of
fraud, be deemed representations and not warranties, and no such statement shall void the
Policy unless it is contained in the written application, a copy of which is attached to this
Policy. Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the time for making any premium
payment, and the Company shall t bound by any promise or representation heretofore
hereafter given by any person other than the above-named officials, and by them only in
writing and signed conjointly as stated.".
The application which the insured signed in Camiling, Tarlac, on December 26, 1932, contained
among others the following provisions:
2. That if this application is accepted and a policy issued in my favor, I bind myself to accept
the same and to pay at least the first year's premium thereon in the City of Manila.
3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the Company's right or requirements.".
The insurance company does not set up any defense of fraud, misconduct or omission of duty of the
insured or his agent, Felicidad Estrada or of the beneficiary. In its answer it pleads the "ACCORD,
SATISFACTION AND RELEASE" (Exhibit A) signed by the widow of Arturo Sindayen, the plaintiff-
appellant. With respect to Exhibit A, it suffices to say that this release is so inequitable, not to say
fraudulent, that we are pleased to note that counsel for the defendant company, on page 51 of their
brief, state: "si resultara que la poliza aqui en cuestion es valida la apelada seria la primera en no
dar validez alguno al documento Exhibit A aunque la apelante hubiera afirmado que lo otorgo con
conocimiento de causa."
It is suggested in appellee's brief that fhere was no delivery of the policy in this case because the
policy was not delivered to and accepted by the insured in person. Delivery to the insured in person
is not necessary. Delivery may be made by mail or to a duly constituted agent. Appellee cites no
authorities to support its proposition and none need be cited to refute it.
We come now to the main defense of the company in this case, namely, that the said policy never
took effect because of paragraph 3 of the application above quoted, for at the time of its delivery by
the agent as aforesaid the insured was not in good health. We have not heretofore been called upon
to interpret and apply this clause in life insurance application, but identical or substantially identical
clauses have been construed and applied in a number of cases in the United States and the
decisions thereon are far from uniform or harmonious. We do not find it practicable to attempt to
determine where the weight of the authority lies and propose to resolve this case on its own facts.
There is one line of cases which holds that the stipulation contained in paragraph 3 is in the nature
of a condition precedent, that is to say, that there can be no valid delivery to the insured unless he is
in good health at the time; that this condition precedent goes to the very essence of the contract and
cannot be waived by the agent making delivery of the policy, (Rathbun is. New York Life Insurance
Co., 30 Idaho, 34; 165 Pac., 997; American Bankers Insurance Co. vs. Thomas, 53 Okla., 11; 154
Pac., 44; Gordon vs. Prudential Insurance Co., 231 Pa., 404; Reliance Life Insurance
Co. vs. Hightower, 148 Ga., 843; 98 S.E., 469.)
On the other hand, a number of American decisions hold that an agent to whom a life insurance
policy similar to the one here involved was sent with instructions to deliver it to the insured has
authority to bind the company by making such delivery, although the insured was not in good health
at the time of delivery, on the theory that the delivery of the policy being the final act to the
consummation of the contract, the condition as to the insurer's good health was waived by the
company. (Kansas City Life Insurance Co. vs. Ridout, 147 Ark., 563; 228 S.W., 55; Metropolitan Life
Insurance Co. vs. Willis, 37 Ind. App., 48; 76 N.E., 560; Grier vs. Mutual Life Insurance Co. of New
York, 132 N.C., 543; 44 S.E., 38; Bell vs. Missouri State Life Insurance Co., 166 Mo. App., 390; 149
S.W., 33.)
A number of these cases go to the of holding that the delivery of the policy by the agent to the
insured consummates the contract even though the agent knew that the insured was not in good
health at the time, the theory being that his knowledge is the company's knowledge and his delivery
of the policy is the company's delivery; that when the delivery is made notwithstanding this
knowledge of the defect, the company is deemed to have waived the defect. Although that appears
to be the prevailing view in the American decisions (14 R.C.L., 900) and leads to the same
conclusion, namely, that the act of delivery of the policy in the absence of fraud or other ground for
recission consummates the insurance, we are inclined to the view that it is more consonant with the
well known practice of life insurance companies and the evidence in the present case to rest our
decision on the proposition that Mendoza was authorized by the company to make the delivery of
the policy when he received the payment of the first premium and he was satisfied that the insured
was in good health. As was well said in the case of MeLaurin vs. Mutual Life Insurance Co. (115
S.C., 59; 104 S.E., 327):
So much comes from the necessity of the case; the president, the vice-president, and the
secretary cannot solicit, or collect, or deliver; they must commit that to others, and along with
it the discretions we have adverted to. . . . The power in the local agent to withhold the policy
involves the power to deliver it; there is no escape from that conclusion.
But the appellant says, even though the local agent should have concluded that the applicant
was in good health, yet, if the fact be the contrary, then the policy never operated. The
parties intended to make a contract, and that involved the doing of everything necessary to
carry it into operation, to wit, the acceptance of the applicant as a person in good health.
They never intended to leave open that one essential element of the contract, when the
parties dealth fairly one with the other. It is plain, therefore, that upon the facts it is not
necessarily a case of waiver or of estoppel, but a case where the local agents, in the
exercise of the powers lodged in them, accepted the premium and delivered the policy. That
act binds their principal, the defendant.
Mendoza was duly licensed by the Insurance Commissioner to act as the agent of the defendant
insurance company. The well known custom of the insurance business and the evidence in this case
prove that Mendoza was not regarded by the company as a mere conduit or automaton for the
performance of the physical act of placing the policy in the hands of the insured. If Mendoza were
only an automaton then the legally effective delivery of the policy and the consummation of the
contract occurred when the company expressed its will to release the policy by mailing it to its agent,
namely, on January 11, 1933. In such a case the agent would perform a purely ministerial act and
have no discretion. He could do nothing but make unconditional delivery. The legal result would be
the same as if the company had mailed the policy on January 11, 1933, to the insured directly using
the post-office as its conduit for delivery. On January 11, 1933, the insured was in good health
performing his regular duties in the Bureau of Printing.
But we are not inclined to take such a restrictive view of the agent's authority because the evidence
in the record shows that Mendoza had the authority, given him by the company, to withhold the
delivery of the policy to the insured "until the first premium has been paid and the policy has been
delivered to and accepted by me (the insured) while I am in good health". Whether that condition had
been met or not plainly calls for the exercise of discretion. Granted that Mendoza's decision that the
condition had been met by the insured and that it was proper to make a delivery of the policy to him
is just as binding on the company as if the decision had been made by its board of directors.
Granted that Mendoza made a mistake of judgement because he acted on insufficient evidence as
to the state of health of the insured. But it is not charged that the mistake was induced by any
misconduct or omission of duty of the insured.
It is the interest not only the applicant but of all insurance companies as well that there should be
some act which gives the applicant the definite assurance that the contract has been consummated.
This sense of security and of peace of mind that one's defendants are provided for without risk either
of loss or of litigation is the bedrock of life insurance. A cloud will be thrown over the entire insurance
business if the condition of health of the the insured at the time of delivery of the policy may be
required into years afterwards with the view to avoiding the policy on the ground that it never took
effect because of an alleged lack of good health, at the time of delivery. Suppose in the present
instance that Sindayen had recovered his health, but was killed in an automobile accident six
months after the delivery of the policy; and that when called on to pay the loss, the company learns
of Sindayen's grave illness on January 18, 1933, and alleges that the policy had never taken effect.
It is difficult to imagine that the insurance company would take such a position in the face of the
common belief of the insuring public that when the policy is delivered, in the absence of fraud or
other grounds for rescission, the contract of insurance is consummated. The insured rests and acts
on that faith. So does the insurance company, for that matter, for from the date of delivery of the
policy it appropriates to its own use the premium paid by the insured. When the policy is issued and
delivered, in the absence of fraud or other grounds for rescission, it is plainly not within the intention
of the parties that there should be any questions held in abeyance or reserved for future
determination that leave the very existence of the contract in suspense and doubt. If this were not
so, the entire business world which deals so voluminously in insurance would be affected by this
uncertainly. Policies that have been delivered to the insured are constantly being assigned for credit
and other purposes. Although such policies are not negotiable instruments and are subject to
defenses for fraud, it would be a most serious handicap to business if the very existence of the
contract remains in doubt even though the policy has been issued and delivered with all the
formalities required by the law. It is therefore in the public interest, for the public is profoundly and
generally interested in life insurance, as well as in the interest of the insurance companies
themselves by giving certainly and security to their policies, that we are constrained to hold, as we,
do, that the delivery of the policy to the insured by an agent of the company who is authorized to
make delivery or without delivery is the final act which binds the company (and the insured as well)
in the absence of fraud or other legal ground for rescission. The fact that the agent to whom it has
entrusted this duty (and corporation can only act through agents) is derelict or negligent or even
dishonest in the performance of the duty which has been entrusted to him would create a liability of
the agent to the company but does not resolve the company's obligation based upon the authorized
acts of the agent toward a third party who was not in collusion with the agent.
Paragraph 4 of the application to the effect "that the agent taking this application has no authority to
make, modify or discharge contracts or to waive any of the company's rights or requirements" is not
in point. Mendoza neither waived nor pretended to waive any right or requirement of the company. In
fact, his inquiry as to the state of health of the insured discloses that he was endeavoring to assure
himself that this requirement of the company had been satisfied. In doing so, he acted within the
authority conferred on him by his agency and his acts within that authority bind the company. The
company therefore having decided that all the conditions precedent to the taking effect of the policy
had been complied with and having accepted the premium and delivered the policy thereafter to the
insured, the company is now estopped to assert that it never intended that the policy should take
effect. (Cf. Northwestern Life Association vs. Findley, 29 Tex. Civ. App., 494; 68 S.W, 695;
McLaurin vs. Mutual Life Insurance Co., 115 S.C., 59; 104 S.E., 327; 14 Aal. Jur., par. 12, pages
425-427.)
In view of the premises, we hold that the defendant company assumed the risk covered by policy
No. 47710 on the life of Arturo Sindayen on January 18, 1933, the date when the policy was
delivered to the insured. The judgment appealed from is therefore reversed with directions to enter
judgment against the appellee in the sum of P1,000 together with interest at the legal rate from and
after May 4, 1933, with costs in both instances against the appellee.
Malcolm. Villa-Real, Abad Santos, Hull, Vickers, Goddard, and Recto, JJ., concur.


Separate Opinions
AVANCEÑA, C.J ., concurring:
I concur in the result of this decision. I agree with the conclusion arrived in the majority opinion in the
sense that the contract in question was consummated. I am of the opinion, however, that this
contract was consummated by the defendant due to an error regarding an essential condition, to wit:
the the good health of the insured. There is no doubt but that the defendant would not have
consummated the contract had it known that the insured was hopelessly ill, inasmuch as this
consideration is essential in this kind of contracts. It is not true that the defendant or its agent had
waived this condition inasmuch as it consummated the contract in the belief that this condition had
been compiled with, in view of the information given to it in good faith by the agent of the insured to
the effect that the latter might continue to be in good health for the reason that she had not received
any information from him to the contrary. This being so, the defendant's consent is vitiated by error,
and, inasmuch as it affects an essential condition of the contract, it may give rise to the nullity
thereof.
However, inasmuch as the nullity of the contract has not been set up as a a defense in this case, I
concur with the majority in the result.


IMPERIAL, J ., dissenting:
The plaintiff, as beneficiary brought this action recover from the defendant, an insurance Company,
the sum of P1,000, the value of a life insurance policy issued the name of Arturo Sindayen, the
plaintiff's husband.
The plaintiff appealed from the judgment dismissing the complaint, without special pronouncement
as to costs.
On December 26, 1932, Arturo Sindayen signed Exhibit 6 wherein he applied for life insurance in the
sum of P1,000 under certain conditions, among others, the following:
3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the company's right or requirements.
On the back of the policy said conditions were endorsed as follows:
THE CONTRACT. This Policy and the application herefor constitute the entire contract
between the parties hereto. All statements made by the Insured shall, in the absence of
fraud, be deemed representations and not warranties, and no such statement shall void the
Policy unless it is contained in the written application, a copy of which is attached to this
Policy. Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the time for making any premium
payment, and the Company shall not be bound by any promise or representation heretofore
or hereafter given by any person other than the above-named officials, and by them only in
writing and signed conjointly as stated.
The insurance was secured by the defendant's agent Cristobal Mendoza in Camiling, Tarlac. The
first premium to be paid by the insured amounted to P40.06 and on account of this sum he paid the
agent P15 after he signed the application, with the understanding between them that the balance of
P25.06 would be paid in the same town on the date the policy would be delivered. The insured
designated his aunt Felicidad Estrada to act as his representative and to receive in his name the
policy and to pay the balance of the premium. On January 11, 1933, the defendant issued insurance
policy No. 47710, dated December 1, 1932 and sent it by registered mail to its agent in Camiling,
Tarlac. On January 16th the agent got the policy from the post office and on the 18th he looked for
the insured, but Felicidad Estrada informed him that the insured had returned to Manila. The agent
asked her whether the insured continued to be sound and in good health, to which she replied that
she believed that he was in good health inasmuch as she received no information that he was sick,
whereupon the agent delivered the policy to Felicidad Estrada with instruction to hand it to the
insured and, after receiving the sum of P25.06, he issued the receipt for the payment of the premium
of P40.06, signing it as defendant's agent. On January 19th Felicidad Estrada came to Manila, to the
home of the insured at No. 14 Teresa Street, to deliver the policy, but she found that he died a few
hours before her arrival and there she saw his lifeless body. Felicidad Estrada delivered the policy to
the plaintiff as beneficiary. On January 20th of the same year the agent had knowledge of the death
of the insured and went to see Felicidad Estrada whom be requested to return the policy so that the
defendant would decide what was to be done. On that occasion the agent conveyed to Felicidad
Estrada his belief that the insured was not in good health when he delivered the policy to her.
Felicidad Estrada returned the policy to the agent on the afternoon of said date. The agent gave
notice to the defendant of the death of the insured and of the circumstances under which, he had
delivered the policy, and the defendant on February 4th of the same year returned to the plaintiff by
check all the premium theretofore received, and furthermore secured from her Exhibit A (Accord,
Satisfaction and Release), by virtue of which said plaintiff acknowledged having received the
aforesaid premium and that in further consideration thereof she formally waived whatever right she
might have, as beneficiary, in the insurance policy issued in the name of her deceased husband.
With respect to the sickness of the deceased, it appears that on January 1, 1933 he was examined
by the physician of the defendant company. On the 12th of the same month he felt ill and consulted
Dr. Alfredo L. Guerrero who, after an examination, found him suffering from nephritis. On the 15th he
was treated for the second time by the physician, who found him seriously ill and with fever. In the
afternoon of January 19, 1933, he died from nephritis and uremia in his home in Manila.
In its answer the defendant set up two special defenses:
(1) That the plaintiff bas lost any and an right to collect the value of the policy because at the time
the first premium was paid and the policy was delivered to the insured, the latter was not in good
health, thus violating clause 3 of the application which he signed and was made an integral part of
the policy as one of the conditions thereof; and (2) that the plaintiff by means of the document known
as "Accord, Satisfaction and Release" has waived whatever right she might derive from the
insurance policy.
A stipulation or contract between the company and the applicant in the sense that the insurance
policy will produce no effect or will not be binding on the company unless the first premium shall
have been paid while the applicant is alive and in good health, is valid will will be enforced in
accordance with the terms thereof; it is a condition precedent to the liability of the company, and
compliance therewith or its waiver are necessary for the enforcement and fulfillment of the insurance
contract, unless the case should come under the provisions of an uncontestable clause.
([Perry vs. Security L., etc., Co., 150 N.C., 143; 63 S.E., 679; Rathbun vs. New York L. Ins. Co, 30
Ida., 34; 165 P., 997; Hawley vs. Michigan Mut. L. Ins. Co., 92 Iowa, 593; 61 N.W., 201;
Whiting vs.Massachusetts Mut. L. Ins. Co., 129 Mass., 240; 37 Am. Rep., 317; Missouri State L. Ins.
Co. vs. Salisbury, 279 Mo., 40; 213 S.W., 786; Ormond vs. Fidelity Life Assoc., 96 N.C., 158; 1 S.E.,
796; Bowen vs. New York Mut. L. Ins. Co., 20 S.D., 103; 104 N.W., 1040; Rositer vs. Aetna L. Ins.
Co., 91 Wis., 121; 64 N.W., 876; Anders vs. Life Ins. Clearing Co., 62 Neb., 585; 87 N.W., 331;
Reliance L. Ins. Co. vs. Hightower, 148 Ga., 843; 98 S. E., 469; Clark vs.Mutual L. Ins. Co., 129 Ga.,
571; 59 S.E., 283; Reese vs. Fidelity Mut. Life Assoc., 111 Ga., 482; 36 S.E., 637 [foll.
Williams vs. Empire L. Ins. Co., 146 Ga., 246; 91 S.E., 44); Oliver vs. New York Mut. L. Ins. Co., 97
Va., 134; 33 S.E., 526; Reese vs. Fidelity Mut. Life Assoc., 111 Ga., 482; 36 S.E., 637;
Anders vs. Life Ins. Clearing Co., 62 Neb., 585; 87 N.W., 331; Perry vs. Security L. etc., Co., 150
N.C., 143; 63 S.E., 679; Strigham vs. Mutual Ins. Co., 44 Ore., 447; 75 Pac., 822;
Dibble vs. Reliance L. Ins. Co., 170 Cal., 199; 149 Pac., 171.] Ann. Cas. 1917E, 34.)
In the case of Reliance Life Ins. Co. vs. Hightower, supra, the Supreme Court of Georgia, in a similar
case, said the following:
. . . An application for life insurance, signed by the applicant, contained a provision as
follows:
"I hereby declare and agree that all statements and answers written in this application . . .
are true, full, and complete, and are offered to the company as a consideration for the
contract of insurance, which I hereby agree to accept, and which shall not take effect until
the first premium shall have been actually paid while I am in good health and the policy shall
have been signed by the duly authorized officers of the company and issued."
The policy itself contained, among others, the following provisions:
"Agents are not authorized to modify this policy or to extend the time for paying a premium . .
.. All insurance provided by this policy is based upon the application therefore, a copy of
which is hereto attached and made a part of this policy."
xxx xxx xxx
Applying to the facts above stated the principles recognized in Reese vs. Fidelity Mutual Life
Association (111 Ga., 482; 36 S. E., 637), it must be ruled: (1) It was within the power of the
insurance company, as between itself and its agent, to define and limit the powers of the latter.
Limitations upon the power of the agent affect all third persons dealing with him, who have
knowledge or notice thereof; and any notice of limitations upon the agent's power which a prudent
man is bound to regard, is the equivalent of knowledge to the insured; (2) the stipulation in the
signed application, that the insurance "shall not take effect until the first premium shall have been
actually paid while I am in good health," coupled with the words in the policy, "Agents are not
authorized to modify this policy or to extend the time for paying a premium," were sufficient to charge
the applicant with notice that he was dealing with a special agent with limited powers; (3) the actual
payment of the first premium during the good health of the applicant was a condition precedent to
liability under the policy, and the agent of the company could not waive such condition.
In the case of Missouri State Life Ins. Co. vs. Salisbury, supra, the Supreme Court of Missouri, in
another similar case, said:
The application has this clause:
"6. That the insurance hereby applied for shall not take effect unless the first premium is paid and
the policy delivered to and accepted by me during and lifetime and good health."
Another reason why the contract was never completed was because the first premium was na paid
nor tendered during the good health of Mrs. Salisbury, as required by the stipulation in the
application quoted above.
A stipulation of that character, requiring the payment of a first premium in advance as a
condition upon which the policy was to take effect, is is always recognized and enforced by
the courts. The policy, in such case, is not effective until that condition is complied with.
(Kilcullen vs. Life Ins. Co., 108 Mo. App., 61; 82 S.W., 966; Wallingford vs. Home Mut. Fire &
Marine Ins. Co., 30 Mo., 46; Ormond vs. Insurance Co., 96 N.C., 158; 1 S.E., 796;
Bowen vs. Mutual Life Ins. Co., 20 S.D., 103; 104 N.W., 1040.)
In the case of Rathbun vs. New York Life Ins. Co., supra, the Supreme Court of Idaho said:
In its answer and on the trial of the case, the main contention of the insurance company
were: First, that under, the terms of the contract the first premium was to be paid in cash;
and, second, the policy was not to take effect until the insured was in good health at the time
it was delivered to him. Said contentions are partly based upon the stipulations above quoted
from the application for said insurance.
The court in its findings of fact, among other things, found as follows.
"The court further finds that Ernest C. Rathbun, the applied in writing for insurance on his life,
that the insurance thereby applied for effect unless the first premium was paid and the policy
was delivered to and received by him during his lifetime and good health. After applying for
the policy and before its delivery, the applicant was taken with appendicitis, from which he
died. While he was in the hospital, the soliciting agent at Spoken, in total ignorance of the
changed condition of the applicant's health, mailed him the policy. The applicant's friends
thereafter paid the first premium, which the company promptly returned when it discovered
facts."
The evidence is clearly sufficient to sustain this finding of fact.
Then if the parties understood and agreed that the policy should not become effective unless
the first premium was paid and the policy was delivered to and received by the applicant
during his lifetime and while he was in good health, and both of those conditions failed, the
contract of insurance was never completed, and the policy was of no force and effect. It is a
well-recognized rule that life insurance results from contract, and that the true rule is that no
other or different rule is to be applied to a contract of insurance than is applied to other
contracts. (Quinlan vs. Providence-Washington Ins. Co., 133 N.Y., 356; 28 Am. St. Rep.,
645; 31 N.E., 31.) In life insurance contracts, the assent of both parties is required as in any
other contract. (Stephens vs. Capital Ins. Co., 87 Iowa, 283; 54 N.W., 136;
Weidenaar vs. N.Y. Life Ins. Co., 36 Mont., 592; 122 Am. St., 330; 94 Pac., 1.)
In the determination of this case, the application and the policy itself must be examined and
considered in order to ascertain the true situation of the parties under the negotiations and
agreements between them. (Iowa Life Ins. Co. vs. Lewis, 187 U.S., 335; 23 Sup. Ct., 126; 47
Law. ed. 204; Behling vs. N.W. Nat. Life Ins. Co., 117 Wis., 24; 93 N.W., 80O.)
If we concede in this case that the premium was paid by the payment of the $5 and the
delivery of the insured's promissory note to the agent of the company for the balance, the
plaintiffs would not be entitled to recover, for the reason that the policy was not delivered to
and received by the applicant while he was in good health, but hen he was fatally ill. He
became ill with appendicitis on the 28th of April, 1913, was operated on that day and
thereafter died on the 10th day of May, 1918, five days after receiving the policy.
In the case of Gordon vs. Prudential Insurance Company (231 Pa., 404), the Supreme Court of
Pennsylvania said:
. . . In the case at bar, the policy was issued and handed to the agent, who delivered it to the
insured before payment of the premium, and upon the insured giving a receipt, in which it
was stated that the policy was "received for the purpose of inspection only and upon the
understanding that it is not to be in force until the first premium payable thereunder has been
paid by me and the official receipt of the company delivered to me during my lifetime and in
good health, as provided in my application upon which the above numbered policy was
issued." This, therefore, was a conditional delivery of the policy and the contract could not be
consummated except upon performance of that condition, namely, payment of the premium,
thereafter, while the insured was alive and in good health, as provided in both the application
and receipt for the policy.
xxx xxx xxx
It is therefore undisputed that on the day of the payment of the premium, Mr. Gordon was ill
of the disease which caused his death within sixty-four hours after such payment. There was
no dispute, nor contradictory testimony as to the condition of Mr. Gordon's health on the day
of payment, and, therefore, nothing for the jury to pass upon in this respect.
xxx xxx xxx
In the case at bar, there was no question of the condition of the health of the insured on the
day of the payment of the premium, and and no conflicting testimony as to the serious nature
of his illness on that day, nor as to any other material fact in the cause. No person testified
that Mr. Gordon was in "good health" on Saturday, May 16, the day the premium was paid,
but on the witness who had knowledge of his condition and who was asked the question,
including the, plaintiff herself, said that he was not in "good health" on that day. How, then,
can a jury be permitted to find that he was in "good heath" at the time of the payment of the
premium in the absence of any evidence to warrant or support such finding?
xxx xxx xxx
In this case it is impossible to find from the evidence that on Saturday, May 16, the day of the
payment of the premium, and at the time of such payment, the applicant had no grave,
important or serious disease, or that he was free from any ailment that seriously affected the
general soundness and healthfulness of his system, or that he suffered a mere temporary
indisposition which did not tend to weaken or undermine his constitution at the time of paying
the premium. Nor is it possible to find that he enjoyed such health and strength as to justify a
reasonable belief that he was free from derangement of organic functions, or free from
symptoms calculated to cause a reasonable apprehension of such derangement, and that to
ordinary observation and outward appearance his health was reasonably such that he might,
with ordinary safety, be insured and upon ordinary terms which only would satisfy the
requirement of "good health". But on the contrary, the testimony conclusively shows that on
Saturday May 16,1908, at the time of the payment of the premium, the condition of Mr.
Gordon's health was both a serious and a dangerous one, and such as would preclude the
possibility of any life insurance company, with knowledge of his condition, issuing its policy
upon his life for anything like the ordinary premium; in other words, his condition at that time
was such as to render him a hazardous and dangerous risk, which would not be assumed by
any insurance company upon receipt of the of the ordinary premium for insurance upon the
life of an ordinary risk.
With the question of good faith on the part of the insured at the time of paying the premium,
we have nothing to do. The fact is that his physical condition was not disclosed to the
company or its agent at the time of the payment of the premium; and that his condition was
not at that time such as, in his application for insurance, he stated it to be. This being true, it
is no leader hardship upon the beneficiary in the policy to say that the premium paid under
such conditions does not entitle her to recover the amount of insurance from the defendant
company.
In the case of Powell vs. Prudential Insurance Co. of America (153 Ala., 611), the Supreme Court of
Alabama, in a similar cause, said:
On June 22, 1904, Claude D. Powell applied to the defendant company for insurance on his
life for $1,000. In his application for insurance, he stated: "I am in good health, . . . and all the
statements and answers to the above questions are complete and true, and that the
foregoing, together with this declaration, shall constitute the application, and become a part
of the contract for insurance hereby applied for. And it is agreed that the policy herein
applied for shall be accepted subject to the privileges and provisions therein contained, and
said policy shall not take effect until the same shall be issued and delivered by the said
company, and the first premium paid thereon in full, while my health is in the same condition
as described in this application."
xxx xxx xxx
Here we find that two absolute conditions precedent of the contract of insurance, were set
aside or annulled, in what the friends of the deceased attempted to do, in that, the the firsts
premium was never paid by the assured one any one for him, and if, by any possible
construction, it could be held that it was not totally sick at the time, of which fact the company
was ignorant; and further, it is not denied that the policy was never delivered — if was done
could possibly amount to delivery — until after the death of the assured. To hold that the
policy was good under such circumstances, would be to abrogate and set aside the contract
of insurance, and hold the company liable for a payment of the policy against the very terms
of its contract.
The same principle controls and applies when, as in the instant case, it is stipulated that the policy
shall be of no effect if at the time of its delivery to the insured he is not in good health.
The condition is valid and binding when its refers only to the payment of the first premium as well as
to the delivery of the policy, or to both.
In the case of Nyman vs. Manufactures' & Merchants' Life Ass'n.
(104 N.E., 653), the Supreme Court of IIlinois said:
. . . The proof is direct and positive that on the last-named date she was not in good health,
and that two months and three months day later she died from the disease the proof showed
she was suffering from on that day. If there had been no proof of the condition of Mrs.
Nyman's health on the day the certificate was delivered, then there would be some force in
plaintiff's contention that the inference might be indulged that, if she was in good health on
April 11th, she so continued until the 19th. But no such inference can be indulged, when the
uncontradicted proof shows she was in bad health the day the certificate was delivered, and
so continued until her death. Defendant proved its third special plea, and, in our opinion,
plaintiff offered no evidence that legitimately tended to rebut defendant's evidence. The trial
court therefore erred in refusing to direct a verdict in favor of defendant under the issue
made by the third special plea. (Libby, McNeill & Libby vs. Cook, 222 Ill., 206; 78 N.E., 599.)
In the case of American Bankers' Ins. Co. vs. Themas (53 Okla. Rep., 11), the Supreme Court of
Oklahoma said:
That part of the policy which provides that the same shall not take effect until it is delivered
by the company while the insured is in good health prescribes a condition precedent to the
attachment of the risk under the policy. (1 Cooley's Briefs on the Law of Insurance, p. 451.)
Recognizing it to be such, plaintiff properly pleaded a waiver thereof by setting up the facts
as stated. (Western, etc., Ins. Co. vs. Coon, 38 Okla., 453; 134 Pac., 22; Anders vs. Life Ins.
Clearing Co., 62 Neb., 585; 87 N.W., 33 1.)
In the case of Steinsultz vs. Illinois Bankers Life Association (229 Ill. App. Rep., 199), the third
district of the Appellate Courts, in a similar cause, said:
The policy of insurance contains the following clause:
"I agree to accept the Policy issued hereon and that the same shall not take effect until the
first payment shall have been made and the Policy issued and actually delivered to me
during my continuance in good health."
The main question in this case, in the opinion of this court, is the question as to whether a
valid and legal policy ever was issued and actually delivered to the insured, Myrtle May
Steinsultz. It is argued that the clause in question is a condition precedent and requires that
the insured shall be in good health at the time of the payment of the first premium and the
actual delivery of the policy to her, otherwise that the policy never became operative and for
the purposes of this suit is void. It will be noticed that plaintiff in representing his main case
made no effort to submit or show anything as to the health of the insured prior to the claimed
delivery of the policy. If the clause in question is a condition precedent to recovery, which we
shall discuss later, the general issue filed by the defendant denied the existence of a valid
policy and raised this question and required proof on the part of the plaintiff to show that the
insured was in good health at the time of the claimed delivery of the policy. No much proof
was shown and the defendant, appellant, at the close of plaintiff's case, moved the court to
instruct the jury, under the pleadings and evidence in the case, to find verdict for the
defendant and form a verdict was submitted with the motion. This motion the court overruled,
to which ruling appellant duly excepted and this issue is therefore squarely raised by the
proceedings as the existence of legal and binding policy in the case under the terms of said
contract.
In Ellis vs. State Mut. Life Assur. Co. of Worcester (206 III. App., 226), the appellant
insurance company filed a plea of the general issue with notice of special matter of defense,
the special matter being that the policy was not to be in effect until actually delivered and the
first premium paid during the lifetime of the assured, and while he was in the same condition
of health as when his application was signed, and that the policy was not so delivered. There
was a trial, verdict and judgment in favor of appellee, being the amount of the policy and
interest. To reverse said judgment the appellant prosecuted appeal. In this case the
application, signed by Ellis, contained, among other things, the following provision: "That the
contract or policy applied for shall not take effect until the first premium thereon shall have
been actually paid and the policy delivered to me during my lifetime and the present
condition of health."
The policy issued thereon contained this provision: "This policy shall not take effect until
actually delivered and the first premium paid thereon during the lifetime of the insured."
Said policy contained the further provisions: "This policy and the application therefor shall
constitute the entire contract between the parties hereto."
In this case, likewise, the appellant at the close of appellee's evidence and then again at the
close of all the evidence, moved the court to direct a verdict in its favor. Appellant objected to
the admission of the policy sued upon, in evidence. In this case on December 14, 1914, the
insured was injured and was carried to his home and died between 4:30 and 5 p.m. on that
day, and it appears that the policy of insurance had been returned to the office of the agent
of the insurance company the evening before but had not been delivered personally to the
insured at the time of his death. In this case the contention was made by the holders of the
policy and that the delivery to the agent was a delivery to the insured.
The court goes into the question in the Ellis case very exhaustively, quoting from a great
many cases and qouting from Devine vs. Federal Life Ins. Co. (250 III., 203), in which the
Supreme Court in discussing the question of the delivery of an insurance policy, at page 206,
says:
"The application may or not provide that the insurance shall effect only upon the delivery of
the policy to the insured. Unless expressly made so by the contract itself, an actual delivery
of a policy of insurance to the insured is not essential to the validity of the contract, and the
rule under such circumstances is that a policy becomes binding upon the insurer when
signed and that forwarded to the insurance broker to whom the application as made, to be
delivered to the insured."
And quoting 25 Cyc 718, 719, it is stated with reference to the delivery of insurance policies
that: "The placing of the completed policy on hands of the agent for the delivery, without
condition, to the insured completes the contract, though the actual delivery by the agent to
the insured is not made before the death of the insured. But if the delivery to the agent of the
company is with the understanding that it is to be delivered by the agent to the insured only
after the performance of some condition, then until the condition is performed and it becomes
the duty of the agent to deliver the policy to the insured, the contract is not complete. . . . It is
usual condition of a life insurance policy that the delivery shall not be effectual to create a
binding contract unless the insured is alive in good health when the policy is delivered and
the first premium paid, and under such conditions the death of the insured before the delivery
of the policy will prevent its becoming effectual.
It was held in the Ellis case that in view of foregoing authorities, numerous of which we have
not cited here, that the policy sued on was never delivered and that the court erred in not
directing a verdict in favor of appellant and reversed the judgment with a finding of fact.
The language in the policy in question, "I agree to accept the Policy issued hereon and that
the same shall not take effect until the first payment shall have been made and the Policy
issued and actually delivered to me during may continuance in good health," is a condition
precedent to the existence of any binding legal contract of insurance upon the appellant. It
means just what its says and it was entered into signed by the insured. The statement was a
warranty that the insured was in good health at the time she signed said application and
further was a binding obligation that she should continue in good health at the time the policy
was delivered to her, otherwise the policy never should become binding and obligatory. It is
condition that goes to the very existence of the policy and its validity, and under the facts in
this case it is insisted strenuously that no binding policy was ever issued and delivered by
the appellant.
And in the case of Federal Life Ins. Co. vs. Wright (230 S.W., 795), the Civil Appellate Court of
Texas said:
. . . The application and the policy contain the entire contract between the parties, and it is
not only agreed in the application that all of the statements therein "are full, true, and
complete," but it is stipulated therein, as above shown, that the policy of insurance applied
for shall not take effect until the policy shall have been actually delivered to the insured and
the premium paid during his life and while he was in good health. The purpose and meaning
of this provision, standing alone or taken in connection with any or all other provisions of the
contract, is clear, without ambiguity, and not to open to construction. It unquestionably
means that the policy should not take effect as a contract of insurance unless actually
delivered to the applicant therefor while he was in good health. This being the meaning of the
provision, and the appellee having admitted in her pleadings and in open court at the trial
that the applicant or insured was afflicted with tuberculosis of the lungs at the time the policy
was delivered to him, and that such disease caused his death, the policy by its terms never
became an obligation of the appellant.
Applications for policies of life insurance frequently provide, as in the present instance, that
the policy shall not take effect unless it is delivered to the insured and the premium paid
while he is in good health, and the great weight of authority is to the effect that such
provision is valid, and that if the insured was not in fact in good health on the date the policy
was delivered the company is not liable. (Gallant vs. Metropolitan L. Ins. Co., 167 Mass., 79;
44 N.E. 1073; Murphy vs. Metropolitan Life Ins. Co., 106 Minn., 112; 118 N. W., 365;
Logan vs. New York L. Insurance Co., 107 Wash., 253; 181 Pac., 906; Metropolitan L.
Insurance Co. vs.Willis, 37 Ind. App., 48; 76 N.E., 560; Gallop vs. Royal Neighbors of
America, 167 Mo. App., 85; 150 S.W., 1118; Metropolitan L. Insurance Co. vs. Betz, 44 Tex.
Civ. App., 557; 99 S.W., 1140; American Nat. Insurance Co. vs. Anderson, 179 S.W, 66;
Security Mut. L. Ins. Co. vs. Calvert, 39 Tex. Civ. App., 382; 87 S.W., 889;
Seaback vs. Metropolitan L. Ins. Co., 274 Ill., 516; 113 N.E., 862; Mutual L. Insurance
Co. vs.Willey, 133 Md., 665; 106 Atl., 163.) It is also held that it is immaterial that the
condition of the insurer's health has changed since his application was made, or that he was
ignorant of his condition. (Carmichael vs.Hancock Mut. Ins. Co., 116 App. Div., 291; 101 N.
Y. Supp., 602; Metropolitan L. Ins. Co. vs. Howle, 62 Ohio, 204; 56 N.E. 908, Id., 68 Ohio,
614; 68 N.E., 4; Oliver vs. Matual L. Ins. Co., 97 Va., 134; 33 S.E., 536;
Packard vs. Metropolitan L. Ins. Co., 72 N.H., 1; 54 Atl., 287.)
This defense, as we now view it, is separate and distinct from the defense that
misrepresentations were made in the application for the policy, and our conclusion is that the
failure of the appellant to give notice to the insured or beneficiary, within a reasonable time
after discovering that the insured had tuberculosis of the lungs, that it would not be bound by
the contract of insurance did not render unavailing the provision that unless the policy was
delivered while the insured was in good health the contract should not take effect. Under
article 4948 of the statute, it was necessary for the appellant, in order to avail itself of the
defense based upon misrepresentations made in the application to secure the policy, to
show that it gave the insured or beneficiary notice within a reasonable time after discovering
the falsity of such representations that it would not be bound by the contract of insurance; but
in order to sustain the first-mentioned defense, the same having been asserted within the
contestable period, it was necessary only to show that the insured was not in good health
when the policy was delivered. We do not agree with the contention to the effect that by
pleading and proving that the first premium was paid and received when the application for
the policy was made, which was a few days prior to the delivery of the policy, the appellee
showed an express waiver of the provision in the application making the assumption of any
liability on the part of appellant dependent upon the good health of the insured at the time the
policy was delivered.
The provision, as before stated, is clear and unambiguous and susceptible of but one
construction. By its plain and unmistakable terms the insured agrees that all the statements
and answers contained in the application are full, true, and complete in every respect, and
are offered to the insurance company as a consideration a contract of insurance, which shall
not take effect unless the policy shall have been actually delivered to him while he was in
good health. Nor shall it take effect unless the first premium shall have been actually during
his life and paid while he was in good health. In other words, if the insure was not in good
health at the time the policy was delivered to him, or if he was dead or in bad health when
the first premium was paid, then, in either event, no obligation on the part of the insurance
company was assumed, and, of course, there was no contract of insurance. It was as much
a condition precedent to the taking effect of the contract that the first premium be paid during
the life of the insured and while he was in good health, as that the policy be delivered while
he was in good health, and the fact that the premium was paid when the application was
made, and a few days in advance of the delivery of the policy, can furnish no basis for the
holding that thereby the other condition was abrogated or waived. We can see no good
reason for saying that the provision relative to good health at the time of the payment of the
first premium of the policy was inserted to cover cases "when the first premium was collected
at a time subsequent to the issuance of the policy, either at or prior to the delivery thereof."
The provision under consideration is not one which the insurance company may avail itself of
to avoid an executed contract, or one which in the ordinary sense constitutes a warranty of
the good health of the insured, but its effect was to prevent the taking effect of the
contemplated contract, unless there was a compliance with the conditions precedent named
therein. Differently stated, with such a provision in the application for the policy the contract
is not a completed one, is not absolute but conditional, and in this case it is the fact of sound
health, etc., in the insured on the date of the delivery of the policy that determines the liability
of the appellant.
In her motion for a rehearing the appellee asserts that our holding on the appellant's motion
for rehearing, to the effect that since the application for the policy sued on, which as a part of
the contract of insurance, stipulated that the policy should not take effect until the same was
actually delivered to the insured and the first premium paid during his life and while he was in
good health, and since it was admitted by the appellee and conclusively shown that the
insured had tuberculosis of the lungs at the time the policy was delivered to him the first
premium paid, the policy its terms never became an obligation of the and the appellant, is
different from or in conflict with the decision in the cases of American National Life Insurance
Co. vs. Rowell (175 S.W., 170); American National Insurance Co. vs. Burnside (175 S. W.,
169) ; American National Life Insurance Co. vs. Fawcett (162 S.W. 169); National Fire Ins.
Co. vs. Carter (199 S.W., 507); and Mecca Fire Insurance Co. vs. Stricker (136 S.W., 599)
The first three of the cases mentioned were decided by this court, the fourth by the Court of
Civil Appeals for the First District, and the fifth by the Court of Civil Appeals for the Third
District. Our conclusion is that neither of these cases is in conflict with the decision in the first
case referred to and the present case, but it seems manifest, from a careful examination and
analysis of the opinion in that case, that the court did not have in mind the precise question
here involved, and did not there expressly pass on it. There it was urged that the trial court
erred in over ruling the insurance company's demurrers to Rowell's petition, because it was
not alleged that the insured was in sound health at the time the policy sued on was issued,
and this court held that there was no error in overruling the demurrers, since, if the insured
was not, in fact, in sound health at that time, such fact was a matter of defense to be pleaded
by the company. It was further there held that while the defendant averred that the insured
was not in sound health when the policy was issued, such defense was not sufficiently
pleaded to justify the isffitc of testimony to establish it. The opinion also indicates that the
insurance company in its pleadings and assignments of error treated the provision in the
policy, that no obligation was assumed by it unless on the date of issuance the insured was
in good health, as a representation or warranty, and that this court, discussing the matter as
presented, after stating in substance the provisions of article 4948 of the statute said that the
failure to give the notice prescribed in that statute absolutely barred the insurance company
from defending in action on the policy because of alleged misrepresentations. We also
declared that said statute applied to covenants of warranty as well as to statements in the
application not made warranties by the contract, citing Mecca Fire Ins. Co. vs. Stricker,supra.
Moreover, the stipulation that the insurance contract shall produce no effect unless the payment of
the first premium and the delivery of the policy be made when the insured is in good health, is not in
conflict with any provision of the Insurance Law now in force, nor with any other law of a general
character; neither is said stipulation contrary to morals or public order, and therefore the same is
valid and binding upon the parties. (Articles 1255, 1257 and 1258, Civil Code.)
The majority opinion states that the delivery of the policy by the agent after he has made use of the
discretion conferred upon him by the defendant to deliver or to withhold said policy, is binding upon
the defendant and the latter cannot evade the consequences thereof. This same legal question has
been raised before various appellate courts of several states of the Union, which made a distinction
between agents whose only power consisted in soliciting insurance and in delivering policies and
those who, in addition to such power, were authorized to issue policies and accept risks on behalf of
insurance companies. In the first case the doctrine is uniform that the acts of agents with limited
powers are not binding upon the insurance companies, whereas in the second case the acts of the
agents bind and prejudice the insurance companies represented by them. This legal question has
been extensively considered and squarely decided in the case American Bankers' Ins.
Co. vs. Thomas, supra, as follows:
Favoring liability, she contends that the knowledge of Martin of the ill health of the insured at
the time the policies were delivered was the knowledge of the company and waiver of the
condition. Not so Assuming that Martin, was the agent of the company at that time, with
authority to deliver the policies, it failing to appear that he had anything to do with the
execution thereof or the acceptance of the risk, his knowledge was not that of the company.
In Merchants' & Planters' Ins. Co. vs. Marsh (34 Okla., 453; 125 Pac., 1100), we held that
the knowledge of the agent was the knowledge of the company only where the authority of
such agent, derived from the company, was to solicit applications and execute and deliver
contracts of insurance as an alter ego of the company, and that it was only in such case that
he had power to waive the conditions of the policy. In that case the agent was, as here, a
local or soliciting agent, and there the policy sued on was, as here, a 'home office policy", or
one issued direct by the president and secretary of the company as distinguished from one
issued by the local agent. There, in the syllabus, we said:
"A local agent of an insurance company, whose only power is to solicit applications for
insurance, and forward them to the company for approval, when, if approved to the insured,
has no power to waive any of the provision of the policy so delivered.". . .
Also in keeping with this rule is Des Moines Ins. Co. vs. Moon (33 Okla., 437; 126 Pac., 753).
There we said:
". . . Where the local agent has the power to accept a risk and deliver a policy of insurance,
and is advised and has full knowledge, at the time of the delivery of the policy, that certain
conditions of the policy, which may be waived, are violated, such policy is binding upon the
company, notwithstanding the fact that it contains a provision that none of the company's
officers or agents can waive any of its provisions, except in writing, in upon the policy. This
case (referring to Western National Ins. Co, Marsh, 34 Okla., 414; 125 Pac., 1049),
unanimously concurred in by the members of the courts, settles the rule in this jurisdiction as
to contracts of insurance written after the administration of the state: . . ."
Of course, if the local agent had not power, as here, to accept the risk, he had no power to
waive the condition precedent in the policy. Cases relied on by plaintiff which hold the
contrary practically under the same state of facts fail to draw this distinction, and seem to
hold that the knowledge of a mere soliciting agent of the company of the ill health of the
insured at the time of the delivery of the policy is the knowledge of the company, and hence
a delivery with such knowledge constitutes a waiver of the condition under consideration.
They are Roe vs. National Life, etc. Co. (137 Iowa, 696,: 115 N.W., 500: 17 L.R.A. [N.S.],
1144); Connecticut, etc. Ins. Co. vs. Grogan ([Ky.] 52 S.W., 959); N.W. Life Ins.
Co. vs. Findley (29 Tex. Civ. App., 494; 68 S. W., 695) ; National Life Ins. Co. vs. Twiddel
([Ky.), 58 S.W,, 699) ; Home Forum Ben. Ordervs. Varnado ([Tex. Civ. App.], 55 S.W., 364),
and others. But the distinction is referred to in Bell vs. Ins. Co. (166 Mo. App., 390; 149 S.W.
33). In that case the insured, who was plaintiff's brother, died at Nogales, Ariz., as a result of
injuries received while working as a telegraph lineman. On July 17, 1909, he made
application to defendant for policy of life insurance, payable in event of his death to plaintiff.
He made it to defendants' soliciting agents at that place, and paid the first annual premium
cash in hand. The application was forwarded to defendant by mail, and duly received in St.
Louis, Mo., on July 23, 1909. The policy was conditioned the same as here. On July 27, the
application was duly accepted, and the policy issued and was mailed August 4, 1909, to the
soliciting agents for delivery to the insured. Upon its arrival on August 8, 1909, pursuant to
instructions, the policy was deposited for him in the safe of the soliciting agents, along with
other private papers of the insured kept there by him. Two days before that died on the night
of August 11th. On August 6th, one of the soliciting agents visited the insured and knew of
his injury. The court said:
"There can be no doubt that it is competent for the parties to stipulate in the application for
insurance, as here, that the policy shall not be affective or binding until delivered to, and
accepted by the insured while in good health and the payment of the first premium is made.
It is said that a contract of life insurance is not complete until the last act necessary to the
done by the insured, under the conditions of the contract after acceptance of the application
by the company, has been done by him, and the courts, therefore, in proper cases, sustain
such agreements which operate to postpone the taking effect of the policy until the delivery
and premium payment while the insured is in good health. (See I Bacon, Life Ins. [3d ed.],
see. 272; Kilcullenvs. Met. Life Ins. Co., 108 Mo. App., 61; 82 S.W. 966;
Misselhorn vs. Mutual Reserve, etc., Life Ins. Co., 30 Mo. App., 589; McGregor vs. Met. Life
Ins. Co. [143 Ky., 488], 136 S. W., 889.) But though such be true, the provision for thus
suspending the policy, as an effective contract, until the premium is paid and its delivery,
while the insured is in good health, is for the benefit of the insurer, and obviously may be
waived by it or by it or by its agent possessing authority with respect to that matter. (See
Rhodus vs. Kansas City, etc., Ins. Co., 156 Mo. App. 281; 137 S.W., 907.) . . . But it is
insisted that a mere soliciting agent, such as Cummings, is without authority to waive the
condition in the policy here relied upon, and, for the purpose of the case, the proposition may
be conceded as true.
Whereupon the court proceeded to consider whether the company, under the facts in that
case, had waived the condition in the policy relied upon. We are therefore of opinion that
Martin was without authority to waive the condition relied on, and that plaintiff cannot recover
unless defendant is stopped to deny that liability attached by in the petition. Joining issue on
these allegations, defendant by answer in effect admitted accepting the premiums back to
representative of the assured and demanded a return of the policies, which was refused, and
the for the reason, it is urged, defendant is not estopped to assert that no liability attached
under the policies.
It is clear, therefore, that the delivery of the policy by Mendoza does not bind the defendant, nor is
the defendant estopped from alleging its defense, for the simple reason that Mendoza was not an
agent with authority to issue policies or to accept risks in the name of his principle.
There is another ground upon which the majority opinion is based, namely, that the defendant
waived the defense it now invokes, by reason of the delivery of the policy by its invokes, by reason
of the delivery of the policy by its agent. It is admitted that if the delivery of the policy was due to
fraud, legally there could have been no waiver. In view of the facts established and admitted, there is
no doubt, as to the existence of the fraud. A restatement of the facts will show such existence. It will
be remembered that before the delivery of the policy Mendoza asked Estrada whether the insured
continued enjoying good health, to which she answered that she thought he was in good health
because she had had no information that he was sick. It will likewise be noted that the information,
far from being correct or truthful, was incorrect and misleading because, it reality, on that occasion
the insured was seriously ill from nephritis and uremia, almost in a moribund state. Estrada, as a
representative of the insured was not only bound to give a truthful information on the state of health
of the insured, but it was her duty to find out it his true state of health in order to give true and correct
information. When she gave Mendoza as incorrect information tending to create the impression that
the insured was well when in fact he was seriously ill, there is no doubt that she committed fraud and
imparted a deceitful information to the defendant agent. It matters not that the fraud was involuntary
and not chargeable to Estrada ; the truth is that it existed and that by reason of such fraud the policy
was delivered, and both the agent and the defendant were misled into believing that the insured was
enjoying good health. In case of Cable vs. United States Life ins. co. (111 Fed. Rep., 19), the
seventh circuit of the United States Circuit Courts of Appeals, in deciding the same question of
waiver, said:
It is, however, urged that sufficient information was disclosed by Lord to McCabe to put the
company upon inquiry, and that, with such notice, McCabe delivered the policy and received
the premium; that McCabe was the agent of the company, and notice to him was notice to
the company, and the delivery of the policy constituted a waiver of the condition and warrant.
Upon the assumption that McCabe was such agent of the company, and that his action must
be treated as the action of the company, and that his question which we do not determine, —
it becomes us to inquire of the sufficiency of the notice given, and whether the act of the
delivery of the policy involved a waiver of the warranty.
. . . The holder of the policy cannot be permitted to conceal from the company an important
fact like that of the assured being in extremes, and then to claim a waiver of the forfeiture
created by the act which brought the insured to that condition to permit such concealment
and yet to give to the action of the company the same effect as though no concealment were
made, would tend to sanction fraud on the part of the policy holder, instead of protecting him
against the commission of one by the company. (Insurance Co. vs. Wolff, 95 U.S., 326, 333;
24 Law. ed., 387, 390.)
It cannot here be doubted that if the insurance company, or McCabe as its agent, had been
informed of the fact, within the personal knowledge of Lord, that Cable was seriously ill with
acute pneumonia, the policy would not have been delivered. It is difficult for us to believe that
Lord, with that knowledge, could think he had a right to accept this policy; but, whether so or
not, the concealment of the fact was a fraud upon the company. The statement made was
deceptive and misleading, whatever were the intentions of Lord, and a court of equity ought
not to permit the completion of the wrong. Courts of equity cannot sustain an insurance upon
the life of a dying man when the nature of his malady and the seriousness of his illness are
concealed from the insurer.
The same doctrine has been applied when there is an attempt to show that the waiver
or estoppel arises from the payment of the premium. In the case of Nyman vs. Manufacturers' &
Merchants' Life Assn., supra, the court said:
It is further insisted by plaintiff that defendant, by accepting and retaining premiums or
assessments from the insured, is estopped from denying the validity of the certificate. The
first premium was paid on the day the policy was delivered, and the last one two days before
the insured's death. There is no proof whatever that defendant or its agent knew, before the
the death of Mrs. Nyman, that, at the time the policy was delivered and the first premium
paid, she was not in good health. Receiving premiums subsequently, with knowledge that
she was them ill, could have no significance, if defendant was ignorant of the fact that the
insured was in bad health when the policy was delivered and the first premium paid. If Mrs.
Nyman had been in good health when she received the policy and paid the the first premium,
defendant would not have been justified in refusing to accept premium if she afterwards from
denying liability in this case must be knowledge that the insured was not in good health when
the policy was delivered.
The case presents another aspect, namely, the waiver made by the plaintiff of any and all benefits
accruing from the policy, which waiver expressly appears in document Exhibit A, known as "Accord,
Satisfaction and Release".
The pertinent clauses of the document read as follows:
Whereas, the. Insular Life Assce. Co., Ltd., claims that the delivery of the said policy No.
47710 was not valid because said delivery was made while the said Arturo Sindayen was not
in good health;
Whereas, the undersigned, Fortunata Lucero Sindayen, widow of the said Arturo Sindayen,
is named as beneficiary in the said policy of life insurance; and
Whereas, it is the desire of the Insular Life Assce. Co., Ltd., and of the beneficiary, Fortunata
Lucero Sindayen that all differences, controversies and disputes that may grow out of the
insurance of the said policy of life insurance and out of the claims that the said beneficiary
may make under the said policy of life insurance the settled and compromised; and
Whereas, the said Insular Life Assce. Co., Ltd. has at the date hereof paid Fortunato Lucero
Sinadyen, the beneficiary named in said policy of life insurance, the sum of Forty Pesos and
Sixty Centavos (40.06), lawful money of the Philippine Islands, the receipt whereof is hereby
acknowledge;
Now, thereof, in consideration of the promises and the sum of Forty Pesos and Sixty
Centavos (P40.06), said Fortunata Lucero Sindayen, for herself, her heirs, executors,
administrators and assigns, release and forever discharge said Insular Life Assurance Co.,
Ltd., its successors, and assigns, of all claims, obligation or indebtedness which she, as such
beneficiary over had or now has, hereafter can, shall, or may have, for, upon, or by reason of
said policy of life insurance numbered 47710 upon the life of said Arturo Sindayen, the latter
now deceased, or arising therefrom or connected therewith in any matter.
There is no dispute that the aforesaid document was signed by the plaintiff. There was irregularity in
its execution because it was authenticated by the notary public in the absence of plaintiff. It is
admitted that due to this irregularity the document is not a public instrument, but there is no doubt
that it is an authentic private instrument whose evidentiary value cannot be disregarded. Its terms
are binding upon the plaintiff, who understood the same notwithstanding her denial.
However, it it said that the defendant likewise waived the defense which gas hereinbefore been
extensively considered, because it failed to return the first premium collected, and this alleged failure
is predicated upon the statement contained in the penultimate paragraph of the instrument stating
that the check for P40.06 was returned to the plaintiff in consideration of her waiver of any claim
whatsoever. A careful reading of the instrument will convince the mind that what was really meant is
that the delivery of the check was another consideration of the plaintiff's waiver, it being self-evident
that said check constituted, in effect, a refund of the first premium paid by insured and received by
the insurer. It is ridiculous to think that such a negligible amount has been the only consideration of
the plaintiff's waiver of any right or benefit accurring to her from the policy. A careful perusal of the
instrument will show that the real consideration of the plaintiff's waiver was the unenforceability of
the policy due to her husband's illness and the mutual desire of the plaintiff of the insurer to settle
amicably the cases instead of resorting to courts.
In conclusion it is my opinion: (1) That the policy has not produced any effect from which the plaintiff
may derive any right, and (2) that she has expressly waived any all rights accurring from the policy;
and for these reasons I dissent from the majority opinion.
















Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.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.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.
Fernandez, J., took no part.



















Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48563 May 25, 1979
VICENTE E. TANG, petitioner,
vs.
HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
Ambrosio D. Go for petitioner.
Ferry, De la Rosa, Deligero Salonga & Associates for private respondent.

ABAD SANTOS, J .:
This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R. No. 55407-
R, June 8, 1978) which affirmed the decision of the Court of First Instance of Manila in Civil Case
No. 90062 wherein the petitioner herein was the plaintiff and Philippine American Life Insurance Co.
the herein respondent was the defendant. The action was for the enforcement of two insurance
policies that had been issued by the defendant company under the following circumstances.
On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke only
Chinese, applied for an insurance on her life for P60,000 with the respondent Company. The
application consisted of two parts, both in the English language. The second part of her application
dealt with her state of health and because her answers indicated that she was healthy, the Company
issued her Policy No. 0690397, effective October 23, 1965, with her nephew Vicente E. Tang, herein
Petitioner, as her beneficiary,
On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional
insurance on her life for P40,000. Considering that her first application had just been approved, no
further medical examination was made but she was required to accomplish and submit Part I of the
application which reads: "I/WE HEREBY DECLARE AND AGREE that all questions, statements
answers contained herein, as well as those made to or to be made to the Medical Examiner in Part II
are full, complete and true and bind all parties in interest under the policy herein applied for; that
there shall be no contract of insurance unless a policy is issued on this application and the fun first
premium thereon, according to the mode of payment specified in answer to question 4D above,
actually paid during the lifetime and good health of the Proposed Insured." Moreover, her answers in
Part II of her previous application were used in appraising her insurability for the second insurance.
On November 28, 1965, Policy No. 695632 was issued to Lee See Guat with the same Vicente E.
Tang as her beneficiary.
On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies,
Vicente E. Tang claimed for their face value in the amount of P100,000 which the insurance
company refused to pay on the ground that the insured was guilty of concealment and
misrepresentation at the time she applied for the two policies. Hence, the filing of Civil Case No.
90062 in the Court of First Instance of Manila which dismissed the claim because of the
concealment practised by the insured in violation of the Insurance Law.
On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals
stated, inter alia: "There is no doubt that she deliberately concealed material facts about her physical
condition and history and/or conspired with whoever assisted her in relaying false information to the
medical examiner, assuming that the examiner could not communicate directly with her."
The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to
the former.
According to the Code Commission: "This rule is especially necessary in the Philippines where
unfortunately there is still a fairly large number of illiterates, and where documents are usually drawn
up in English or Spanish." (Report of the Code Commission, p. 136.) Art. 1332 supplements Art. 24
of the Civil Code which provides that " In all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the court must be vigilant for his protection.
It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Chinese,
she could not be held guilty of concealment of her health history because the applications for
insurance were in English and the insurer has not proved that the terms thereof had been fully
explained to her.
It should be noted that under Art. 1332 above quoted, the obligation to show that the terms of the
contract had been fully explained to the party who is unable to read or understand the language of
the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the
insurance company is not seeking to enforce the contracts; on the contrary, it is seeking to avoid
their performance. It is petitioner who is seeking to enforce them even as fraud or mistake is not
alleged. Accordingly, respondent company was under no obligation to prove that the terms of the
insurance contracts were fully explained to the other party. Even if we were to say that the insurer is
the one seeking the performance of the contracts by avoiding paying the claim, it has to be noted as
above stated that there has been no imputation of mistake or fraud by the illiterate insured whose
personality is represented by her beneficiary the petitioner herein. In sum, Art. 1332 is inapplicable
to the case at bar. Considering the findings of both the CFI and Court of Appeals that the insured
was guilty of concealment as to her state of health, we have to affirm.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special pronouncement
as to costs.
SO ORDERED.
Concepcion, Jr., and Santos, JJ., concur.
Aquino, J., concurs in the result.

Separate Opinions

ANTONIO, J ., concurring:
I concur.
In a contract of insurance each party "must communicate to the other, in good faith, all facts within
his knowledgewhich are material to the contract, and which the other has not the means of
ascertaining ... (section 27, Act 2427, as amended. Emphasis supplied). As a general rule, a failure
by the insured to disclose conditions affecting the risk, of which he is aware makes the contract
voidable at the option of the insurer (45 C.J.S. 153). The reason for this rule is that insurance
policies are traditionally contracts "ubemae fidei" which means most abundant good faith absolute
and perfect candor or openness and honesty; the absence of any concealment or deception
however slight. Here, the Court of Appeals found that the insured "deliberately concealed material
facts about her physical condition and history and/or concealed with whoever assisted her in relaying
false information to the medical examiner ... "
Certainly, petitioner cannot assume inconsistent positions by attempting to enforce the contract of
insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the
contract by claiming that he executed the same thru fraud or mistake.

# Separate Opinions
ANTONIO, J ., concurring:
I concur.
In a contract of insurance each party "must communicate to the other, in good faith, all facts within
his knowledgewhich are material to the contract, and which the other has not the means of
ascertaining ... (section 27, Act 2427, as amended. Emphasis supplied). As a general rule, a failure
by the insured to disclose conditions affecting the risk, of which he is aware makes the contract
voidable at the option of the insurer (45 C.J.S. 153). The reason for this rule is that insurance
policies are traditionally contracts "ubemae fidei" which means most abundant good faith absolute
and perfect candor or openness and honesty; the absence of any concealment or deception
however slight. Here, the Court of Appeals found that the insured "deliberately concealed material
facts about her physical condition and history and/or concealed with whoever assisted her in relaying
false information to the medical examiner ... "
Certainly, petitioner cannot assume inconsistent positions by attempting to enforce the contract of
insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the
contract by claiming that he executed the same thru fraud or mistake.



G.R. No. L-18529, Aleja, Gamboa-Aleja and Aleja v. GSIS, 13 SCRA 212
G.R. No. L-18529
FRANCISCO G. ALEJA, FELICITACION GAMBOA-ALEJA and DOMINADOR ALEJA,plaintiffs-appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
Restituto L. Joson for plaintiffs-appellants.
Bartolome S. Palma for defendant-appellee.
BARRERA, J.:
This is an appeal by Francisco G. Aleja, et al., from the decision of the Court of First Instance of Nueva
Ecija (in Civil Case No. 3335) dismissing their complaint against the Government Service Insurance
System (GSIS) and denying their claim to the proceeds of the insurance policy No. 310973 issued to the
late Rosauro G. Aleja, on the ground that the deceased was not yet covered by insurance at the time of
his death.
As found by the lower court, the deceased Rosauro G. Aleja was appointed as temporary classroom
teacher in the Bureau of Public Schools, Division of Nueva Ecija, on July 8, 1958. Thereafter, a
compulsory term insurance policy, No. 310973, was issued in his name, said policy to take effect on
February 1, 1959. The corresponding premium therefor was deducted for the first time from his salary
on January 31, 1959. However, two days before that or on January 29, 1959, while guarding the rice
stack in front of their house, Rosauro Aleja died of a gunshot wound inflicted by his own gun. Plaintiffs,
as beneficiaries named in the policy, filed a claim with the GSIS to collect the proceeds of the said policy,
but the same was denied allegedly because at the time of Aleja's death, the policy was not yet effective
and the latter was, therefore, not covered by insurance. Hence, the institution of this case and the
consequent promulgation of the decision by the lower court which is the subject of the present appeal.
In denying plaintiffs-appellants' claim, the GSIS contends that although Aleja became a permanent
employee and entitled to membership in the System 6 months after his original appointment, or on
January 8, 1959, yet as specified in the policy issued to him, the same shall become effective only on
February 1, 1959. And this latter date was fixed in accordance with the provisions of Commonwealth Act
186, as amended byRepublic Act 660, which read:
SEC. 4. Scope of application of System.— (a) Membership to the System shall be compulsory upon all
regularly and permanently appointed employees, including those whose tenure of office is fixed or
limited by law; upon all teachers except only those who are substitutes; ..
SEC. 8. (a) Compulsory membership insurance.— An employee whose membership in the System is
compulsory shall be automatically insured on the first day of the seventh calendar month following the
month he was appointed or on the first day of the sixth calendar month if the date of his appointment is
the first day of the month: Provided, That his medical examination, if required, has been approved by
the System.
It is not controverted that the deceased had rendered services to the government for 6 months and 21
days before his death; that he was insured and in fact a policy was already issued in his favor at the time
of his death; that the death fixed for the effectivity of said policy was made pursuant to the aforequoted
provisions of the GSIS Charter. Appellants, however, maintain that section 8 of Commonwealth Act 186,
insofar as it fixes the date of compulsory membership therein, is absurd and discriminatory, in that,
whereas those whose appointments are dated on the first day of the month become covered by
insurance on the first day of the sixth month following their appointment, those who were appointed on
other dates become insured only on the first day of the seventh calendar month from their original
appointment. In other words, if an employee is appointed on January 1, he will be covered by insurance
on June 1, whereas one who gets appointed in January 2 becomes insured only on July 1. This
arrangement, appellants claim, was made only to facilitate office transactions or for office procedure,
and should not be construed to defeat the purpose for which the System was established, i.e., to
promote the welfare of the employees. It is, therefore, urged that the coverage of compulsory insurance
should commence on the date when the employee becomes entitled to membership in the System, or
upon completion of six months' service.
It may be admitted that as thus worded, the disputed provision makes a distinction, in the matter of
effectivity of their insurance coverage, between those appointed to the service on the first day of the
month and those who receive their appointments on any other date. But classification or class
legislation, assuming this to be one, does not ipso facto make a statutory provision invalid. Classification
will not constitute an infringement of the individual's right to constitutional guarantees of equality if it is
not unreasonable, arbitrary or capricious. To be reasonable, the classification must be based on
substantial distinctions which make real differences; must be germane to the purposes of the law; must
not be limited to existing conditions only, and must apply equally to each member of the class, under
similar conditions.[[1]]
In the instant case, it may be true that the disputed provision must have been incorporated in the law to
promote efficiency and convenience in office procedure of the System. Taking into account the volume
of business that the System handles, the providing of this measure which ultimately may redound to the
benefit of the members in the form of efficient and prompt service, cannot be considered capricious or
arbitrary.
Furthermore, it appears that the policy issued and accepted by Aleja during his lifetime specifically
provides that the effective date of the insurance contract is February 1, 1959. Additionally, it is not
denied that the first premium on said insurance contract was deducted from Aleja's salary only on
January 31, 1959 or after his death. Clearly, at the time of his said death, there was no existing contract
between him and the appellee GSIS, there being no consideration for the risk sought to be enforced
against the insurance system. The offer of the latter to refund the amount collected after Aleja's death,
is proper.
WHEREFORE, the decision of the lower court appealed from is hereby modified in the sense that the
defendant-appellee shall return to the plaintiffs the amount deducted from the deceased's salary in the
form of premium. No costs. So ordered.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ., concur.
Bautista Angelo, J., took no part.
Footnotes
[[1]] People v. Solon, G. R. No. L-14864, Nov. 23, 1960; People v. Vera, 65 Phil. 56; Laurel v. Misa, 42 O.G.
2847.





















Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-1669 August 31, 1950
PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-1670 August 31, 1950
AGUSTINA PERALTA, plaintiff-appellant,
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
Mariano Lozada for appellant Constantino.
Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.
BENGZON, J .:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the
question whether the beneficiary in a life insurance policy may recover the amount thereof although
the insured died after repeatedly failing to pay the stipulated premiums, such failure having been
caused by the last war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life
Insurance Company (a foreign corporation incorporated under the laws of Delaware, U.S.A.), issued
on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio
Constantino for a term of twenty years. The first premium covered the period up to September 26,
1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy
contained these stipulations, among others:
This POLICY OF INSURANCE is issued in consideration of the written and printed
application here for a copy of which is attached hereto and is hereby made a part hereof
made a part hereof, and of the payment in advance during the lifetime and good health of the
Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine
currency
1
and of the payment of a like amount upon each twenty-seventh day of September
hereafter during the term of Twenty years or until the prior death of the Insured. (Emphasis
supplied.)
x x x x x x x x x
All premium payments are due in advance and any unpunctuality in making any such
payment shall cause this policy to lapse unless and except as kept in force by the Grace
Period condition or under Option 4 below. (Grace of 31 days.)
After that first payment, no further premiums were paid. The insured died on September 22, 1944.
It is admitted that the defendant, being an American corporation , had to close its branch office in
Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No.
78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of
the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual premium
stipulated in the policy was regularly paid from August 1, 1938, up to and including September 30,
1941. Effective August 1, 1941, the mode of payment of premiums was changed from annual to
quarterly, so that quarterly premiums were paid, the last having been delivered on November 18,
1941, said payment covering the period up to January 31, 1942. No further payments were handed
to the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the
lines of war, and it was impossible and illegal for them to deal with each other. Because the insured
had borrowed on the policy an mount of P234.00 in January, 1941, the cash surrender value of the
policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died
on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met
with defendant's refusal, grounded on non-payment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written and printed
application herefor, a copy of which is attached hereto and is hereby made apart hereof, and
of the payment in advance during the life time and good health of the Insured of the annual
premium of Two hundred and 43/100 pesos Philippine currency and of the payment of a like
amount upon each first day of August hereafter during the term of Twenty years or until the
prior death of either of the Insured. (Emphasis supplied.)
x x x x x x x x x
All premium payments are due in advance and any unpunctuality in making any such
payment shall cause this policy to lapse unless and except as kept in force by the Grace
Period condition or under Option 4 below. (Grace of days.) . . .
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies
minus all sums due for premiums in arrears. They allege that non-payment of the premiums was
caused by the closing of defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had
the benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has
received careful consideration, inasmuch as it affects the interest of thousands of policy-holders and
the obligations of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and
the Civil Code.
2
Act No. 2427 was largely copied from the Civil Code of California.
3
And this court has
heretofore announced its intention to supplement the statutory laws with general principles prevailing
on the subject in the United State.
4

In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are
contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right
to impose such reasonable conditions at the time of the making of the contract as they may deem
wise and necessary. The rate of premium is measured by the character of the risk assumed. The
insurance company, for a comparatively small consideration, undertakes to guarantee the insured
against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when
called upon to pay, in case of loss, the insurer, therefore, may justly insists upon a fulfillment of
these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled
for the loss. The terms of the policy constitute the measure of the insurer's liability, and in order to
recover the insured must show himself within those terms; and if it appears that the contract has
been terminated by a violation, on the part of the insured, of its conditions, then there can be no right
of recovery. The compliance of the insured with the terms of the contract is a condition precedent to
the right of recovery."
Recall of the above pronouncements is appropriate because the policies in question stipulate that
"all premium payments are due in advance and any unpunctuality in making any such payment shall
cause this policy to lapse." Wherefore, it would seem that pursuant to the express terms of the
policy, non-payment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a policy, are binding
upon the parties and should be enforced by the courts, if the evidence brings the case clearly
within their meaning and intent. It tends to bring the law itself into disrepute when, by astute
and subtle distinctions, a plain case is attempted to be taken without the operation of a clear,
reasonable and material obligation of the contract. Mack vs. Rochester German Ins. Co., 106
N.Y., 560, 564. (Young vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided
because the premium had not been paid within the time fixed, since by its express terms, non-
payment of any premium when due or within the thirty-day period of grace, ipso facto caused the
policy to lapse. This goes to show that although we take the view that insurance policies should be
conserved
5
and should not lightly be thrown out, still we do not hesitate to enforce the agreement of
the parties.
Forfeitures of insurance policies are not favored, but courts cannot for that reason alone
refuse to enforce an insurance contract according to its meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of
non-payment of premiums occasioned by war, the American cases may be divided into three
groups, according as they support the so-called Connecticut Rule, the New York Rule, or the United
States Rule.
The first holds the view that "there are two elements in the consideration for which the annual
premium is paid — First, the mere protection for the year, and second, the privilege of renewing the
contract for each succeeding year by paying the premium for that year at the time agreed upon.
According to this view of the contract, the payment of premiums is a condition precedent, the non-
performance would be illegal necessarily defeats the right to renew the contract."
The second rule, apparently followed by the greater number of decisions, hold that "war between
states in which the parties reside merely suspends the contracts of the life insurance, and that, upon
tender of all premiums due by the insured or his representatives after the war has terminated, the
contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended, but is abrogated by
reason of non-payments is peculiarly of the essence of the contract. It additionally holds that it would
be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the years when the policy had been in force. This
rule was announced in the well-known Statham
6
case which, in the opinion of Professor Vance, is the
correct rule.
7

The appellants and some amici curiae contend that the New York rule should be applied here. The
appellee and other amici curiae contend that the United States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different theories. Besides the respect
and high regard we have always entertained for decisions of the Supreme Court of the United
States, we cannot resist the conviction that the reasons expounded in its decision of the Statham
case are logically and judicially sound. Like the instant case, the policy involved in the Statham
decision specifies that non-payment on time shall cause the policy to cease and determine.
Reasoning out that punctual payments were essential, the court said:
. . . it must be conceded that promptness of payment is essential in the business of life
insurance. All the calculations of the insurance company are based on the hypothesis of
prompt payments. They not only calculate on the receipt of the premiums when due, but on
compounding interest upon them. It is on this basis that they are enabled to offer assurance
at the favorable rates they do. Forfeiture for non-payment is an necessary means of
protecting themselves from embarrassment. Unless it were enforceable, the business would
be thrown into confusion. It is like the forfeiture of shares in mining enterprises, and all other
hazardous undertakings. There must be power to cut-off unprofitable members, or the
success of the whole scheme is endangered. The insured parties are associates in a great
scheme. This associated relation exists whether the company be a mutual one or not. Each
is interested in the engagements of all; for out of the co-existence of many risks arises the
law of average, which underlies the whole business. An essential feature of this scheme is
the mathematical calculations referred to, on which the premiums and amounts assured are
based. And these calculations, again, are based on the assumption of average mortality, and
of prompt payments and compound interest thereon. Delinquency cannot be tolerated nor
redeemed, except at the option of the company. This has always been the understanding
and the practice in this department of business. Some companies, it is true, accord a grace
of thirty days, or other fixed period, within which the premium in arrear may be paid, on
certain conditions of continued good health, etc. But this is a matter of stipulation, or of
discretion, on the part of the particular company. When no stipulation exists, it is the general
understanding that time is material, and that the forfeiture is absolute if the premium be not
paid. The extraordinary and even desperate efforts sometimes made, when an insured
person is in extremes to meet a premium coming due, demonstrates the common view of
this matter.
The case, therefore, is one in which time is material and of the essence and of the essence
of the contract. Non-payment at the day involves absolute forfeiture if such be the terms of
the contract, as is the case here. Courts cannot with safety vary the stipulation of the parties
by introducing equities for the relief of the insured against their own negligence.
In another part of the decision, the United States Supreme Court considers and rejects what is, in
effect, the New York theory in the following words and phrases:
The truth is, that the doctrine of the revival of contracts suspended during the war is one
based on considerations of equity and justice, and cannot be invoked to revive a contract
which it would be unjust or inequitable to revive.
In the case of Life insurance, besides the materiality of time in the performance of the
contract, another strong reason exists why the policy should not be revived. The parties do
not stand on equal ground in reference to such a revival. It would operate most unjustly
against the company. The business of insurance is founded on the law of average; that of life
insurance eminently so. The average rate of mortality is the basis on which it rests. By
spreading their risks over a large number of cases, the companies calculate on this average
with reasonable certainty and safety. Anything that interferes with it deranges the security of
the business. If every policy lapsed by reason of the war should be revived, and all the back
premiums should be paid, the companies would have the benefit of this average amount of
risk. But the good risks are never heard from; only the bar are sought to be revived, where
the person insured is either dead or dying. Those in health can get the new policies cheaper
than to pay arrearages on the old. To enforce a revival of the bad cases, whilst the company
necessarily lose the cases which are desirable, would be manifestly unjust. An insured
person, as before stated, does not stand isolated and alone. His case is connected with and
co-related to the cases of all others insured by the same company. The nature of the
business, as a whole, must be looked at to understand the general equities of the parties.
The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if,
as alleged, the consequences of war should not prejudice the insured, neither should they bear
down on the insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the
insured to pay premiums was excused during the war owing to impossibility of performance, and that
consequently no unfavorable consequences should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after
the first, is not an obligation of the insured, so much so that it is not a debt enforceable by action of
the insurer.
Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation
upon which the insurer can maintain an action against insured; nor is its settlement governed
by the strict rule controlling payments of debts. So, the court in a Kentucky case declares, in
the opinion, that it is not a debt. . . . The fact that it is payable annually or semi-annually, or at
any other stipulated time, does not of itself constitute a promise to pay, either express or
implied. In case of non-payment the policy is forfeited, except so far as the forfeiture may be
saved by agreement, by waiver, estoppel, or by statute. The payment of the premium is
entirely optional, while a debt may be enforced at law, and the fact that the premium is
agreed to be paid is without force, in the absence of an unqualified and absolute agreement
to pay a specified sum at some certain time. In the ordinary policy there is no promise to pay,
but it is optional with the insured whether he will continue the policy or forfeit it. (3 Couch,
Cyc. on Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the insured by an
observance of the conditions may hold the insurer to his contract, the latter has not the
power or right to compel the insured to maintain the contract relation with it longer than he
chooses. Whether the insured will continue it or not is optional with him. There being no
obligation to pay for the premium, they did not constitute a debt. (Noblevs. Southern States
M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis ours.)
It should be noted that the parties contracted not only for peacetime conditions but also for times of
war, because the policies contained provisions applicable expressly to wartime days. The logical
inference, therefore, is that the parties contemplated uninterrupted operation of the contract even if
armed conflict should ensue.
For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since
the Statham decision, it could now be relaxed and even disregarded. It is stated "that the relaxation
of rules relating to insurance is in direct proportion to the growth of the business. If there were only
100 men, for example, insured by a Company or a mutual Association, the death of one will
distribute the insurance proceeds among the remaining 99 policy-holders. Because the loss which
each survivor will bear will be relatively great, death from certain agreed or specified causes may be
deemed not a compensable loss. But if the policy-holders of the Company or Association should be
1,000,000 individuals, it is clear that the death of one of them will not seriously prejudice each one of
the 999,999 surviving insured. The loss to be borne by each individual will be relatively small."
The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be
considered will not be the death of one but the death of ten thousand, since the proportion of 1 to
100 should be maintained. And certainly such losses for 10,000 deaths will not be "relatively small."
After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such
a vital defense of insurance companies that since the very beginning, said Act no. 2427 expressly
preserved it, by providing that after the policy shall have been in force for two years, it shall become
incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of premiums,
and military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress
recently amended this section (Rep. Act No. 171), the defense of fraud was eliminated, while the
defense of nonpayment of premiums was preserved. Thus the fundamental character of the
undertaking to pay premiums and the high importance of the defense of non-payment thereof, was
specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is
in effect a variation of the Connecticut rule for the sake of equity. In this connection, it appears that
the first policy had no reserve value, and that the equitable values of the second had been practically
returned to the insured in the form of loan and advance for premium.
For all the foregoing, the lower court's decision absolving the defendant from all liability on the
policies in question, is hereby affirmed, without costs.
Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-602 March 31, 1947
ADELAIDA OCAMPO VDA. DE GOMEZ, demandante-apelante,
vs.
THE GOVERNMENT INSURANCE BOARD, demandado-apelado.
Sres. Artemio C. Macalino y Rodrigo G. Pañgan en representacion de la apelante.
Abogado Auxiliar de Corporaciones D. Federico C. Alikpala en representacion del apelado.
BRIONES, J .:
Andres A. Gomez estuvo sirviendo en el gobierno provincial de la Pampanga como tasador
provincial delegado por un periodo continuo de 25 años, desde el 8 de Agosto de 1914 en que fue
nombrado por primera vez, hasta el 28 de Febrero de 1938 en que fallecio. Segun el convenio
dehechos, no cabe duda de que su nombramiento era de empleado temporero — temporary — al
tenor de la fraseologia legal. No era elegible en el servicio civil: esto explica porque durante tan
largo tiempo de servicio no se le habia podido expedir un nombramiento regular y permanente. El
sueldo que percibia al morir era de P90 al mes.
Tampoco hay controversia entre las partes, bajo el convenio, acerca de los siguientes hechos: (a)
que el gobierno provincial de la Pampanga, para aprovecharse delos beneficios de la ley del
Commonwealth No. 186, aprobo el 8 de Agosto, 1937, por medio de su junta provincial, una
resolucion en que significaba su intencion de afiliarse al Sistema de Seguro de Vida del Gobierno
nacional llamado "Government Service Insurance System"; (b) que despues de recibir dicha
resolucion, la junta que regenta y administra dicho Sistema de Seguro la aprobo debidamente,
haciendo efectiva la afiliacion desde el 28 de Febrero, 1938; (c) que Andres A. Gomez, antes de
sumuerte, juntamente con otros empleados del gobierno provincial de la Pampanga habia llenado
un formulario del referido Sistema de Seguro llamado "Information for membership insurance," en el
que nombraba a suesposa Adelaida Ocampo como beneficiaria, enviando luego el formulario asi
llenado al "Government Service Insurance System" que lo recibio y guardo en su archivo; (d) que el
28 de Febrero, 1938, el tesorero provincia lde la Pampanga, como pagador oficial, dedujo del
sueldode Gomez correspondiente a la segunda mitad de dichomes la cantidad de P2.70 como su
parte en la primera prima, aportando la provincia una suma igual como su contribucion; (e) que la
prima fue enviada a la oficina del "Government Service Insurance System" en Manila, y dicha oficina
la recibio el 10 de marzo, 1938, librando el correspondiente recibo al gobierno provincial de la
Pampanga; (f) que el 7 de Marzo, 1938, el tesorero provincial de la Pampanga envio a la oficina del
"Government Service Insurance System," en nombre de la viuda de Andres Gomez, Adelaida
Ocampo, una reclamacion por el importe dela poliza de seguro en la suma de P1,052, pero la
juntadirectiva del Sistema la rechazo por el fundamento de queAndres Gomez era solo un empleado
temporero — temporary — bajo las reglas del Servicio Civil, y, por tanto, no era asegurable cuando
murio el 28 de Febrero, 1938; (g) finalmente, que la oficina del "Government Service Insurance
System" devolvio al gobierno provincial de la Pampanga el importe de la prima pagada, o sea la
cantidad de P5.40, por medio de la libranza de la Tesoreria No. 58162.
La viuda interpuso la presente accion ante el Juzgado de Primera Instancia de la Pampanga contra
la Junta Directiva del "Government Service Insurance System," pidiendoel cobro del importe de la
poliza. El Juzgado, estimandola defensa de que Andres Gomez era solo un temporero, sinhaberse
cualificado en el servicio civil mediante el correspondiente examen para merecer un nombramiento
como empleado regular y permanente, y, por tanto, sin derechoa ser asegurado automaticamente
bajo la ley que rige el Sistema, dicto sentencia contra la demandante, sobrese y endola demanda.
De ahi la presente apelacion.
Establecido y convenido que el nombramiento de Gomez era de temporero, la cuestion que
tenemos que resolver essi al tiempo de su muerte tenia tales cualificaciones quepodia ser
considerado como empleado regular y permanente para los efectos del cobro del importe de su
poliza de seguro por la beneficiaria. Decidimos que si, tenia tales cualificaciones.
Resulta establecido en autos, sin discusion, que Gomez, acogiendose a las disposiciones del
articulo 672 del Codigo Administrativo tal como fue enmendado por la ley del Commonwealth No.
177, se sometio a examen de 2.ogrado enel servicio civil el 16 de Octubre, 1937, y
fue aprobado enaquel examen, si bien este favorable resultado no se
anunciosino despues ya de su muerte. Es obvio que los efectos de la
aprobacion deben retrotraerse a la fecha del examen. La prueba de la
competencia, de la idoneidad del examinando, se realizo antes de su muerte;
por tanto, hay que darle efectividad desde la fecha en que tuvo lugar
laprueba. Hasta parece superfluo que esto se discuta.
Sin embargo, se arguye que no cabe dar efecto retroactivo a la aprobacion de Gomez en su
examen, puesto que el articulo 663 (d) del Codigo Administrativo Revisado, tal como ha sido
enmendado, dispone que "a period of trial service shall be required before appointment or
employmentis made permanent;" y es claro que Gomez, habien domuerto despues del examen y
antes de que su resultado seanunciara, mal pudo ser sometido a dicho periodo de pruebapor 6
meses.
Esta manera de interpretar la ley tiene el defecto deser demasiado literal, y "la letra mata (a veces),
mientrasque el espiritu vivifica." Tengase en cuenta que Gomez habia servido como tasador
provincial delegado por 25 años consecutivos hasta el dia de su muerte. Cuando portan largo
tiempo pudo superar la prueba de su competencia, en el ejercicio cotidiano de sus deberes, hay que
presumir que sus superiores estaban satisfechos de su idoneidad. Por tanto, el periodo de prueba
de 6 meses no rezabacon el. Para los efectos, por lo menos, de la validez de su poliza de seguro,
se debe concluir que el exito desu examen le capacitaba y cualificaba automaticamente para un
nombramiento regular y permanente desde la fechade dicho examen. Por tanto, el era asegurable y,
dehecho, estaba asegurado en el dia de su muerte, bajo losterminos de la Ley No. 186. Esta
conclusion es tanto masjusta cuanto que el "Government Service Insurance System" acepto
practicamente la prima pagada, librando porella el correspondiente recibo.
Nos sentimos perfectamente autorizados para interpretarla ley lo mas liberalmente posible, toda vez
que, prescindiendo ya de que en el presente caso se trata de la viuday familia de un pequeño
empleado, es evidente que el Sistema Nacional de Seguro de Vida del Gobierno se hacreado para
fines sociales y humanitarios, siendo parte deese generoso movimiento universal que tiende a
mejorarcada dia la suerte de los hijos del trabajo mediante la promulgacion en todos los paises
cultos y civilizados de leyes progresivas y liberales sobre seguridad social y economica. El articulo 3
de la ley del Commonwealth No. 186 que crea y reglamenta dicho Sistema, dice positivamente que
el mismose establece "en orden a promover la eficiencia y bien estarde los empleados del Gobierno
de Filipinas y reemplazar los sistemas de pensiones actualmente establecidos . . .". Como se sabe,
aquellos sistemas de pensioneseran fundamentalmente de beneficencia, tanto que si noha sido
posible continuarlos era porque el gobierno no disponia de tanto dinero para capitalizarlos y
sostener lospor si solo. Asi que se ha ideado el Sistema Nacional de Seguro sobre bases mas
cientificas y con adecuadas aportaciones de los empleados mismos. Con todo, es innegableque el
sucesor ha heredado parte de los rasgos beneficos y humanitarios de sus antecesores.
En meritos de lo expuesto, se revoca la sentencia del Juzgado y se condena a la demandada y
apelada a pagara la demandante y apelante la suma de P1,052, importe de la poliza de seguro del
difunto Andres A. Gomez, maslos intereses legales desde la interposicion de la demanda, y las
costas del juicio. Asi se ordena.
Moran, Pres., Paras, Feria, Pablo, Hilado, Bengzon, Padilla, and Tuason , MM., estan conformes.

Separate Opinions
PERFECTO, J ., concurring:
We agree with the decision penned by Mr. Justice Briones, reversing the judgment of the lower court
and ordering defendant to pay plaintiff the insurance of her deceased husband Andres Gomez in the
sum of P1,052, including legal interest and costs. Under the provisions of Commonwealth Act No.
177, amending the Civil Service Law, Andres Gomez was a regular and permanent employee of the
government, because he had been occupying for twenty-five years a classified position and had
passed the examination as provided for by the above mentioned act, the pertinent, provisions of
which are as follows:
No person shall be appointed to or employed in any position in the classified service until he
passes the examination provided therefor. Provided, however, that persons now regularly
and permanently employed in any branch or subdivision of the Government, whose positions
are or may hereafter be classified by operation of the Constitution and of this Act may,
unless separated by proper authority, continue in the service for the term of three years from
January first, nineteen hundred and thirty-seven; Provided, that they shall be given three
chances to qualify; and Provided, finally, That all employees who, upon the approval of this
act, have rendered ten or more years of continuous and satisfactory service in a classified
position or in any position which may be subject to classification, shall be given practical
examination in which their length of service shall be accorded preferred consideration.
The deceased, having rendered ten or more years of continuous and satisfactory service in a
classified position and passed the corresponding examination, became a permanent and regular
employee and his membership in the insurance system became compulsory under section 4 (g), of
Commonwealth Act No. 186, known as the Government Service Insurance Act.
Having had the privilege of initiating the amendment to the Civil Service Law which was later
embodied in Commonwealth Act No. 117, as above quoted, we are in a position to state, as member
of the National Assembly which approved the act and as author of the provisions, that the same
covered perfectly the case of Andres Gomez to make him a permanent and regular employee.
We are also in a position to state that the main purpose of the Government Service Insurance Act
was to replace the several pension laws then effective, in order to eliminate the discrimination
resulting from the fact that, while a small number of government employees were enjoying the
benefits of special pension laws, those benefits were denied to a great majority of government
employees. To uphold the position taken by the lower court is to deprive the widow of Andres
Gomez of the benefits clearly intended for her by Commonwealth Act No. 186.
Even if Andres Gomez had been only a temporary employee he was still insurable. The fact that
membership in the Government Insurance System is compulsory upon permanent and regular
employees, is no reason to deprive other employees of the benefits of the system as, otherwise, it
will defeat the very social purpose for which it was established by the National Assembly.
The system was established "in order to promote the efficiency and welfare of the employees of the
Government of the Philippines and to replace the present pension systems established," as stated in
section 3 of Commonwealth Act No. 186. There is absolutely no principle of justice which can justify
circumscribing the benefits of the system only to permanent and regular employees, when it was
expressly intended for all employees, and to continue the hateful discrimination which compelled the
National Assembly to abolish the then existing special pension systems. If there should be any doubt
on this question, the doubt should be resolved in favor of the general intent of the law.
Courts are justified to do violence to the words of the statute to carry out "the judge-discovered
intent" (Judge Baldwin, The American Judiciary, p. 84); that construction of statutes must be done to
avoid absurdity, and that general terms must not lead to "injustice, oppression, or an absurd
consequence," because "the reason of the law in such cases should prevail over its letter" (The
Church of the Holy Trinity vs. U.S., 36 Law. ed. [U.S.], 232); that our judges can go further to
diagnose the intent of the law and give it fulgour and effect and that the judge-made law is
recognized in the Philippines (In re Shoop, 41 Phil., 213); that lawyers who deny the power of courts
to legislate in the Philippines are sadly mistaken (Bocobo, The Cult of Legalism); that courts are "the
great laboratories of the law" (Justice Cardozo, The Nature of Judicial Process); while Holland said
in The Elements of Jurisprudence:
The State in general has two, and only two, articulate organs for law-making purposes — the
Legislature and the Tribunals. The first organ makes new law, the second attests and
confirms old law, though under cover of so doing it introduces many new principles.
. . . For statutes and judicial decisions alike come into being and grow out of the same
common roots, the supreme good of society. It is a consecrated legal axiom that the reason
of the law is the life of the law. The reason lies in the soil of the common welfare." (Bocobo,
Cult of Legalism.)
. . . Consequently, if the judge limits himself to the printed page of the statute, and does not
go out into the open spaces o factuality and dig down deep into this common soil, he fails in
his noble calling, and becomes subservient to formalism. (Bocobo, Cult of Legalism.)
In Samuels, Special C.J., in Wortham vs. Walker Tex. ([1939], 127 S.W. [2nd], 1138, 1150), we have
the following liberal construction of the law:
A liberal interpretation of a statute which denies to it the historical circumstances under which
it has drawn is to make mummery of its provisions.
A statute should not be construed in a spirit of detachment as if it were a protoplasm floating
around a space . . .. "Generally it may be said that in determining the meaning, intent, and
purpose of a law or constitutional provisions, the history of the times out of which it grew and
to which it may be rationally supposed to bear some direct relationship, the evils intended to
be remedied, and the good to be accomplished are proper subjects of inquiry" . . ..
Law is not a water-tight compartment sealed or shut off from the contract with the drama of
life which unfolds before our eyes. It is in no sense a cloistered realm but a busy state in
which events are held up to our vision and touch at our elbows.
If the above principles of interpretation are not enough in support of the theory that all employees of
the government are entitled to the benefits of the Government Insurance System, there is the
principle of social justice embodied in the Constitution which supports the position, and with more
emphasis if we take into consideration the fact that Commonwealth Act No. 186 was enacted after
the Constitution came into effect.
Is the mandate addressed only to the legislative department? No: it is meant for the three
departments; legislative, executive, and judicial, because the latter two are no less the
agencies of the State than the first. For what use would it be for the National Assembly to
pass laws calculated to enhance social justice if the executive officials should enforce them
in such a way, and the courts should give them such an interpretation, as to defeat social
justice?
Certainly, this principle of social justice in our Constitution as generously conceived and so
tersely phrased, was not included in the fundamental law as a mere popular gesture. It was
meant to a vital, articulate, compelling principle of public policy. It should be observed in the
interpretation not only of future legislation, but also of all laws already existing on November
15, 1935. It was intended to change the spirit of our laws, present and future. Thus, all the
laws which on the great historic event when the Commonwealth of the Philippines was born,
were susceptible of two interpretations — strict or liberal, against or in favor of social justice,
now have to be construed broadly in order to promote and achieve social justice. This may
seem novel to our friends, the advocates of legalism, but it is the only way to give life and
significance to the above-quoted principle of the Constitution. If it was not designed to apply
to these existing laws, then it would be necessary to wait for generations until all our codes
and all our statutes shall have been completely changed by removing every provision
inimical to social justice, before the policy of social justice can become really effective. That
would be an absurd conclusion. It is more reasonable to hold that this constitutional principle
applies to all legislation in force on November 15, 1935, and all laws thereafter passed.
(Bocobo, Cult of Legalism.)
Law, being a manifestation of social culture and progress, must be interpreted taking into
consideration the stage of said culture and progress including all the concomitant circumstances. It
must be interpreted by drawing inspiration, not only from the teachings of history, from precedents
and traditions, but from inventions of science, discoveries of art, ideals of thinkers, dreams of poets,
that is, all the sources from which may spring guidance and help to form a truthful idea of the human
relations regulated by the law to be interpreted and applied. Broadmindedness and vision are
essential for men presiding tribunals to reach correct and just conclusions.





epublic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
SERAFIN D. FELICIANO ET AL., respondents.
Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitioner.
Deflfin Joven and Pablo Lorenzo for respondents.
Ramirez and Ortigas as amici curiae.

OZAETA, J .:
In a four-to-three decision promulgated on September 13, 1941,
1
this Court affirmed the judgment of
the Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,
representing the value of two insurance policies issued by the petitioner on the life of Evaristo
Feliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and
both parties have submitted exhaustive and luminous written arguments in support of their
respective contentions.
The facts of the case are set forth in the majority and dissenting opinions heretofore handed down
by this Court, the salient points of which may be briefly restated as follows:
Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.
On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the
respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious
ad practically hopeless condition." Nevertheless the question contained in the application — "Have
you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" —
appears to have been answered , "No" And above the signature of the applicant, following the
answers to the various questions propounded to him, is the following printed statement:1awphil. net
I declare on behalf of myself and of any person who shall have or claim any interest in any
policy issued hereunder, that each of the above answers is full, complete and true, and that
to the best of my knowledge and belief I am a proper subject for life insurance. (Exhibit K.)
The false answer above referred to, as well as the others, was written by the Company's soliciting
agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose
of securing the Company's approval of the application so that the policy to be issued thereon might
be credited to said agent in connection with the inter-provincial contest which the Company was then
holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical
Examiner Valdez with money which the former borrowed from the applicant's mother by way of
advanced payment on the premium, according to the finding of the Court of Appeals. Said court also
found that before the insured signed the application he, as well as the members of his family, told
the agent and the medical examiner that he had been sick and coughing for some time and that he
had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in
spite of such information the agent and the medical examiner told them that the applicant was a fit
subject for insurance.
Each of the policies sued upon contains the following stipulations:
This policy and the application herefor constitute the entire contract between the parties
hereto. . . . Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the same time for making any
premium payment, and the Company shall not be bound by any promise or representation
heretofore or hereafter given by any person other than the above-named officials, and by
them only in writing and signed conjointly as stated.
The application contains, among others, the following statements:
18. — I [the applicant] hereby declare that all the above statements and answers as well as
all those that I may make to the Company's Medical Examiner in continuation of this
application, to be complete, true and correct to the best of my knowledge and belief, and I
hereby agree as follows:
1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be
the basis of the policy and form part of same.
x x x x x x x x x
3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the Company's rights or requirements.
5. My acceptance of any policy issued on this application will constitute a ratification by me of
any corrections in or additions to this application made by the Company in the space
provided "For Home Office Corrections or Additions Only." I agree that photographic copy of
this applications as corrected or added to shall constitute sufficient notice to me of the
changes made. (Emphasis added.)
The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
After a careful re-examination of the facts and the law, we are persuaded that petitioner's contention
is correct. To the reasons adduced in the dissenting opinion heretofore published, we only desire to
add the following considerations:
When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized
the soliciting agent and/or medical examiner of the Company to write the answers for him, he made
them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for he falsification. He was
not supposed to sign the application in blank. He knew that the answers to the questions therein
contained would be "the basis of the policy," and for that every reason he was required with his
signature to vouch for truth thereof.
Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the
policies in question. Above the signature of the applicant is the printed statement or representation: "
. . . I am a proper subject for life insurance." In another sheet of the same application and above
another signature of the applicant was also printed this statement: "That the said policy shall not take
effect until he first premium has been paid and the policy as been delivered to and accepted by me,
while I am in good health." When the applicant signed the application he was "having difficulty in
breathing, . . . with a very high fever." He had gone three times to the Santol Sanatorium and had X-
ray pictures taken of his lungs. He therefore knew that he was not "a proper subject for life
insurance." When he accepted the policy, he knew that he was not in good health. Nevertheless, he
not only accepted the first policy of P20,000 but then and there applied for and later accepted
another policy of P5,000.
We cannot bring ourselves to believe that the insured did not take the trouble to read the answers
contained in the photostatic copy of the application attached to and made a part of the policy before
he accepted it and paid the premium thereon. He must have notice that the answers to the questions
therein asked concerning his clinical history were false, and yet he accepted the first policy and
applied for another. In any event, he obligated himself to read the policy when he subscribed to this
statement: "My acceptance of any policy issued on this application will constitute a ratification by me
of any corrections in or additions to this application made by the Company . . ." By accepting the
policy he became charged with knowledge of its contents, whether he actually read it or not. He
could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same
time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of
the two policies sued upon (one of which is printed in English and the other in Spanish) that the
soliciting agent and the medical examiner had no power to bind the Company by any verbal promise
or oral representation. The insured, therefore, had no right to rely — and we cannot believe he relied
in good faith — upon the oral representation. The insured, therefore, had no right to rely — and we
cannot believe he relied in good faith — upon the oral representation of said agent and medical
examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and
was still suffering with advanced pulmonary tuberculosis.
From all the facts and circumstances of this case, we are constrained to conclude that the insured
was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the
fraudulent procurement of the policies in question and that by reason thereof said policies are
void ab initio.
Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is
hereby reversed. Let another judgment be entered in favor of the respondents and against the
petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the
date of the complaint, and without any finding as to costs.
Moran, Paras and Bocobo, JJ., concur.



Separate Opinions

YULO, C.J ., concurring:
I can find no quarrel with the legal considerations and conclusions set forth in the original decision
promulgated by this Court. As general rules of law they find full support not only in reason and in
logic, but also in simple human sense of justice. More so, modern and complicated practices
attendant to the ever growing trade in life insurance demand the strictest accountability by insurance
companies for acts of their authorized agents. In this way only may the State afford reasonable
protection to the unwary public from abuse by such organizations as may be found to be of
questionable moral standards.
But a careful consideration of the evidentiary facts as set forth in the decision of the Court of Appeals
leads me to conclude that the ends of justice would not be serve by the application to the present
case of the rules so enunciated. Rather, to serve the ends of justice the case of the respondents
should be removed from the protection of such rules.
The subject of the insurance policies under consideration is the life of the assured. It is contended by
his beneficiaries that they took these policies on the basis of a life expectancy of a person gravely
stricken with tuberculosis. They have consistently made protestations that they had so informed the
agents of the insurance company. But the policies were issued upon the life of the assured, as a
perfectly normal and healthy person. The error is vital and goes to the very existence of the contract
itself. Who is responsible for the error?
The direct cause, of course, is the false recitals in the application for insurance. While it is true that it
was the agents of the insurance company who filled out such application, yet it was the assured
who, by signing the application in blank, made it possible for the said agents to procure the issuance
of the policies on the basis of false information, in order to suit their own purposes. Upon the
admitted facts, I am of the opinion that in justice and in equity, the responsibility for the falsifications
made by the insurance agents in the preparation of the insurance application should be laid at the
door of the assured and his beneficiaries.
I vote with the majority in granting the motion for reconsideration and in reversing the decision under
review.
HONTIVEROS, J ., dissenting:
The reasons given in the dissenting opinion in this case, as published in the Official Gazette of
October 4, 1941 (pp. 2847 to 2855), supplemented by those in the resolution of the majority on the
motion for reconsideration, do not seem to me sufficient to overthrow the decision rendered by the
Court of First Instance, confirmed by the Court of Appeals, and sustained by this Supreme court in
its decision of September 18, 1941. The alleged connivance between the insured Evaristo Feliciano,
the agent Romulo M. David, and the medical examiner Dr. Gregorio Valdez not only does not clearly
appear of record, but on the contrary is denied in the finding of facts of the courta quo and of the
Court of Appeals which cannot be reviewed or altered by this Court.
The mere fact that the insured signed at the bottom of the application for insurance when some of its
lines intended for answers to certain questions were still in blank, answers which according to the
evidence and to the findings of the two inferior courts he had grounds to believe will be made in
accordance with the information which he and his family had given to agent David and to Dr. Valdez,
does not convert these two persons into agents of the insured in a way as to make the latter
responsible for the acts of the former. That the photostatic copies of said forms which are attached
to the policies object of this case are almost illegible, is a fact which should be taken into account,
together with the other fact that Evaristo Feliciano does not know English, the language in which
those documents are written. In support of this dissenting opinion, the following authorities may be
cited:
The mere failure of the insured to inform himself of the insertion of false answers in the
application which has been filled out by the agent of the insurer does not convict him of lack
of good faith. (Vol. 5, Cooley's Briefs on Insurance, 2nd Ed., p. 4136, and many cases cited.)
The insured is not chargeable with such negligence as will render him liable for false
answers inserted by the agent merely because he signed the application in blank and trusted
the agent to fill out by the agent, without reading it. (Id., p. 4136, and many cases cited.)
An illiterate person or one who does not understand the English language (as is the case
with Evaristo Feliciano) is not guilty of inexcusable negligence in failing to read the
application or having it read to him, nor can it be said that such person deliberately made a
false statement because he did not read over the application. (81 ALR 865, 866, W. 117 ALR
796.)
Nor can it be said that the assured, who has fully, frankly, truthfully, and in good faith
answered all the required questions, is guilty of negligence in signing, without reading, the
application which is thereupon prepared by the agent. He is justified in assuming that the
agent, has, with equal good faith, truthfully recorded the answers give. He may well say to
the Company: 'You accredited this man to me as your representative, and I signed the
application thus prepared by him, relying upon the character which you gave him, when you
commissioned him to come to me as your agent. If he acted dishonestly in the matter, you,
and not I, must suffer the consequences . . .! (Germania Life Ins. Co. vs. Lunkeheimer [1931]
Ind., 538; 26 N. E., 1052)
In such case the acceptance of the policy, with this application attached, does not require the
insured to institute an investigation into its provisions, or the conditions upon which is was
issued, to ascertain whether the agent has acted in good faith, since, under such
circumstances, the insured may rely upon the presumption that he has been honestly dealt
with the insurer. (Otto vs. Hartford Ins. Co., 38 Minn., 423).
Besides, the principles that the insured is not bound to know the contents of the application,
and may rely on the agent's assurances that his answers have been correctly written will, of
course, apply with special force where the insured is illiterate and unable to read, or is
ignorant of the language. (Vol. 5, Cooley's Briefs on Insurance, 2nd Ed. p. 4138, cases
cited.)
And also where the photostatic copies of the application embodied in the policy are
practically illegible, the insured is not bound to know the contents of the application. (New
York Ins. Co. vs. Holpem D.C. 57 Fed. 2nd, 200).
According to the great weight of authority, if an agent of the insurer, after obtaining from an
applicant for insurance a correct and truthful answer to interrogations contained in the
application for insurance, without knowledge of the applicant fills in false answers, either
fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense
to the liability on the policy and this is generally without regard to the subject matter of the
answers or the nature of the agent's duties or limitations on his authority, at least if not
brought to the attention of the applicant. It is equally well settled that if a correct
representation is made in a written application, or the insurance agent issuing the policy is
appraised of the true facts concerning the matter in question, as for instance the title to the
insured premises, but the agent inserts an incorrect statement in the policy, the insurer
cannot rely upon the error in avoidance of its liability". Home Ins. Co. vs. Mendenhall, 154 Ill.,
452, 45 NE., 1078, 36 LRA., 374; Phoenix Ins. Co. vs. Tucker, 92 Ill., 64, 34 Am Rep.,
106; Commercial Ins. Co. vs. Spanknoble, 52 Ill., 53, 4 Am. Report, 582; Young vs. Hartford
F. Ins. Co. 45 Iowa, 377, 24 Am. Rep., 754; Welsh vs. London Assur. 151 Pa., 607, 25 A,
142, 21 Am St. Rep., 726 — (Taken from Am Juris. on Insurance Vol. 29, par. 843).
An insured may be justified in signing an application in blank at the request of the insurer's
agent, who agrees to fill it in from data furnished by the insured or from an old application. In
fact, an insurer cannot urge the falsity of representations contained in the policy issued, or in
the application, where such representations were inserted therein, either by the company or
its agent, after the application was signed, without the knowledge or consent of the insured,
who has made no such representations. (Couch on Insurance, Vol. 4, par. 842 b.)
I believe that the motion for reconsideration presented in this case should be denied, not only
because of the weighty reasons relied upon in the decision which it attacks, but also because a
dangerous precedent would otherwise be established, for, with the destruction of the confidence
which the public has hitherto reposed in the duly accredited agents of insurance companies and in
their examining physicians, this branch of the economic life of the people will have to be unfavorably
affected.
Imperial, J., dissents.