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G.R. No.

75605 January 22, 1993

RAFAEL (REX) VERENDIA, petitioner,

G.R. No. 76399 January 22, 1993


B.L. Padilla for petitioner.

Sabino Padilla, Jr. for Fidelity & Surety, Co.


The two consolidated cases involved herein stemmed from the issuance by Fidelity and
Surety Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance
Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael
(Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in
the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May
12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867
expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely
destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly
informed of the loss and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then Court of First Instance of Quezon
City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and
litigation expenses. The complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (P. 16, Record).

Answering the complaint, Fidelity, among other things, averred that the policy was
avoided by reason of over-insurance; that Verendia maliciously represented that the
building at the time of the fire was leased under a contract executed on June 25, 1980 to a
certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in
favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that
Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers Insurance and
Development Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated
on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P),
JJ.), the appellate court reversed for the following reasons: (a) there was no
misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in
the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia
to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown


by its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No.

Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of
directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on April
21, 1986, a motion for extension of 3 days within which to file a motion for
reconsideration. The motion for extension was not filed on April 19, 1986 which was the
15th day after receipt of the decision because said 15th day was a Saturday and of course,
the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension
was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the
meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).

Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration
on the ground that the motion for extension was filed out of time because the 15th day
from receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed,
so Verendia contended, the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for
reconsideration was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition
herein docketed as G.R. No. 75605 was initiated. Subsequently, or more specifically on
October 21, 1986, the appellate court denied Fidelity's motion for reconsideration and
account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now
docketed as G.R. No. 76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case which is the petition for
review on certiorari, we must first determine whether the decision of the appellate court
may still be reviewed, or whether the same is beyond further judicial scrutiny. Stated
otherwise, before anything else, inquiry must be made into the issue of whether Fidelity
could have legally asked for an extension of the 15-day reglementary period for appealing
or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that
the pendency of a motion for extension of time to perfect an appeal does not suspend the
running of the period sought to be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]).
To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160 [1948]) Bello
vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).

The above cases notwithstanding and because the Rules of Court do not expressly
prohibit the filing of a motion for extension of time to file a motion for reconsideration in
regard to a final order or judgment, magistrates, including those in the Court of Appeals,
held sharply divided opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not definitely settled
until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA
[1986]), declaring that beginning one month from the promulgation of the resolution on
May 30, 1986 —

. . . the rule shall be strictly enforced that no motion for extension of time to
file a motion for new trial or reconsideration shall be filed . . . (at p. 212.)

In the instant case, the motion for extension was filed and granted before June 30, 1986,
although, of course, Verendia's motion to expunge the motion for reconsideration was not
finally disposed until July 22, 1986, or after the dictum in Habaluyas had taken effect.
Seemingly, therefore, the filing of the motion for extension came before its formal


proscription under Habaluyas, for which reason we now turn our attention to G.R. No.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the
contract of lease submitted by Verendia to support his claim on the fire insurance policy
constitutes a false declaration which would forfeit his benefits under Section 13 of the
policy and (b) whether or not, in submitting the subrogation receipt in evidence, Fidelity
had in effect agreed to settle Verendia's claim in the amount stated in said receipt.1

Verging on the factual, the issue of the veracity or falsity of the lease contract could have been
better resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the
jurisdiction of this Court is limited to the review of errors of law. The appellate court's findings of
fact are, therefore, conclusive upon this Court except in the following cases: (1) when the
conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the judgment is premised on a misapprehension
of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals in making
its findings went beyond the issues of the case and the same are contrary to the admissions of
both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the
conflicting findings of the trial court and the appellate court on important issues in these
consolidated cases and it appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance benefits, was
entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980
(Exh. "1"), a couple of days after the effectivity of the insurance policy. When the rented
residential building was razed to the ground on December 28, 1980, it appears that Robert
Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation
report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to
have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion of
said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo
Garcia, whom he considered as the real lessee, was occupying the building when it was burned
(TSN, July 27, 1982, p.10).

Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was
able to locate him. Robert Garcia then executed an affidavit before the National Intelligence and
Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and that
his signature on the contract of lease was a complete forgery. Thus, on the strength of these
facts, the adjuster submitted a report dated December 4, 1981 recommending the denial of
Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease
contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had
been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to
sign his cousin's name when he in fact was paying for the rent and why he (Verendia) himself,
the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to
have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire
towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of
P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market
value to be only P40,300.00, insured the same property with two other insurance companies for
a total coverage of around P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific
Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions


the subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. to interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the parties. [G.constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental Assurance Corporation vs. 76399 is GRANTED and the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial court is hereby REINSTATED and UPHELD. As it is also a contract of adhesion. Court of Appeals. F-18876. the terms of the policy should be strictly construed against the insured. Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142. INC. Thus. Bidin. J. The petition in G. No. respondents. 75605 is DISMISSED.. 185 SCRA 741 [1991]). vs. the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy No. however. JJ. Inc. It might be that there had been efforts to settle Verendia's claims. vs. There is also no reason to conclude that by submitting the subrogation receipt as evidence in court. 187 SCRA 652 [1980]). July 18.R. or if any false declaration be made or used in support thereof. citing Perla Compania de Seguros.: 4 .. Apostol. Verendia. the same receipt states that Verendia had received the aforesaid amount.R. Verendia. It is even incomplete as the blank spaces for a witness and his address are not filled up. Court of Appeals. Davide. Worse yet. Court of Appeals. While the said receipt appears to have been a filled-up form of Fidelity. No.77. SO ORDERED. Court of Appeals. Gutierrez. petitioner. he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs. and Romero. Verendia failed to live by the terms of the policy. specifically Section 13 thereof which is expressed in terms that are clear and unambiguous. no representative of Fidelity had signed it. 173 SCRA 228 [1989]). Jr. However.. 112360. COURT OF APPEALS and TRANSWORLD KNITTING MILLS. WHEREFORE.00 stated in the policy. More significantly. 2000] RIZAL SURETY & INSURANCE COMPANY. having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract. by presenting a false lease contract.685.000. Jr. Considering. No. supra). or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". but surely. 200 SCRA 459 [1991]. is proven by the fact that Verendia himself filed the complaint for the full amount of P385. reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith (Velasco vs. concur. the petition in G. that all benefits under the policy shall be forfeited "If the claim be in any respect fraudulent. an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. that Verendia had not received the amount stated therein. DECISION PURISIMA.R.

Inc....00) Pesos and eventually increased to One Million Five Hundred Thousand (P1.... in Civil Case No. 1993 Resolution of the Court of [1] [2] Appeals in CA-G.. CV NO.. 28779.. 1980 to March Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills.000. raw materials and supplies of every kind and description..At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the July (Transworld).. offices. xxx.. 1980. the properties of the Insureds and/or held by them in trust. METRO MANILA..000. BARRIO UGONG. warehouse and caretaker's quarters. covering the period from August 14.. partly by building of two and partly one storey constructed of concrete below. transistor-stereo assembly plant. read: "On stocks of finished and/or unfinished products.R. BLOCK NO. initially for One Million (P1.. PHILIPPINES. 1993 Decision and October 22. 'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse. which modified the Ruling of [3] [4] the Regional Trial Court of Pasig. The antecedent facts that matter are as follows: On March 13.. beyond which is the aforementioned 5 .000. and location thereof.. 46106. 1981. PASIG.00) Pesos. Pertinent portions of subject policy on the buildings insured. Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. garment and lingerie factory........ 45727 in favor of Transworld Knitting Mills. timber above undergalvanized iron roof occupied as garage and quarters and partly by open space and/or tracking/ packing. Branch 161..500. 601.. on commission or on joint account with others and/or for which they (sic) responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound at MAGDALO STREET.

fire broke out in the compound of Transworld. 867. private respondent brought against the said insurance companies an action for collection of sum of money and damages. 46106 before Branch 161 of the then Court of First Instance of Rizal.00 representing the actual value of the losses suffered by it." [8] 6 . praying for judgment ordering Rizal Insurance and New India to pay the amount of P2. and (3) Cost against defendant Rizal Surety and Insurance Company. 500. 1981. P400. On May 26. and not the damage caused by the fire on the two- storey annex building.[7] On January 4. disposing as follows: "ACCORDINGLY... expenses of litigation of P50.00 plus legal interest.000. (New India). Magdalo Street. exemplary damages. was also destroyed by the fire.. thence open spaces.747. docketed as Civil Case No. Ltd. 1982.00 as attorney's fees. which was partly burned. on its right and left by driveway. (2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills.000. judgment is hereby rendered as follows: (1)Dismissing the case as against The New India Assurance Co. Ltd. and at the rear by open spaces. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored.'" [5] The same pieces of property insured with the petitioner were also insured with New India Assurance Company. Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Company but to no avail.00 and costs of suit. the amount of P826. razing the middle portion of its four-span building and partly gutting the left and right sections thereof. On January 12. the trial court rendered its decision. SO ORDERED. 1990. [6] Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building. Inc.

the Decision of July 15. 7 .Both the petitioner. based on the actual losses sustained by plaintiff Transworld in the fire.604. 1982 when the complaint was filed until payment is made. and private respondent. interposed a Motion for Reconsideration before the Court of Appeals.00 and Rizal Surety and Insurance Company in the amount of P1. the decision of the court below is MODIFIED in that defendant New India Assurance Company has and is hereby required to pay plaintiff-appellant the amount of P1. No costs..800.790. 1993 is amended but only insofar as the imposition of legal interest is concerned. the decretal portion of which reads: "WHEREFORE. Court of Appeals).500. 1994. ruling thus: "WHEREFORE.376. the Court denied the appeal with finality in G. Transworld Knitting Mills. and on October 22. The rest of the said decision is retained in all other respects. went to the Court of Appeals. Inc.19 and that against Rizal Surety & Insurance Company on the amount of P470.000. on the assessment against New India Assurance Company on the amount of P1.328. as regards the imposition of interest. 1993 under attack. On February 2. which came out with its decision of July 15.00. from May 26. vs.67. the Court of Appeals reconsidered its decision of July 15. Rizal Insurance Company. totalling P2.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5. 1993. No. SO ORDERED.818.R. L-111118 (New India Assurance Company Ltd.604. and upon all the foregoing. 1993.67. that.19 while the other Rizal Surety has to pay the plaintiff-appellant P470. from the aforesaid judgment of the Court of Appeals New India appealed to this Court theorizing inter alia that the private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld) had no insurable interest in said goods or items.818." [9] On August 20.000.328. 1993. Petitioner Rizal Insurance and private respondent Transworld.

On the other hand. Resolution of the issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policy regarding its coverage.. 3 TO 7-C-RIZAL SURETY). the private respondent theorized that the so called "annex" was not an annex but was actually an integral part of the four-span building and therefore. 2205. TAKEN IMMEDIATELY AFTER THE FIRE..SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT CONSIDERING THE PICTURES (EXHS." [10] Undaunted. CIVIL CODE). and did not include those stored in the two-storey annex [12] building. contending that: I. WHERE THE INSURED PROPERTIES WERE LOCATED.SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED. CIVIL CODE). the goods and items stored [13] therein were covered by the same fire insurance policy... WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED BY TRANSWORLD. [11] The Petition is not impressed with merit. III. It is petitioner's submission that the fire insurance policy litigated upon protected only the contents of the main building (four- span).. AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART... SO ORDERED. SUSTAINED PARTIAL DAMAGE ONLY.. PLUS ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION. petitioner Rizal Surety & Insurance Company found its way to this Court via the present Petition. WAS INCLUDED IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD. II. 4 and 11. 2208 PARS. which reads: "xxx contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound xxx" 8 .

Therefrom. offices. the two-storey building involved. ware house and caretaker's quarter. The letter-report of the Manila Adjusters and Surveyor's Company. which petitioner itself cited and invoked. and the same carry even more weight when the Court of Appeals has affirmed the findings of fact arrived at by the lower court. formed part thereof. describes the "annex" building as follows: "Two-storey building constructed of partly timber and partly concrete hollow blocks under g. transistor-stereo assembly plant. it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the four- span building. said areas must form part of the building described in the policy xxx" [14] 'Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills. both the trial court and the Court of Appeals found that the so called "annex " was not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently. As opined by the trial court of origin. 9 . to wit: "First. a permanent structure which adjoins and intercommunicates with the "first right span of the lofty storey building". two requirements must concur in order that the said fun and amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny. and meets the requisites for [17] compensability under the fire insurance policy sued upon. [15] In the case under consideration. said properties must be contained and/or stored in the areas occupied by Transworld and second.' The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusive on the parties and not reviewable by this Court. garment and lingerie factory." [16] Verily.i. roof which is adjoining and intercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall. the machines and spare parts stored therein were covered by the fire insurance in dispute.

181). it stands to reason that the doubt should be resolved against the petitioner.. ruled: [19] "This is particularly true as regards insurance policies. which are ambiguous. equivocal. in respect of which it is settled that the 'terms in an insurance policy. and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured. Indeed. Article 1377 of the New Civil Code provides: "Art. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" Conformably. 1981. raw materials and supplies stored within the premises of respondent Transworld which was an integral part of the four-span building occupied by Transworld. Vda. especially where forfeiture is involved' (29 Am. petitioner should have specifically excluded the said two- [18] storey building from the coverage of the fire insurance if minded to exclude the same but if did not. and acting exclusively in the interest of.S. Inc.' (44 C. the Court does not find any basis for disturbing what the lower courts found and arrived at. and instead. Citing the aforecited provision of law in point. 1174). After a careful study. Rizal Surety Insurance Company.. the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. p.So also. Government Service Insurance System. and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by. De Songco. to wit:[21] 10 . or uncertain x x x are to be construed strictly and most strongly against the insurer. vs. went on to provide that such fire insurance policy covers the products.1377.J. knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four- span building. Jur. the insurance company. having been constructed sometime in 1978. whose lawyer or managers drafted the fire insurance policy contract under scrutiny."" [20] Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company. considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on January 12. the Court in Landicho vs.

upon the determination of which the finding or judgment was rendered. in Smith Bell and Company (Phils. endowed with overwhelming economic power. where the appeal of New India from the decision of the Court of Appeals under review. "'This rigid application of the rule on ambiguities has become necessary in view of current business practices. cartels and concentration of capital. No. Ratiocinating further. such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition. The rule on conclusiveness of judgment. The courts cannot ignore that nowadays monopolies. which obtains under the premises. the previous judgment is conclusive in the second case. Ltd.. entitled New India Assurance Company. Court of Appeals. Sent. In fine. his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion). of Supreme Court of Spain. vs. 1934. in contrast to these entered into by parties bargaining on an equal footing. 1994. 13 Dec. Article 24. 27 February 1942. L- 111118. precludes the relitigation of a particular fact or issue in another action between the same parties based on a different claim or cause of action. held that the issue of [24] negligence of the shipping line." [23] Applying the abovecited pronouncement.). is conclusive and can no longer be relitigated in a similar case filed by another insurer against the same shipping line on the basis of the same factual circumstances. Inc. the Court opined: 11 . was denied with finality by this Court on February 2. vs. only as those matters actually and directly controverted and determined and not as to matters merely involved therein. Court of Appeals.R. "xxx the judgment in the prior action operates as estoppel only as to those matters in issue or points controverted. and prevent their becoming traps for the unwary (New Civil Code. manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit. the Court.)'" [22] The issue of whether or not Transworld has an insurable interest in the fun and amusement machines and spare parts. which issue had already been passed upon in a case filed by one of the insurers. had been settled in G. which entitles it to be indemnified for the loss thereof.

Applying the rule of conclusiveness of judgment.R.R. as already noted.A.328. that the Court of Appeals erred not in holding the petitioner. 1994. is bound by the ruling of the Court of Appeals and of this Court that the private respondent has an insurable interest in the aforesaid fun and amusement machines and spare parts. No.-G. the question of which vessel had been negligent in the collision between the two (2) vessels.. No. [26] All things studiedly considered and viewed in proper perspective. it being the total loss and damage suffered by Transworld for which petitioner Rizal Insurance is liable. or so negligent as to have proximately caused the collision between them. the Court is of the irresistible conclusion.. the petitioner.B. controverted and litigated in C. and so finds. and that of this Court. the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been negligent. Rizal Surety Insurance Company. Considering that private respondent's insurable interest in.-G. L. and should be indemnified for the loss of the same. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes. Ineluctably.B. The Court of Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision.R..R. CV NO. Rizal Surety Insurance Company. So also. settled and sustained by the Court of Appeals in CA-G. 12 . in a Resolution. liable for the destruction and loss of the insured buildings and articles of the private respondent. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision. had long been settled by this Court and could no longer be relitigated in C. No.A. dated February 2." [25] The controversy at bar is on all fours with the aforecited case. was promulgated. the Court of Appeals correctly adjudged petitioner liable for the amount of P470. Reyes.R. J. L. the same can no longer be relitigated and passed upon in the present case. J. 28779. L-48839 in a Resolution dated 6 December 1987. which is assailed in the case at bar. and by this Court in G. directly and expressly raised. 61320-R. had been adjudicated.67. "In the case at bar. L-111118. No. and compensability for the loss of subject fun and amusement machines and spare parts. resolved that issue in his Decision and held the 'Don Carlos' to have been negligent rather than the 'Yotai Maru' and. was an issue that was actually. that Decision was affirmed by this Court in G. 61206-R.

1990. whether ordinary or emergency. 1989 to March 1. 1988 to March 1. respondents. 1990.00 per disability. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive. 13 . asthma or peptic ulcer? (If Yes. cancer. petitioner denied her claim saying that the Health Care Agreement was void. give details). respondent paid the hospitalization expenses herself. Inc.Under the agreement. of the Court of Appeals in CA- G. diabetes. [G. 1990. there was a concealment regarding Ernanis medical history. amounting to about P76.000. 125678. preventive health care and other out-patient services. the Decision. No pronouncement as to costs. Thus. WHEREFORE..The amount of coverage was increased to a maximum sum of P75. March 18. [2] During the period of his coverage. In the standard application form. Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9. SO ORDERED. J. dated July 15. P010194. COURT OF APPEALS and JULITA TRINOS.000. vs. According to petitioner. Accordingly. INC.00. contrary to his answer in the application form. heart trouble. 1993. and the Resolution.[1] The application was approved for a period of one year from March 1. petitioner. DECISION YNARES-SANTIAGO. While her husband was in the hospital. 1990 to June 1.R. he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure. diabetic and asthmatic. 28779 are AFFIRMED in toto. the same was extended for another year from March 1.R. applied for a health care coverage with petitioner Philamcare Health Systems. 1989. respondents husband was entitled to avail of hospitalization benefits.: Ernani Trinos. liver disease. dated October 22. 1993. he was issued Health Care Agreement No. He was also entitled to avail of out-patient benefits such as annual physical examinations. respondent tried to claim the benefits under the health care agreement. then from March 1. listed therein. deceased husband of respondent Julita Trinos. Upon the termination of the agreement. 2002] PHILAMCARE HEALTH SYSTEMS. No. However. CV NO.

2. as compared to insurance contracts which last longer. Later. the Court renders judgment in favor of the plaintiff Julita Trinos. After her husband was discharged from the MMC. Branch 44. In the morning of April 13. 90-53795. in view of the forgoing. 1990. viz: WHEREFORE. On July 24. Moreover. respondent brought her husband home again. After trial. raising the primary argument that a health care agreement is not an insurance contract. Petitioner further 14 . respondent instituted with the Regional Trial Court of Manila. unlike in an insurance contract where the insured is indemnified for his loss. Benito Reverente. since Health Care Agreements are only for a period of one year.00 plus interest.000. 1990. SO ORDERED. petitioner brought the instant petition for review. Dr. Ernani had fever and was feeling very weak. an action for damages against petitioner and its president.000. 4. She asked for reimbursement of her expenses plus moral damages and attorneys fees. as the same requires an effectivity period of at least two years. hence the incontestability clause under the Insurance Code[6] does not apply. Due to financial difficulties. he was attended by a physical therapist at home. Defendants to pay attorneys fees of P20. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76. such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter.00. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification.[5] Hence. until the amount is fully paid to plaintiff who paid the same. Petitioner argues that the agreement grants living benefits. plus costs of suit. Defendants to pay the reduced amount of moral damages of P10. Defendants to pay the reduced amount of P10.[7] petitioner argues that the incontestability clause does not apply.Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. ordering: 1.00 to plaintiff. however.00 as exemplary damages to plaintiff.000.[3] On appeal. which was docketed as Civil Case No. the lower court ruled against petitioners.000. he was admitted at the Chinese General Hospital. 3.[4] Petitioners motion for reconsideration was denied. the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.

the insured pays a premium. It appears that in the application for health coverage. of his spouse and of his children. may be insured against. The insured is subject to a risk of loss by the happening of the designated peril. the health care provider must pay for the same to the extent agreed upon under the contract. damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. (2) of any person on whom he depends wholly or in part for education or support. but a Health Maintenance Organization under the authority of the Department of Health. medical or any other expense arising from sickness. (3) of any person under a legal obligation to him for the payment of money. or in whom he has a pecuniary interest. which is governed by the Insurance Commission.[9] Once the member incurs hospital. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk. and 5. which is primarily a contract of indemnity. which may damnify a person having an insurable interest against him. The insured has an insurable interest. respecting property or service. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss. Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself. organization or entity that has any record or knowledge of his health to furnish any 15 . and (4) of any person upon whose life any estate or interest vested in him depends. 4. petitioners required respondents husband to sign an express authorization for any person. In consideration of the insurers promise. The insurer assumes the risk. Petitioner argues that respondents husband concealed a material fact in his application. 3. 2. the insurable interest of respondents husband in obtaining the health care agreement was his own health. of which death or illness might delay or prevent the performance.argues that it is not an insurance company. In the case at bar. Every person has an insurable interest in the life and health of himself. injury or other stipulated contingent. whether past or future.[8] Section 3 of the Insurance Code states that any contingent or unknown event. The health care agreement was in the nature of non-life insurance.

complete and true and bind all parties in interest under the Agreement herein applied for. whether intentional or unintentional. A photographic copy of this authorization shall be as valid as the original. consultation. treatment or any other medical advice or examination. the Health Care Agreement signed by respondents husband states: We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full.[10] Specifically. petitioner additionally required the applicant for authorization to inquire about the applicants medical history. Inc. consultation. or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems.[12] (Underscoring ours) Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination. by these presents. thus: I hereby authorize any person. organization.and all information relative to any hospitalization. Where 16 . that any physician is.[11] (Underscoring ours) In addition to the above condition. This authorization is in connection with the application for health care coverage only.[13] The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. This largely depends on opinion rather than fact. that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement. treatment or any other medical advice or examination. that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application. any and all information relative to any hospitalization. especially coming from respondents husband who was not a medical doctor.

or the impossibility of which is shown by the facts within his knowledge. petitioner is liable for claims made under the contract. Besides. mailed or delivered to the insured at the address shown in the policy. 4. since in such case the insurer is not justified in relying upon such statement. In the end. 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned. The right to rescind should be exercised previous to the commencement of an action on the contract. if the statement is obviously of the foregoing character.[16] Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. When the terms of insurance contract contain limitations on liability. a concealment entitles the injured party to rescind a contract of insurance.[18] None of the above pre-conditions was fulfilled in this case. opinion. answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. In any case.matters of opinion or judgment are called for. to be actually untrue. a representation of the expectation. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true. and this is likewise the rule although the statement is material to the risk. the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. that which he then knows. as a matter of expectation or belief.[17] In this case. with or without the authority to investigate. no rescission was made. the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.[14] Thus. petitioner is bound to answer the same to the extent agreed upon. (A)lthough false. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured. belief. or its acceptance at a lower rate of premium. 3. to furnish facts on which cancellation is based. Prior notice of cancellation to insured. Under Section 27 of the Insurance Code. or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk. Having assumed a responsibility under the agreement.[15] (Underscoring ours) The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. courts should construe them in such a way as to preclude the insurer from non-compliance with his 17 . intention. but is obligated to make further inquiry. Must be in writing.

The periods having expired. petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage. 1995 is AFFIRMED. The records adequately prove the expenses incurred by respondent for the deceaseds hospitalization. respondents.[19] Being a contract of adhesion. DAVIDE. 1995 FORTUNE INSURANCE AND SURETY CO. the petition is DENIED. Security.[22] Anent the incontestability of the membership of respondents husband. COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES. It is not controverted that respondent paid all the hospital and medical expenses.: The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money. and exclusionary clauses of doubtful import should be strictly construed against the provider. ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured. the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. payment should be made to the party who incurred the expenses. The assailed decision of the Court of Appeals dated December 14.. She is therefore entitled to reimbursement. G. The phraseology used in medical or hospital service contracts. must be liberally construed in favor of the subscriber. The health care agreement is in the nature of a contract of indemnity. in view of the foregoing. 115278 May 23. No.[20] By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract. vs. JR..obligation. SO ORDERED. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma.R. the defendant Philamcare Health Systems Inc. we quote with approval the following findings of the trial court: (U)nder the title Claim procedures of expenses. and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is precluded under the general exceptions clause 18 . the defense of concealment or misrepresentation no longer lie. Hence. especially to avoid forfeiture..[23] Finally. INC.[21]This is equally applicable to Health Care Agreements. J. the deceased was previously married to another woman who was still alive. medication and the professional fees of the attending physicians. such as the one at bar. and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension.[24] WHEREFORE. petitioner. and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted.

00. "General Exceptions" Section (b). the duplicate original of which is hereto attached as Exhibit "A". 6.000. A copy of the complaint is hereto attached as Exhibit "D". A copy of the said information is hereto attached as Exhibit "E.thereof. a duplicate original copy of which is hereto attached as Exhibit "C". but the latter refused to pay as the loss is excluded from the coverage of the insurance policy. Maribeth Alampay. After joinder of issues. while in the process of transferring cash in the sum of P725.000." and which reads as follows: 19 .00 under the custody of its teller. Metro Manila. 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. by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City. The said armored car was driven by Benjamin Magalong Y de Vera. with the plaintiff by virtue of a contract of Security Service executed on October 25. Makati. 1982. 7. from its Pasay Branch to its Head Office at 8737 Paseo de Roxas." specifically under page 1 thereof. The plaintiff was insured by the defendants and an insurance policy was issued. with violation of P." The case is still being tried as of this date. 1983. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725. which is marked as Exhibit "A-1.00 under the policy issued by Fortune. attached hereto as Exhibit "A. a duplicate original copy of which is hereto attached as Exhibit "B". escorted by Security Guard Saturnino Atiga Y Rosete. 3. together with Edelmer Bantigue Y Eulalio. Both the trial court and the Court of Appeals held that there should be recovery. was robbed of the said cash. the driver Magalong and guard Atiga were charged. Metro Manila on June 29. Inc. Reynaldo Aquino and John Doe. An armored car of the plaintiff. The Security Guard Atiga was assigned by Unicorn Security Services. 4. (hereinafter Fortune) of a complaint for recovery of the sum of P725. Inc. After an investigation conducted by the Pasay police authorities. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an Agreement executed on August 7. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. 5. 2. The case was docketed as Civil Case No.. The petitioner contends otherwise. 1817 and assigned to Branch 146 thereof.D.000. 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. 1987. the parties asked the trial court to render judgment based on the following stipulation of facts: 1. This case began with the filing with the Regional Trial Court (RTC) of Makati.

at the time of the robbery. 8.000. 20 . 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.000. trustee or authorized representative .00 as and for attorney's fees. particularly the general exceptions therein embodied. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer. director.00). (b) orders defendant to pay plaintiff the sum of P30. premises considered. 0207 (as mitigated by the P40. GENERAL EXCEPTIONS The company shall not be liable under this policy in report of xxx xxx xxx (b) any loss caused by any dishonest. employee.000. . . with interest thereon at the legal rate. employee. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy. partner.000. The dispositive portion thereof reads as follows: WHEREFORE. . The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms. fraudulent or criminal act of the insured or any officer. 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. SO ORDERED. beyond perhaps entitling plaintiff to request are replacement for such driver guard. . the Court finds for plaintiff and against defendant.00 special clause deduction and by the recovered sum of P145.1 On 26 April 1990. and (c) orders defendant to pay costs of suit. which alone wields the power to dismiss them. trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . and (a) orders defendant to pay plaintiff the net amount of P540. It Said: The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga. .00 as liability under Policy No. the trial court rendered its decision in favor of Producers. 2 The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. All other claims and counterclaims are accordingly dismissed forthwith. . . until fully paid.

ordinary and popular sense (New Life Enterprises Case. when Producers commissioned a guard and a driver to transfer its funds from one branch to another. p. 8 and C) except only to ask for their replacements from the contractors. Court of Appeals. they effectively and necessarily became its authorized representatives in the care and custody of the money. It asserts that the existence of an employer-employee relationship "is determined by law and being such. 32946. ordinary and simple. The language used by defendant-appellant in the above quoted stipulation is plain. 3 Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G. Quite plainly — it was teller Maribeth Alampay who had "custody" of the P725. 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. 207 SCRA 669. 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. and hence plaintiff's then designated "messenger" adverted to in the policy. Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized representatives" of plaintiff. if there was in reality an employer-employee relationship between Producers. it affirmed in toto the appealed decision. Fortune filed this petition for review on certiorari. Ltd. respectively. Sun Insurance Office. Ltd. the provisions in the contracts of Producers with PRC Management System for Magalong and with 21 . 195 SCRA 193). employees of Producers. The word "employee" must be taken to mean in the ordinary sense. They were merely an assigned armored car driver and security guard. Court of Appeals. In its decision 4 promulgated on 3 May 1994. 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. Assuming that they could not be considered authorized representatives. Sun Insurance Office. they were." Thus. 211 SCRA 554). vs. and Magalong and Atiga. they must be taken and understood in their plain. on the one hand. it must/should have so stated expressly in the insurance policy. on the other. supra. According to Fortune.00 cash being transferred along a specified money route. are to be construed according to the sense and meaning of the terms which the parties themselves have used. No other interpretation is necessary. vs. nevertheless. CV No. 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. it cannot be the subject of agreement. 676. If such terms are clear and unambiguous.R.000. Contracts of insurance.5 On 20 June 1994. 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. like other contracts. for the June 29. Had it intended to apply the Labor Code in defining what the word "employee" refers to. Court of Appeals.

machineries. 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. Fortune thus contends that Magalong and Atiga were employees of Producers. equipment. Contractor or subcontractor. 106. would not obliterate the relationship. (2) the payment of wages. Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee. and (4) the presence and absence of a power to control the putative employee's conduct.Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer. Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement. — 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. it is clear that Magalong was not Producers' employee. As to Atiga. and the control of their conduct. and (4) the power to control the employee's conduct. following the ruling in International Timber Corp. and since Producers paid the monthly compensation of P1.00 per driver to PRC Management Systems and not to Magalong. 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. 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. Section 174 of the Insurance Code provides: 22 . their dismissal." There is merit in this petition. (2) the mode of payment of wages. and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. vs. a social legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man. (3) the presence or absence of a power to dismiss. among others. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. 8 to wit: In determining the existence of employer-employee relationship. work premises. Clave.400. Producers argued that the rule in International Timber Corp. 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. the right-of-control test has been held to be the decisive factor. (3) the power of dismissal. 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. the payment of their wages. the following elements are generally considered. Of the four. Producers further asseverates that what should be applied is the rule in American President Lines vs. On the other hand. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code. namely: (1) the selection and engagement of the employee. 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.

" 10 Persons frequently excluded under such provisions are those in the insured's service and employment. Casualty insurance is insurance covering loss or liability arising from accident or mishap. 11 The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. for easy reference. With the foregoing principles in mind. but is not limited to. director. 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. partner. These contracts are. (emphases supplied) Except with respect to compulsory motor vehicle liability insurance. motor vehicle liability insurance. 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. . 18 An insurance contract is a contract of indemnity upon the terms and conditions specified therein. control. fraudulent or criminal act of the insured or any officer. Sec. the rights and obligations of the parties must be determined by the terms of their contract. 19 It is settled that the terms of the policy constitute the measure of the insurer's liability. Outside of these. 17 It goes without saying then that if the terms of the contract are clear and unambiguous. the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. robbery. . thus any ambiguity therein should be resolved against the insurer. taking into consideration its purpose and always in accordance with the general principles of insurance law. 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. personal accident and health insurance as written by non-life insurance companies. "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. (emphases supplied) 23 . therefore. 15 or it should be construed liberally in favor of the insured and strictly against the insurer. public liability insurance. Seldom does the insurer assume the risk of all losses due to the hazards insured against. It includes. employer's liability insurance. . 12 In such cases. as to preclude the insurer from non-compliance with its obligation. governed by the general provisions applicable to all types of insurance. the terms specifying the excluded classes are to be given their meaning as understood in common speech. 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. employee. plate glass insurance. 9 It has been aptly observed that in burglary. 13 The terms "service" and "employment" are generally associated with the idea of selection. trustee or authorized representative of the Insured whether acting alone or in conjunction with others. burglary and theft insurance. there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. 174. and other substantially similar kinds of insurance. and compensation. 16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a way. many designed to reduce this hazard. 20 In the absence of statutory prohibition to the contrary. and theft insurance. 14 A contract of insurance is a contract of adhesion.

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.


G.R. No. L-15895 November 29, 1920


RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-

Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.


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.


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,

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,


petitioner. properly addressed and stamped. J. that according to the provisional receipt. 96. respondents. For instance. 26434 and its resolution denying reconsideration thereof. 235. L-109937 March 21. The further admitted facts are that the head office in Montreal did accept the application.) 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. (I Joyce. 1994 DEVELOPMENT BANK OF THE PHILIPPINES.000 with legal interest from November 20.J. and the DBP MORTGAGE REDEMPTION INSURANCE POOL. and 49 L. [N. 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.]. 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. Santayana. The pertinent fact is.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G. notes.R. until paid. Araullo. QUIASON. Molo & Alegre for DBP Mortgage Redemption Insurance Pool. 458. vs.R CV No.. represented by CANDIDA G. JJ.lawph! the locus poenitentiae is ended when the acceptance has passed beyond the control of the party. Office of the Legal Counsel for petitioner. C. 244. Mapa. DANS. 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. actually write the letter of notification and place it in the usual channels for transmission to the addressee. No. did cable the Manila office to that effect. R. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. (See 22 Judgment is reversed.. pp. concur. it is fatal to the presumption. and the plaintiff shall have and recover from the defendant the sum of P6..) In resume. 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. et seq.. A. 1918. G. So ordered. did actually issue the policy and did. (2) there had to be approval of the application by the head office of the company. therefore. DANS. 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. But if any one of these elemental facts fails to appear. The Law of Insurance. pp. without special finding as to costs in either instance. S. 27 . Avanceña and Villamor. We affirm the decision of the Court of Appeals with modification. through its agent in Manila. and (3) this approval had in some way to be communicated by the company to the applicant.J. Reyes.

From the proceeds of the loan. relayed this information to the DBP MRI Pool. 1987. I In May 1987. As the principal mortgagor. be reimbursed. applied for a loan of P500. On February 10." On August 20. required him to apply for MRI. in view of the foregoing consideration and in the furtherance of justice and equity. Juan B. She. Accordingly. which it paid under protest for the loan. Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool. DBP apprised Candida Dans of the disapproval of her late husband's MRI application. demanding payment of the face value of the MRI or an amount equivalent to the loan.476. was approved by DBP on August 4. Branch I. Dans. 1987 and released on August 11. (2) that the mortgage debt of the deceased be declared fully paid. against DBP and the insurance pool for "Collection of Sum of Money with Damages. 1987. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee. 1990. found the case ripe for summary judgment. without opposition from the parties. together with his wife Candida.000. ordering the latter: 28 . Basilan. filed a complaint with the Regional Trial Court. Consequently. upon notice. which may serve as basis for the judgment. As a result of these admissions. At the pre-trial.00.00 as payment for the MRI premium. The dispositive portion of the decision read as follows: WHEREFORE.00. On March 10. 1989. The DBP. On October 21. A loan. the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage. On September 23. with full knowledge of Dans' age at the time of application. The DBP offered to refund the premium of P1. and (3) that damages be awarded. 1987. in the reduced amount of P300. but Candida Dans refused to accept the same. refused to accept an ex gratia settlement of P30. however. being over the acceptance age limit of 60 years at the time of application.00. and later collected the insurance premium thereon.00 with the Development Bank of the Philippines (DBP). despite knowledge of his age ineligibility. less the DBP service fee of 10 percent. 1987. the trial court narrowed down the issues and.476. the MRI premium of Dans. 1987. likewise. respondent Estate. DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. On September 3. the Court finds judgment for the plaintiff and against Defendant DBP. after the trial court found no privity of contract between it and the deceased.000. with the former asserting a cross- claim against the latter.00 which the deceased had paid. which the DBP later offered. was absolved from liability. 1987. the trial court rendered a decision in favor of respondent Estate and against DBP. Dans. was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). DBP deducted the amount of P1. Respondent Estate therefore prayed: (1) that the sum of P139. the trial court ordered the parties to submit their respective position papers and documentary evidence. through Candida Dans as administratrix. Basilan Branch. the DBP MRI Pool was advised of the credit. On August 15. was credited by DBP to the savings account of the DBP MRI Pool." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP. The DBP and the DBP MRI Pool separately filed their answers. then 76 years of age.000. Dans died of cardiac arrest. his son and daughter-in-law.500. The DBP MRI Pool.

There is also no showing that it accepted the sum of P1. p. To consider the mortgage loan of P300. DBP deducted 10 percent of the premium collected by it from Dans. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building.00 plus legal rate of interest as amortization payment paid under protest. 1. 79) The DBP appealed to the Court of Appeals. The liability of DBP is another matter. Makati Metro Manila. to secure MRI coverage. and other relief just and equitable. Four days latter. When Dan's loan was released on August 11. the DBP MRI Pool cannot be held liable on a contract that does not exist. as a result. The DBP's motion for reconsideration was denied in a resolution dated April 20. 40). hence. These two conditions. 1992.00 including all interest accumulated or otherwise to have been settled. this recourse.00. and (2) when the full premium is paid during the continued good health of the applicant. Under the aforementioned provisions. DBP already deducted from the proceeds thereof the MRI premium. 1987. 29 . In a decision dated September 7. It was DBP. which DBP credited to its account with full knowledge that it was payment for Dan's premium.00 as costs of litigation and other expenses. however.000. complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health (Records. DBP compelled him to apply with the DBP MRI Pool for MRI coverage. the borrower. the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool. The Cross-claim of Defendant DBP is likewise dismissed (Rollo.000. The pool.476. To pay plaintiff the amount of P10. To return and reimburse plaintiff the amount of P139. must concur. The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. Undisputably.500. no perfected contract of insurance. the appellate court affirmed in toto the decision of the trial court. Dans. as a matter of policy and practice. "5-Bank") with the following declaration: I hereby declare and agree that all the statements and answers contained herein are true. 1993. As service fee. There was. satisfied or set-off by virtue of the insurance coverage of the late Juan B. To pay plaintiff in the amount of P10.00 as attorney's fees. he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. 4. Hence. 2. 3. DBP made Dans fill up and sign his application for MRI. that required Dans. did not approve the application of Dans. II When Dans applied for MRI.000. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy. the power to approve MRI applications is lodged with the DBP MRI Pool. p. as well as his health statement. being joined conjunctively.

Lauderdale. Article 21 provides: Any person. then the latter is liable for damages to him (V Tolentino. and deducting its agent's commission and service fee. DBP had full knowledge that Dan's application was never going to be approved. Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client. Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age. act with justice give everyone his due and observe honesty and good faith. who willfully causes loss or injury to another in a manner that is contrary to morals. Article 20 provides: Every person who. Under Article 1987 of the Civil Code of the Philippines. As an insurance agent." The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent. 70. contrary to law. Commentaries and Jurisprudence on the Civil Code of the Philippines. p. and the second as an insurance agent.In dealing with Dans. "1- Pool"). shall indemnify the latter for the same. 30 . Article 19 provides: Every person must. good customs or public policy shall compensate the latter for the damage.. "the agent who acts as such is not personally liable to the party with whom he contracts. 75). the provisions of Articles 19. in the exercise of his rights and in the performance of his duties. citing Hall v. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. Apparently. DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium. thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. 46 N. 422 [1992]. or concealing the authority under which he assumes to act (Francisco. "1-Pool"). DBP made Dans go through the motion of applying for said insurance. V. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. or in affirming. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. 20 and 21 of the Civil Code of the Philippines come into play. unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.Y. willfully or negligently causes damage to another. DBP was wearing two legal hats: the first as a lender. Agency 307 [1952]. citing Sentencia [Cuba] of September 25. 1907).

i. cannot be for the entire value of the insurance policy. Considering his advanced age.. Dans would have secured an MRI from another insurance company. Philippine Publishing Co. Siguion Reyna.-CV No.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client. It must also be noted that Dans died almost immediately. The same may be recovered in acts referred to in Article 2219 of the Civil Code. L-31845 April 30. Salazar. WHEREFORE.476. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. 844 [1918]).e. there is no absolute certainty that Dans could obtain an insurance coverage from another company. respondents. Choa Tek Hee v. on the nineteenth day after applying for the MRI. With costs against petitioner. and therefore would have been fully insured by the time he died. Rueda Hermanos. 31 . No. HON. respondents. 2216). COURT OF APPEALS and NGO HING. 34 Phil. must not only be capable of proof.The DBP's liability.000. Art. Considering that DBP had offered to pay P30. G.. One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines.000. an award of moral damages in the amount of P50.R.R. petitioner. 1979 GREAT PACIFIC LIFE ASSURANCE COMPANY. Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v.R.00 with legal interest from the date of the filing of the complaint until fully paid. The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines. 2216). L-31878 April 30. vs. petitioner. HONORABLE COURT OF APPEALS. SO ORDERED. and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines.000. 447 [1916]).000. Montecillo & Ongsiako and Sycip.00 would be reasonable. Dans the amount of P1. Voltaire Garcia for petitioner Mondragon. is highly speculative. vs. Art. While Dans is not entitled to compensatory damages. To assume that were it not for DBP's concealment of the limits of its authority. No. MONDRAGON. G. and on the twenty-third day from the date of release of his loan. 37 Phil. the decision of the Court of Appeals in CA G.00) as moral damages and the amount of Ten Thousand Pesos (P10. The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines. to be recoverable.00) as attorney's fees. Article 2208 [11]). however. 1979 LAPULAPU D. 2199). Luna & Manalo for petitioner Company. but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court. Damages. Art. 176 SCRA 539 [1989]. he is entitled to moral damages.

: The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29. ON or PRIOR to the date of medical examination . No.000.. private respondent sought the payment of the proceeds of the insurance. pointing out that since 1954 the customers. 58). DE CASTRO. petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application.000. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing. Said respondent supplied the essential data which petitioner Lapulapu D. 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. 1970. and advised that if the offer is acceptable. It appears that on March 14. Then on April 30. 1957 Helen Go died of influenza with complication of bronchopneumonia.. Mondragon. were asking for such coverage (Exhibit 4-M). 1957. Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment insurance plan to children. Likewise. 1957. because the petitioners in both cases seek similar relief. Pelaez & Pelaez for respondent Ngo Hing. L-31878.077. J.00 on the life of his one-year old daughter Helen Go. and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go.00 as his commission for being a duly authorized agebt of Pacific Life... 1957. p. shan have received the premium deposit . on May 6. (Rollo. Upon the payment of the insurance premuim. 1. and the insurance application.317. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT.00 with interest at 6% from the date of the filing of the complaint. 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.75 going over to the Company. 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. These conditions state that: A.Pelaez.75. but having failed in his effort. from the amended decision of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu.077. said insurance shan be in force and in effect from the date of such medical 32 . but he reatined the amount of P1. It was when things were in such state that on May 28. Instead. 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. which rendered the adverse decision as earlier refered to against both petitioners. The latter paid the annual premuim the sum of P1. through these petitions for certiorari by way of appeal. Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). he filed the action for the recovery of the same before the Court of First Instance of Cebu. without interest. especially the Chinese. Mondragon finally type-wrote the data on the application form which was signed by private respondent Ngo Hing. and the sum of P1. the Juvenile Non-Medical Declaration be sent to the company. If the Company or its agent. which rendered void the aforesaid Exhibit E. Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3- M). the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Thereupon.

or offers to issue a policy for a different plan and/or amount . there could have been no insurance contract duly perfected between thenl Accordingly. (Emphasis Ours).. If the applicant shall not have been insurable under Condition A above. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment. the deposit shall be refunded. 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. examination. Sun Life Assurance Company of Canada. and the premium paid shall be returned to the applicant. the deposit shall be reftmded. manifestly. 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. 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. As held by this Court. If the applicant does not accept the policy. 41 Phil. on behalf of the company.00 in favor of the latter's one-year old daughter. 264). a "binding slip" or "binding receipt" does not insure by itself (De Lim vs." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing. D. E. 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. 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. (2) that if the company does not accept the application and offers to issue a policy for a different plan.. which private respondent failed to accept. the deposit paid by private respondent shall have to be refunded by Pacific Life. 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. 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. in life insurance. the binding deposit receipt in question had never become in force at any time. the binding deposit receipt (Exhibit E) is.. merely conditional and does not insure outright. 33 . 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. the insurance contract shall not be binding until the applicant accepts the policy offered. where an agreement is made between the applicant and the agent. What it offered instead is another plan known as the Juvenile Triple Action. for such period as is covered by the deposit .. Upon this premise.000. It bears repeating that through the intra-company communication of April 30. and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt. 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. 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 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. 1957 (Exhibit 3-M). Thus. otherwise.

"a contract of insurance. being an authorized insurance agent of Pacific Life at Cebu branch office. Rollo. 13-14). 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. Relative to the second issue of alleged concealment. is indubitably aware that said company does not offer the life insurance applied for. Wher private regpondeit supplied the required essential data for the insurance 34 . to be binding from the date of the application. I am not quite conninced that this was so. (Amended Decision.. was precisely the "underwriter who wrote this case" (Exhibit H- 1). father of the minor applicant. or determined. The contract. by then issued at all. Hing. 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. supra. 2. Ngo Hing should only be presumed to know what kind of policies are available in the company for minors below 7 years old. 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. thereby implictly declining the offer to consider the application under the Juvenile Triple Action Plan. There can be no contract of insurance unless the minds of the parties have met in agreement. adopted by the company. one that leaves nothing to be dione.. Sun Life Assurance Company of Canada. 1957) (Exhibit 4-M). must have been a completed contract. pp. the record discloses that Pacific Life had rejected the proposal and recommendation.As held in De Lim vs. Until such a definite policy is however. therefore." Under these circumstances. When he filed the insurance application in dispute. private respondent was. Besides. there was no contract perfected between the parties who had no meeting of their minds. Nonetheless. it is inconceivable that the progress in the processing of the application was not brought home to his knowledge. Martin who later came up to this Court." 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. Private respondet. In this first place. having an insurable interest on the life of his one-year old daughter. before it shall take effect. as father of the applicant herself. nothing to be passed upon. 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. the following: Of course. 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. Ngo Hing. Secondly. The unchallenged statement of appellant Mondragon in his letter of May 6. At this juncture. from his dissenting opinion to the amended decision of the respondent court which completely reversed the original decision. 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. must be assented to by both parties either in person or by their agents . pp.52-53). like other contracts. aside from being an insurance agent and an offense associate of petitioner Mondragon. 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. the associate of Mondragon that he was. the very apt observation of then Appellate Associate Justice Ruperto G. 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. nothing to be completed. We find it fit to quote with approval.

Philippine American Life Insurance Company. J.application form. he was fully aware that his one-year old daughter is typically a mongoloid child. Ngo Hing. however slight [Black's Law Dictionary. As an insurance agent of Pacific Life.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals. 2nd Edition]. INC. took no part. in apparent bad faith. The undisputed facts of the case are as follows: 35 . private respondent. absolute and perfect candor or openness and honesty. 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. Vda de Songco. August 18. the decision appealed from is hereby set aside. 105 Phil 930. Costs against private respondent. 25 SCRA 70). No. without interest. withheld the fact materal to the risk to be assumed by the insurance compary. 2427). Private respondent appears guilty thereof. 1997] Spouses NILO CHA and STELLA UY CHA. vs. and UNITED INSURANCE CO. JJ. Nonetheless. as legally defined. Fernandez. Inc.077.. Teehankee (Chairman). Satumino vs. as he surely must have known.: Yu Pang Cheng vs.. Concealment is a neglect to communicate that which a partY knows aDd Ought to communicate (Section 25. his duty and responsibility to such a material fact. Id. SO ORDERED.. WHEREFORE. Guerrero and Melencio-Herrera. respondents. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION. the absence of any concealment or demotion. 7 SCRA 316). Such a congenital physical defect could never be ensconced nor disguished. and concealment. et al. vs. to private respondent.. Makasiar.75. he ought to know. J. and in lieu thereof. not for the alone but equally so for the insurer (Field man's Insurance Co. [G. 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. Act No. 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. one is hereby entered absolving petitioners Lapulapu D. Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26.. Court of Appeals. petitioners.R. having been comraitted by herein private respondent. 124520. DECISION PADILLA. concur. The contract of insurance is one of perfect good faith uberrima fides meaning good faith.

x x x. the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500. 39328 rendered a decision dated 11 January 1996. affirming the trial court decision. the Regional Trial Court. 2. fire broke out inside the leased premises. on 5 October 1988. (hereinafter United) without the written consent of private respondents CKS. 4. United refused to pay CKS. The LESSEE shall not insure against fire the chattels. On 2 June 1992. textiles. 5. Branch 6. Hence. On the day that the lease contract was to expire. goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. x x x [1] 3.000. Notwithstanding the above stipulation in the lease contract. as lessor. the following errors are assigned by petitioners to the Court of Appeals: I THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE 36 .00 as attorneys fees and costs of suit. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent). A motion for reconsideration by United was denied on 29 March 1996. Manila. rendered a decision ordering therein defendant United to pay CKS the amount of P335. Inc. Petitioner-spouses Nilo Cha and Stella Uy-Cha. 8.00 as exemplary damages.000. In the present petition. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit. as lessees. deleting ** however the awards for exemplary damages and attorneys fees.00) with the United Insurance Co. merchandise..1. One of the stipulations of the one (1) year lease contract states: 18. respondent Court of Appeals in CA GR CV No. the latter filed a complaint against the Cha spouses and United. it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS.063. 7. 6.000. P20. entered into a lease contract with private respondent CKS Development Corporation (hereinafter CKS). based on its lease contract with Cha spouses.11 * and defendant Cha spouses to pay P50. On appeal.

No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. good customs. morals. A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. MORALS AND PUBLIC POLICY II THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER III THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW IV THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. public order or public policy. 18 of the Insurance Code provides: Sec. of course. Insurable interest in the property insured must exist at the time 37 . 18. It is. [3] Sec. TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW. basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law. [2] The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written of the latter.

R." Therefore. or that the policy shall be received as proof of such interest. Every stipulation in a policy of Insurance for the payment of loss. and every policy executed by way of gaming or wagering. The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. G. Section 17.the insurance takes effect and at the time the loss occurs. Bellosillo. which provides: SECTION 25. CV No. is a separate and distinct issue which we do not resolve in this case. No. The basis of such [4] requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In the present case. awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy- Cha. Vitug.. 38 . the Cha spouses. SO ORDERED. This insurable interest over said merchandise remains with the insured. The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy over their own merchandise. the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code. JJ. under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner- spouses over their merchandise. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). concur. In such a case. Kapunan.R. Jr. whether the person insured has or has not any interest in the property insured. respondent CKS cannot. 39328 is SET ASIDE and a new decision is hereby entered. 105135 June 22. without the consent of CKS. and Hermosisima. WHEREFORE. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. is void. the decision of the Court of Appeals in CA-G. vs. petitioner.. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof. 1995 SUNLIFE ASSURANCE COMPANY OF CANADA. it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide.

Reinaldo D. that the insured did not disclose material facts relevant to the issuance of the policy. p. Petitioner conducted an investigation and its findings prompted it to reject the claim. QUIASON. thus rendering the contract of insurance voidable.R. 3-903-766-X valued at P100. 1986. 1992 of the Court of Appeals in CA-G. Within the past 5 years have you: a) consulted any doctor or other health practitioner? b) submitted to: EGG? X-rays? blood tests? other tests? c) attended or been admitted to any hospital or other medical facility? 6. A check representing the total premiums paid in the amount of P10. Petitioner claimed that the insured gave false statements in his application when he answered the following questions: 5. 29068. Respondent Bernarda Bacani filed a claim with petitioner. On June 26. with double indemnity in case of accidental death. I On April 15. 1992. Bacani procured a life insurance contract for himself from petitioner. CV No. 5(a) in the affirmative but limited his answer to a consultation with a certain Dr. the insured died in a plane crash. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI. petitioner informed respondent Bernarda Bacani. and its Resolution dated April 22.000. Robert John B. denying reconsideration thereof.00 was attached to said letter. respondent Bernarda Bacani. respondents.00. J.The Hon. seeking the benefits of the insurance policy taken by her son. We grant the petition. 53) The deceased answered question No.: This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the Decision dated February 21.172. kidney or bladder disorder? (Rollo. Raymundo of the Chinese General Hospital on 39 . He was issued Policy No. 1987. In its letter. The designated beneficiary was his mother. Have you ever had or sought advice for: xxx xxx xxx b) urine.

It also sustained the finding of the trial court that matters relating to the health history of the insured were irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy. p. 53). Petitioner filed its answer with counterclaim and a list of exhibits consisting of medical records furnished by the Lung Center of the Philippines. Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents as well as allegations regarding the health of the insured.000. private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment" where they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by the decedent of his health condition (Rollo. Defendant's counterclaim is hereby Dismissed (Rollo. Valenzuela. The appellate court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the facts concealed by the insured. Moreover. this petition. condemning the latter to pay the former the amount of One Hundred Thousand Pesos (P100. and the Accidental Death Benefit in the amount of One Hundred Thousand Pesos (P100. The other questions were answered in the negative (Rollo. Moreover.00) the face value of insured's Insurance Policy No. the deceased was subjected to urinalysis. 4-5). 1990.February 1986. where he was diagnosed for renal failure. Private respondents failed to oppose said request or reply thereto. On January 14. the trial court concluded that the facts concealed by the insured were made in good faith and under a belief that they need not be disclosed. During his confinement. the insured was examined and confined at the Lung Center of the Philippines. II We reverse the decision of the Court of Appeals. In ruling for private respondents. judgment is hereby rendered in favor of the plaintiffs and against the defendant. Petitioner's motion for reconsideration was denied. Petitioner discovered that two weeks prior to his application for insurance. it held that the health history of the insured was immaterial since the insurance policy was "non- medical".00 in the concept of reasonable attorney's fees and costs of suit. Petitioner appealed to the Court of Appeals. the appellate court agreed with the trial court that the policy was "non-medical" (Rollo. pp. respondent Bernarda Bacani and her husband. The dispositive portion of the decision is reproduced as follows: WHEREFORE. Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents. 3903766. thereby rendering an admission of the matters alleged. ultra-sonography and hematology tests. 1988. 40 . pp. respondent Rolando Bacani. Metro Manila. Branch 191. 43-44).000. p. hence. 62).000. for cough and flu complications.00) and further sum of P5. which affirmed the decision of the trial court. filed an action for specific performance against petitioner with the Regional Trial Court. On November 17.

however. The terms of the contract are clear.The rule that factual findings of the lower court and the appellate court are binding on this Court is not absolute and admits of exceptions. Court of Appeals. in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code. "goad faith" is no defense in concealment. No. The matters concealed would have definitely affected petitioner's action on his application. . that " . Anent the finding that the facts concealed had no bearing to the cause of death of the insured. Thus. it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries (Henson v. Moreover.. In weighing the evidence presented. and which the other has no means of ascertaining. Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other. 41 . 7 SCRA 316 (1963). Philippine American Life Insurance Company. either by approving it with the corresponding adjustment for a higher premium or rejecting the same. that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts concealed. but solely by the probable and reasonable influence of the facts upon the party to whom communication is due. Materiality is to be determined not by the event. 224 SCRA 494 [1993]). 56 O. such as when the judgment is based on a misappreciation of the facts (Geronimo v. is called concealment. We disagree. supra). . de Canilang v. raises grave doubts about his bonafides. " Moreover. Sec. such argument of private respondents would make Section 27 of the Insurance Code. for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not . the same was made in "good faith" and the facts concealed or misrepresented were irrelevant since the policy was "non-medical". Court of Appeals. We reiterate our ruling in Saturnino v. Said Section provides: A neglect to communicate that which a party knows and ought to communicate. the trial court concluded that indeed there was concealment and misrepresentation. the waiver of a medical examination [in a non-medical insurance contract] renders even more material the information required of the applicant concerning previous condition of health and diseases suffered. The insured is specifically required to disclose to the insurer matters relating to his health. The argument. In Vda. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance. all facts within his knowledge which are material to the contract and as to which he makes no warranty. we held that materiality of the information withheld does not depend on the state of mind of the insured. 31). Neither does it depend on the actual or physical events which ensue. The Philippine American Life Insurance Co. The information which the insured failed to disclose were material and relevant to the approval and issuance of the insurance policy. de Canilang v. 223 SCRA 443 (1993). a disclosure may have warranted a medical examination of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application. ineffective (See Vda. 48 [1960]). . which allows the injured party to rescind a contract of insurance where there is concealment. It appears that such concealment was deliberate on his part. in good faith. is untenable.G. Court of Appeals. .

We.R. Bellosillo and Kapunan. therefore. Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and unreasonable. Ferry. 1975.1975. JJ. O. J. JUANITO TAN. The facts of the case as found by the Court of Appeals are: Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds of Policy No. It must be emphasized that rescission was exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code. a complaint against the former with the Office of the Insurance Commissioner. On April 26. Said application was approved and Policy No. in a letter dated September 11. petitioners filed on November 27. concur. Padilla. 1975.F.000.1973. However. SO ORDERED.C. 42 . THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY. 1082467 in the amount of P 80. Petitioners then filed with respondent company their claim for the proceeds of the life insurance policy. applied for life insurance in the amount of P 80.. Jr. the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE. Tan Lee Siong.00. Santos & P. JR.00 with respondent company.1973. Davide.. 48049 June 29. G. De la Rosa and Associates for private respondent.. 1989 EMILIO TAN. docketed as I. Case No. 1082467 was issued effective November 6.C. respondents. GUTIERREZ.: This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds from their late father's policy. rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured.000. Nolasco for petitioners. 218. with petitioners the beneficiaries thereof (Exhibit A). Tan Lee Siong died of hepatoma (Exhibit B). ALBERTO TAN and ARTURO TAN. father of herein petitioners. WHEREFORE. vs. petitioners. The premiums paid on the policy were thereupon refunded . On September 23. respondent company denied petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance (Exhibit 3). No.

p. The key phrase in the second paragraph of Section 48 is "for a period of two years. The pertinent section in the Insurance Code provides: Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter. The conclusion in law of respondent Court that respondent insurer has the right to rescind the policy contract when insured is already dead is not in accordance with existing law and applicable jurisprudence. B. the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. The petitioners raise the following issues in their assignment of errors. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the policy on grounds of concealment by the deceased assured. the Insurance Law was amended and the second paragraph of Section 48 added to prevent the insurance company from exercising a right to rescind after the death of the insured. the Insurance Commissioner rendered judgment on August 9. 91-92) The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit Hence. The inference of respondent Court that respondent insurer was misled in issuing the policy are manifestly mistaken and contrary to admitted evidence. such right must be exercised previous to the commencement of an action on the contract. The phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. (Rollo. C." As noted by the Court of Appeals. as well as. of applicable legal provisions and established jurisprudence. this petition. According to the petitioners. pp. 1977. is contrary to the provisions of the policy contract itself. After hearing the evidence of both parties. to wit: 43 . The contention is without merit. The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured's lifetime. (Rollo. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement. dismissing petitioners' complaint. 7) The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action. to wit: A.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Feliciano. respondent company rescinded the contract of insurance and refunded the premiums paid on September 11. We call attention to what this Honorable Court said in Insular Life v. Philamlife did not.. Considering that the insured died before the two-year period had lapsed. at page 205: It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressure of modern salesmanship. Part II. Philamlife could have put to the witness stand its Agent Bienvenido S. 138139. The policy was thus in force for a period of only one year and five months. The policy was issued on November 6. Moreover. not just P 80. 201. that practice. He could have obtained a bigger insurance. Rollo) xxx xxx xxx This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by agents in selling insurance. He did not. 44 . pp. et al. medical. preparing and answering the application. 1975. Guinto. therefore. Assured did not knock at the door of the insurer to buy insurance. Assured was a man of means. They are stimulated to more active efforts by contests and by the keen competition offered by the other rival insurance companies.000. concluding the transactions and otherwise smoothing out all difficulties. respondent company is not. At one time or another most of us have been subjected to that pressure. This court took judicial cognizance of the whirlwind pressure of insurance selling-especially of the agent's practice of 'supplying the information. Again Philamlife did not. submitting the application to their companies. (pp. If his purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year period.1975.00. He was the object of solicitations and visits. 73 Phil. barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Urbano Guinto. 99-100) xxx xxx xxx The petitioners contend that there could have been no concealment or misrepresentation by their late father because Tan Lee Siong did not have to buy insurance. It was he who accomplished the application. he certainly could have gotten a bigger insurance. Insurance companies send detailed instructions to their agents to solicit and procure applications. a relative to Dr. (Rollo.1975. The petitioners state: Here then is a case of an assured whose application was submitted because of repeated visits and solicitations by the insurer's agent. previous to the commencement of this action on November 27. Guinto. He was only pressured by insistent salesmen to do so.1973 and the insured died on April 26. These agents are to be found all over the length and breadth of the land.

For. (pp. 5(c) and (d).1972. that by January. 45 . the petitioners allege that the policy intends that the medical examination must be conducted before its issuance otherwise the insurer "waives whatever imperfection by ratification. [Sec. petitioners argue that no evidence was presented by respondent company to show that the questions appearing in Part II of the application for insurance were asked. prepare and answer the applications. would be allowed to collect on the policy even if the insured fraudulently concealed material facts. the deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be suffering from hepatoma. explained to and understood by the deceased so as to prove concealment on his part. when the insurance companies competing with one another could be counted by the fingers. when the population of this country was less than one-fourth of what it is now. The evidence for respondent company shows that on September 19. The agents in short do what the company set them out to do. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability. the defenses of concealment or misrepresentation. The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's language to the insured. and otherwise smooth out all difficulties. having been subjected to the whirlwind pressure of insurance salesmanship this Court itself has long denounced. Rule 131. should stand charged of fraudulent concealment and misrepresentation. by affixing his signature on the application form. Rules of Court]. Another physician. August 23. would not have affixed his signature on the application form unless he clearly understood its significance. the deceased was examined by Dr. no longer lie. (t. 140-142. 8-10. Exhibit 2). a businessman. The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship was not overwhelming as it is now. no matter how patent or well founded. affirmed the correctness of all the entries and answers appearing therein.s. Rollo) xxx xxx xxx In the face of all the above. After two years." (p. Victoriano Lim and was found to be diabetic and hypertensive. The same is not well taken. 142.n. Moreover. The deceased. conclude the transactions. the presumption is that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his concerns. it would be unjust if. the insured still lives within such period. It is but to be expected that he. Rollo) The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second paragraph of Section 48. the assured who dies within the two-year period. submit the applications to their companies. 1976. The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy. pp. They supply all the information. 1973. They state that the insurer should have presented its two medical field examiners as witnesses. The petitioners' interpretation would give rise to the incongruous situation where the beneficiaries of an insured who dies right after taking out and paying for a life insurance policy. whether or not." We agree with the Court of Appeals which ruled: On the other hand.

took no part. Bidin and Cortes. Regional Trial Court of Libmanan. (t. pp.J.. 2002] PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY. 139776. p. 1973 for consolation and claimed to have been diabetic for five years.s. (Sweet Lines. an applicant for insurance is presumed to be healthy and physically fit and no further medical investigation or examination is conducted by respondent company.C) and dispensing with further medical investigation and examination (Exhibit 5-A). Exhibit 6) Because of the concealment made by the deceased of his consultations and treatments for hypertension.n. It is the petitioners' burden to show that the factual findings of the respondent court are not based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. We are limited in this petition to ascertaining whether or not the respondent Court of Appeals committed reversible error. 6-8). April 8. Feliciano. 83 SCRA 361 [1978]). Camarines 46 . (t. The petitioners cite: It is a matter of common knowledge that large amounts of money are collected from ignorant persons by companies and associations which adopt high sounding titles and print the amount of benefits they agree to pay in large black-faced type. v. pp. August 1. 96-98) There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. petitioner. diabetes and liver disorders. Orient Protective Assurance Assn. All provisions.1976. JJ. The questioned decision of the Court of Appeals is AFFIRMED. following such undertakings by fine print conditions which destroy the substance of the promise.n. For as long as no adverse medical history is revealed in the application form. (C. They have failed to discharge that burden. (Rollo. and most favorably toward those against whom they are meant to operate. 184) There is no showing that the questions in the application form for insurance regarding the insured's medical history are in smaller print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their importance. SO ORDERED. [G.. Fernan. that is for Congress or the Insurance Commission to provide as protection against high pressure insurance salesmanship. No. Inc. VALENCIA- BAGALACSA. 5.R. conditions. Aug.. respondent company was thus misled into accepting the risk and approving his application as medically standard (Exhibit 5. testified that the deceased came to see him on December 14.s.. (Trinidad v. 23. 67 Phil. Wenceslao Vitug.1976. Chairman). or exceptions which in any way tend to work a forfeiture of the policy should be construed most strongly against those for whose benefit they are inserted. concur. the petition is hereby DENIED for lack of merit. WHEREFORE. If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the Surgeon General of the United States is necessary. vs. JUDGE LORE R. Dr. Teves..

a provincial board member of the province of Camarines Sur. CELSO Z. 1981. 1983 [2] requesting for reconsideration of the denial. it had denied private respondents claim in a letter dated March 12. they claimed and continuously claimed for all the proceeds and interests under the life insurance policy in the amount of P641. as legitimate children and forced heirs of their late father. in a letter dated July 11. Lumaniog and Ruben Z. 1980. Petitioner filed an Answer with Counterclaim and Motion to Dismiss. they filed their complaint on June 20. LUMANIOG. private respondents. J. 1983. contending that: the cause of action of private respondents had prescribed and they are guilty of laches.[5] On June 7. palpitation. 1982. 1996. DECISION AUSTRIA-MARTINEZ. heart murmur.00. 1994. 47 .[4] Private respondents opposed the motion to dismiss. the last of which is on December 1. rheumatic fever. 1999 be reversed and set aside and that the Complaint filed against it by private respondents Eduardo Z. Camarines Sur. and EDUARDO Z. 1994. Celso Z.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court. The facts of the case: On June 20. hence. Faustino Lumaniog. a complaint for recovery of sum of money against petitioner alleging that: their father was insured by petitioner under Life Insurance Policy No. Amado Dimalanta. Lumaniog before the Regional Trial Court of Libmanan. Branch 56. on June 22. high blood pressure. 1305486 with a face value of P50. the RTC issued an Order which reads: After a perusal of the motion to dismiss filed by defendants counsel and the objection submitted by plaintiffs counsel. LUMANIOG and RUBEN Z. petitioner finally refused or disallowed said claim on February 14. Petitioner Philippine American Life and General Insurance Company prays that the decision of the Court of Appeals promulgated on April 30. signed by its then Assistant Vice President. [3] more than ten (10) years later. Lumaniog. on ground of concealment on the part of the deceased insured Faustino when he asserted in his application for insurance coverage that he had not been treated for indication of chest pain. their father died of coronary thrombosis on November 25. the Court finds that the matters treated in their respective pleadings are evidentiary in nature. it reiterated its decision to deny the claim for payment of the proceeds.000.000. 1995. 1995. LUMANIOG. it received a letter from Jose C. Sur. 1995. Claro. filed with the aforesaid RTC. 1995. the necessity of a trial on the merits. or on December 1. L-787 be ordered dismissed on ground of prescription of action. reiterating the early request for reconsideration which it denied in a letter dated February 14. private respondents sent a letter dated May 25. respondents. docketed as Civil Case No.[1] and so. heart attack or other disorder of the heart or blood vessel when in fact he was a known hypertensive since 1974. despite repeated demands for payment and/or settlement of the claim due from petitioner.00.

there was no real necessity for bringing suit. considering that the calendar of the Court is already filled up until the end of July.. as essential elements. Claro dated December 20. pp. 25-26). 53). De Guzman (151 SCRA 389. this Court of the opinion and so holds that the prescriptive period to bring the present action commences to run only on February 14.m.R.. portions of which read as follows: Thus. expressly or impliedly. the appellate court rendered its Decision.. This fact was supported further by the letter of the petitioner to Atty. 1996 and dated December 12. 1995 (Rollo. the date when the petitioner finally rejected the claim of private respondents and not in 1983. Chia Yu.[7] Petitioner filed a petition for certiorari (docketed as CA-G. 1997. was likewise cited where the Supreme Court ruled in this wise: Since a cause of action requires. SO ORDERED. Notify parties and counsels. et al. the case of ACCFA vs. 1995 since this is the time when the cause of action accrues. Claro of their action regarding his request for reconsideration (Id. In the same case. [6] Petitioners motion for reconsideration was denied by the RTC in its Order dated December 12. Hence.Set therefore the hearing in this case on August 1.. dated April 30.. before such final rejection. not only a legal right of the plaintiff and a correlative of the defendant but also an act or omission of the defendant in violation of said legal right. to comply with its duty. 47885) under Rule 65 of the Rules of Court in the Court of Appeals and after the comment of the private respondents and reply of petitioner. 1995 when petitioner finally decided to deny their claim that the 10-year period began to run. 1997 upholding however in the same Order the claim of private respondents counsel that the running of the 10-year period was stopped on May 25.. The ten year period should instead be counted from the date of rejection by the insurer in this case February 14. Inc. Vs. 1996 at 8:30 a. This is because. stating that they were reviewing the claim and shall advise Atty. 48 . the Supreme Court held that: The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance company. the cause of action does not accrue until the party obligated refuses. We find no grave abuse of discretion committed by the court a quo when it issued the Orders dated June 7. SP No. vs. 397-398). citing the case of Eagle Star Insurance Co. In the case of Summit Guaranty and Insurance Co. p. 1999. 1994. Ltd. 1983 when private respondents requested for a reconsideration of the denial and it was only on February 14. Alpha Insurance and Surety Co.

Whether or not an extrajudicial demand made after an action has prescribed shall cause the revival of the action. 1996 when it set the case below for hearing as there are matters in the respective pleadings of the parties that are evidentiary in nature. Hearing and order. It is for the above reason that the RTC committed a grave abuse of discretion when. 1983. it arbitrarily ruled in its Order dated December 12.WHEREFORE. to wit: Sec. [8] Hence. It based its finding on a mere explanation of the private respondents counsel and not on evidence presented by the parties as to the date when to reckon the prescriptive period. that the period of ten (10) years had not yet lapsed. dated July 11. or may defer the hearing and determination of the motion until the trial if the ground alleged therein does not appear to be indubitable.After hearing the court may deny or grant the motion or allow amendment of pleading. effective July 1. [12] Hence. 1997 read: 49 . 1997. their Reply. Rule 16. the RTC was initially correct in issuing the Order dated June 7. [9] Private respondents filed their Comment and petitioners. Portions of the Order dated December 12. . 1995 is beyond the 10-year prescriptive period[13]. 1997. SO ORDERED. Costs against the petitioner. Said letter is crucial to petitioners defense that the filing of the complaint for recovery of sum of money in June. [11] It must be emphasized that petitioner had specifically alleged in the Answer that it had denied private respondents claim per its letter dated July 11. 1996 and December 12. we must necessarily first ascertain whether or not the RTC committed grave abuse of discretion in issuing the Orders dated June 7. Before we determine whether the Court of Appeals had committed any reversible error. denying the motion to dismiss. 1983. the instant petition for certiorari with prayer for issuance of temporary restraining order and/or preliminary injunction is DENIED DUE COURSE and is accordingly DISMISSED by this Court for lack of merit. Petitioner posits the following issues: A. pursuant to the then prevailing Section 3. in resolving the motion for reconsideration of petitioner. the present petition for review. 3. B. 1997. in effect. before it was amended by the 1997 Rules of Civil Procedure. Notably. Whether or not the complaint filed by private respondents for payment of life insurance proceeds is already barred by prescription of action. of the Rules of Court. due process demands that it be given the opportunity to prove that private respondents had received said letter. hence the necessity of a trial on the merits[10].

.R.[16] Said Order was issued with grave abuse of discretion for being patently erroneous and arbitrary. L-38613 February 25. asking for reconsideration. Davide. defendants counsel failed to comply with the requirements of the Rules in filing his motion for reconsideration. The final determination denying the claim was made only on February 14. C. No costs. 1997. and Ynares-Santiago. Abis sent a letter to counsel. The assailed decision of the Court of Appeals dated April 30. Atty. L-787. A new judgment is entered reversing and setting aside the Order dated December 12. Jr. 1995. Camarines Sur (Branch 56) and affirming its Order dated June 20. concur. is arbitrary and patently erroneous for not being founded on evidence on record. It is evident from the foregoing that the ten (10) year period for plaintiffs to claim the insurance proceeds has not yet prescribed. Thus. Said RTC is directed to proceed with dispatch with Civil Case No. (emphasis supplied) [14] The ruling of the RTC that the cause of action of private respondents had not prescribed. 1986 Order of the RTC. the same is void. as discussed earlier. Certiorari is an appropriate remedy to assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief. with the advise that the company is reviewing the claim.[15] Consequently. while the Court of Appeals did not err in upholding the June 7. the period of prescription should commence to run only from February 14. JJ. Moreover. Kapunan. 1995. when the instant case was filed on June 20. The appellate court should have granted the petition for certiorari assailing said Order of December 12.J. G. when Atty. thus. and therefore. 1994.. 1997 is REVERSED and SET ASIDE. 1982 50 . SO ORDERED. 1997. WHEREFORE. the ten year period has not yet lapsed. The letter was answered by the Assistant Vice President of the Claims Department of Philamlife. 1995. the petition is partly GRANTED. 1997 of the Regional Trial Court of Libmanan. Abis finally decided plaintiffs claim. No. depriving petitioner of due process. (Chairman). 1995.A perusal of the record will likewise reveal that plaintiffs counsel explained that the running of the ten (10) year period was stopped on May 25. finally deciding the plaintiffs claim. upon demand of Celso Lomaniog for the compliance of the contract and reconsideration of the decision. Vitug. 1995. 1983. it committed a reversible error when it declared that the RTC did not commit any grave abuse of discretion in issuing the Order dated December 12. Hence. 1999 insofar only as it upheld the Order dated December 12. On February 14. Counsel also wrote the President of the Company on December 1..

195. the sum of P3. bad weather developed resulting in 75 pieces of logs which were rafted together co break loose from each other. thereby raising a question of law reviewable by this Court 3 are as follows: March 19. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner (Exhibit A).000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan. 1963. 1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C. In a letter dated April 4. The said letter (Exhibit F) reads as follows: April 4. the plaintiff informed the defendant about the loss of 'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. or the equivalent of 1. The defendant issued on said date Cover Note No. The logs were to be loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline of the Diapitan Bay.00 as attorney's fees and the costs 1 thereby dismissing petitioner s complaint with costs.250. respectively). ft. respondents. which are generally binding upon this Court. At about 10:00 o'clock a. Japan. After the issuance of Cover Note No. The total cargo insured under the two marine policies accordingly consisted of 1. 53 HO 1032 and 53 HO 1033. Except as shall be indicated in the discussion of the opinion of this Court the substantial correctness of still particular finding having been disputed. 53 H0 1033 (Exhibit B) was for 542 pieces of logs equivalent to 499. the plaintiff secured temporary insurance from the defendant for its exportation of 1. but 30 pieces were verified to have been lost or washed away as a result of the accident.PACIFIC TIMBER EXPORT CORPORATION.395 logs. l963. 1963. THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY. Inc.042.950 board feet.498 bd. 2 The findings of the of fact of the Court of Appeals. 1963 Workmen's Insurance Company. The logs were taken from the log pond of the plaintiff and from which they were towed in rafts to the vessel. while the logs were alongside the vessel. The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2. 53 H0 1033 was for 853 pieces of logs equivalent to 695. Policy No. 45 pieces of logs were salvaged.548 board feet (Exhibit C). on March 29. Policy No. ** J. INC.000. 1010.: This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of First Instance of Manila in favor of petitioner and against private respondent which ordered the latter to pay the sum of Pll. Philippines 51 .04 with interest at the rate of 12% interest from receipt of notice of loss on April 15.. Quezon Province to Okinawa and Tokyo. INC. petitioner. Manila. DE CASTRO. but before the issuance of the two marine policies Nos. Bay. insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY. 1963 up to the complete payment. 1010 (Exhibit A). some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. m. vs.

53 110 1032 and 713 HO 1033 were received in good order at their point of destination. 4 52 .250. 1010 because the said Note had become 'null and void by virtue of the issuance of Marine Policy Nos.000 bd. the adjustment company submitted a computation of the defendant's probable liability on the loss sustained by the shipment.000. General Manager. 1010'. 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the 'SS Woodlock' However. and advised early settlement of the said marine loss and salvage claim (Exhibit L). In said report. Mandanas observed that 'it is only fair and equitable to indemnify the insured under Cover Note No. Although dated April 4.286. Thank you for your attention. We will send you an accurate report all the details including values as soon as same will be reported to us.000 bd. the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. 53 HO 1032 and 53 HO 1033. On September 14. the loss of 30 pieces of logs is within the 1.) EMMANUEL S. 1963. ATILANO Asst. It was further stated that the said loss may be considered as covered under Cover Note No. Insurance Commissioner Francisco Y. the defendant informed the Insurance Commissioner that. 1963.04 (Exhibit 4). 1963. 1963. Very respectfully yours. Philippine Lauan and Apitong Logs. 1964.250. the claim of the plaintiff is being denied on the ground that the cover note is null and void for lack of valuable consideration (Exhibit M). 1963 (Exhibit H). On July 17. 53 HO 1032 and 1033'(Exhibit J-1). 1964. 1964. as shown by the stamp impression appearing on the left bottom corner of said letter. in the total amount of Pl1. PACIFIC TIMBER EXPORT CORPORATION (Sgd. covered by Cover Note 1010 insured for $70. the defendant wrote the plaintiff denying the latter's claim. ft.00. 1964 (Exhibit K). the adjuster found that 'the loss of 30 pieces of logs is not covered by Policies Nos.Gentlemen: This has reference to Insurance Cover Note No. We would like to inform you that we have received advance preliminary report from our Office in Diapitan. ft. we wish to remain. in the total amount of P19. On January 13. The denial of the claim by the defendant was brought by the plaintiff to the attention of the Insurance Commissioner by means of a letter dated March 21. On June 26.042.79 (Exhibit G). on advice of their attorneys. In a reply letter dated March 30. the letter was received in the office of the defendant only on April 15. The plaintiff subsequently submitted a 'Claim Statement demanding payment of the loss under Policies Nos. 1010 for shipment of 1. on the ground they defendant's investigation revealed that the entire shipment of logs covered by the two marines policies No. Quezon that we have lost approximately 32 pieces of logs during loading of the SS Woodlock. The adjustment company submitted its 'Report on August 23.

no separate premiums are intended or required to be paid on a Cover Note. which must be deemed to include the Cover Note. does not militate against the validity of petitioner's contention. and the payment of premiums is one of the terms of the policies. As a logical consequence. thereby leaving no account unpaid by petitioner due on the insurance coverage. For obvious reasons. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued. II THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND. 6 It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. after the issuance of the marine insurance policies. it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by private respondent after the issuance of the two regular marine insurance policies.Petitioner assigned as errors of the Court of Appeals. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred. Juan Jose Camacho. as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. At any rate. for no such premium could have been paid. CONSEQUENTLY. but for loss during transit. insofar as the liability on the cover note is concerned. tsn. Petitioner contends that the Cover Note was issued with a consideration when. The adjuster went as far as submitting his report to respondent. for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. as well as its computation of respondent's liability on the insurance coverage. for it is in a real sense a contract. the following: I THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES. the cover note is made subject to the terms and conditions of the marine policies. it did not contain. This would make no difference. however. From this undisputed fact. 33. 1965). This had to be so because the risk insured against is not for loss during operations anymore. it was not necessary 53 . 5 1. OBJECTIONS ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. This is a fact admitted by an official of respondent company. not a mere application for insurance which is a mere offer. We uphold petitioner's submission that the Cover Note was not without consideration for which the respondent court held the Cover Note as null and void. for the number or volume of logs lost can be determined independently as in fact it had been so ascertained at the instance of private respondent itself when it sent its own adjuster to investigate and assess the loss. and denied recovery therefrom. the logs having already been safely placed aboard. September 24. in charge of issuing cover notes of the respondent company (p. since by the nature of the Cover Note. by express stipulation. This coverage could not have been no other than what was stipulated in the Cover Note. the purpose and function of the Cover Note would be set at naught or rendered meaningless.

Makasiar. as this Court fails to find a real and substantial sign thereof. the presumption is that a credit was intended and policy is valid. for non- payment by it was not chargeable against its fault. no cause for the petitioner to lose what is due it as if there had been payment of premium. private respondent should then have raised this ground of delay to avoid liability. No. it took steps clearly indicative that this particular ground for objection to the claim was never in its mind. and is supported by the doctrine that where a policy is delivered without requiring payment of the premium. liability on the note would have already arisen even before payment of premium. 1993 THELMA VDA. this Court is satisfied and convinced that as expressly provided by law. therefore. 54 . was to set in motion from July 1963 what would be necessary to determine the cause and extent of the loss. From April 1963 to July.. The nature of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place. The non-payment of premium on the Cover Note is. vs. so that it could determine whether delay would be a valid ground upon which to object to a claim against it. 1963. which was on April 15. From what has been said. Sato for petitioner. The undisputed facts show that instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the cover note. 7 2. Thus Section 84 of the Insurance Act provides: Section 84. 1963. HON. waiver can successfully be raised against private respondent. The law requires this ground of delay to be promptly and specifically asserted when a claim on the insurance agreement is made. Melencio-Herrera and Plana. JJ. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. concur. 1963. G. Fernandez Guerrero. petitioner. This is how the cover note as a "binder" should legally operate otherwise. respondents. As already stated earlier. DE CANILANG. 92492 June 17. with a view to the payment thereof on the insurance agreement. the more practical procedure is simply to deduct the premium from the amount due the petitioner on the Cover Note. SO ORDERED. enough time was available for private respondent to determine if petitioner was guilty of delay in communicating the loss to respondent company. for the loss insured against having already occurred. Thus it sent its adjuster to investigate and assess the loss in July. We find duly substantiated petitioner's assignments of error. But even on the assumption that there was ask petitioner to pay premium on the Cover Note. the appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the affirmance of this Court. It did not do so. ACCORDINGLY. but after the issuance of the Cover Note.R. 1963. Simeon C.—Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or if he omits to take objection promptly and specifically upon that ground. Teehankee (Chairman). it would serve no practical purpose in the realm of commerce. The adjuster submitted his report on August 23. In the proceedings that took place later in the Office of the Insurance Commissioner. No special pronouncement as to costs. Had all the logs been lost during the loading operations. It must be because it did not find any delay. 1963 and its computation of respondent's liability on September 14. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION. private respondent's reaction upon receipt of the notice of loss.

000." The doctor prescribed the following fro him: Trazepam. Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the insurance proceeds. 2. was not applicable to Canilang's case as that law became effective only on 1 June 1985. Jaime Canilang applied for a "non-medical" insurance policy with respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife.7 She testified that the deceased's insurance application had been approved on the basis of his medical declaration. Jaime Canilang. Batas Pambansa Blg. The Court of Appealed found that the use of the word "intentionally" by the Insurance Commissioner in defining and resolving the issue agreed upon by the parties at pre- trial before the Insurance Commissioner was not supported by the evidence. Great Pacific had waived its right to inquire into the health condition of the applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance application. Claudio and was diagnosed as suffering from "sinus tachycardia. the ailment of Jaime Canilang was not so serious that." and "chronic anemia.1 Jaime Canilang was issued ordinary life insurance Policy No. there was no intentional concealment on the part of the insured Jaime Canilang as he had thought that he was merely suffering from a minor ailment and simple cold. made a material concealment as the state of his health at the time of the filing of insurance application.9 In a decision dated 5 November 1985. 345163. Wilfredo B.8 She explained that as a rule.00 as attorney's fees after holding that: 1. There Dr." On next day. as his beneficiary." "anemia. Jaime Canilang consulted Dr. a beta-blocker drug.FELICIANO. and Aptin. During the hearing called by the Insurance Commissioner.700 plus legal interest and P2. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis. medical examinations are required only in cases where the applicant has indicated in his application for insurance coverage that he has previously undergone medical consultation and hospitalization. Esperanza Quismorio. as far as she knew. her husband had died because of a kidney disorder. Thelma Canilang. On 5 August 1983.: On 18 June 1982. a physician and a medical underwriter working for Great Pacific. 4 August 1982. with the face value of P19. 847 which voids an insurance contract."6 Great Pacific for its part presented Dr. a tranquilizer. widow and beneficiary of the insured.4 A deposition given by Dr. whether or not concealment was intentionally made. Mr. it would not have affected Great Pacific's decision to insure him. Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay P19. 3. On appeal by Great Pacific. 10 and 4. even if it had been disclosed. Jaime Canilang died of "congestive heart failure. petitioner testified that she was not aware of any serious illness suffered by her late husband3 and that. J. effective as of 9 August 1982. filed a claim with Great Pacific which the insurer denied on 5 December 1983 upon the ground that the insured had concealed material information from it. the Court of Appeals reversed and set aside the decision of the Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim."2 Petitioner.700. Wilfredo Claudio was presented by petitioner. that the issue agreed upon by the parties had been whether the deceased insured. 55 . Claudio stated that he was the family physician of the deceased Jaime Canilang5 and that he had previously treated him for "sinus tachycardia" and "acute bronchitis.

(2) I have never been treated nor consulted a physician for a heart condition. . nor receive any medical or surgical advice/attention within the last five (5) years. provided that the first premium is paid and the Policy/TA/Certificate is delivered to. EXCEPTIONS: ________________________________________________________________ ________________ GENERAL DECLARATION I hereby declare that all the foregoing answers and statements are complete. . to the best of my knowledge. sanitarium or infirmary. 56 . when I am in actual good health. cancer. or any other physical impairment. 1992. Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that: 1. . . kidney. . at any rate. Signed at Manila his 4th day of August. the non-disclosure of certain facts about his previous health conditions does not amount to fraud and private respondent is deemed to have waived inquiry thereto. true and correct. The Court of Appeals finally held that the Ng Gan Zee case which had involved misrepresentation was not applicable in respect of the case at bar which involves concealment. . the Honorable Court of Appeals. in good health. I hereby agree that if there be any fraud or misrepresentation in the above statements material to the risk. 11 The medical declaration which was set out in the application for insurance executed by Jaime Canilang read as follows: MEDICAL DECLARATION I hereby declare that: (1) I have not been confined in any hospital. The Court of Appeals also found that the failure of Jaime Canilang to disclose previous medical consultation and treatment constituted material information which should have been communicated to Great Pacific to enable the latter to make proper inquiries. 2. and accepted by me in person.justifying respondent's denial of the claim. lung. high blood pressure. stomach disorder. the INSURANCE COMPANY upon discovery within two (2) years from the effective date of insurance shall have the right to declare such insurance null and void. That the liabilities of the Company under the said Policy/TA/Certificate shall accrue and begin only from the date of commencement of risk stated in the Policy/TA/Certificate. (3) I am. erred in not holding that the issue in the case agreed upon between the parties before the Insurance Commission is whether or not Jaime Canilang "intentionally" made material concealment in stating his state of health. diabetes. speaking with due respect.

" The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance and at the time Jaime Canilang died. A neglect to communicate that which a party knows and ought to communicate. 26. he failed to disclose in the appropriate space." that he had twice consulted Dr.D. No. Wilfredo B. Canilang in paragraph 1 and 2 of the medical declaration. also known as the Insurance Code of 1978. 57 . 1460. are set out in P. under the caption "Exceptions. 1 2 We note that in addition to the negative statements made by Mr. which went into effect on 11 June 1978. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. These provisions read as follows: Sec. I l l e g i b l e — — — — — — — — — — S i g n a t u r e o f A p p l i c a n t . is called a concealment.

.) It is. 3. p. Materially is to be determined not by the event. the information concealed must be information which the concealing party knew and "ought to [have] communicate[d]. Vol." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which reads: Sec. in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance. 1982. muscle-relaxant. .L. 14 We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life insurance. The insurance Great Pacific applied for was a "non-medical" insurance policy. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom the communication should have been made. . (Harrison' s Principles of Internal Medicine. 1985. the diagnosis made and medicines prescribed by such doctor. 31. that "probable and reasonable influence of the facts" concealed must. required a higher premium for the same coverage. of course. among others. [1977]. Had Canilang disclosed his visits to his doctor. at the very least. 15 The materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. and heart failure per se. Such treatment could have been a very material information to the insurer in determining the action to be take on Canilang's application for life insurance coverage. 14. p. be determined objectively. p. (Philippine Index of Medical Specialties (PIMS). Dec.) The medication prescribed by Dr. the waiver of medical examination [in a non-medical insurance contract] renders even more material the information required of the applicant 58 . 16 this Court held that: . and Aptin. (Emphasis supplied) Under the foregoing provisions. by the judge ultimately." that is to say. (Henry J. in forming his estimate of the disadvantages of the proposed contract. Electrocardiography. but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due. or in making his inquiries. if anything. except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn.. (Idem. indicates the condition that said physician was trying to manage. information which was "material to the contract. Neither does materiality depend upon the actual or physical events which ensue. heart rate faster than 100 beats per minute. [1978]. Marriot. 127. p. In Saturnino v. Each party to a contract of insurance must communicate to the other. 6th ed. Claudio for treatment of Canilang's ailment on June 18. in good faith. 8th ed.D. 36) a cardiac drug. 112) which is anti- anxiety. (Emphasis supplied) "Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute. it may be reasonably assumed that Great Pacific would have made further inquiries and would have probably refused to issue a non-medical insurance policy or. and which the other has not the means of ascertaining. A man's state of mind or subjective belief is not capable of proof in our judicial process. xxx xxx xxx Sec. all factors within his knowledge which are material to the contract and as to which he makes no warranty. The following elaboration was offered by Great Pacific and set out by the Court of Appeals in its Decision: Sinus tachycardia is defined as sinus-initiated. including myocardial infarction. in the insurance application. for palpitations and nervous heart." 13 The symptoms of this condition include pounding in the chest and sometimes faintness and weakness of the person affected. 28. Thus. he prescribed Trazepam. anti-convulsant. No. M. 1193. a common reaction to heart disease. Philippine-American Life Insurance Company.

that is. The net result therefore of the phrase "whether intentional or unitentional" is precisely to leave unqualified the term "concealment. A concealment. Act No. A concealment entitles the injured party to rescind a contract of insurance. 17 (Emphasis supplied) The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the insurer was not "intentional" in nature. . The restoration in 1985 by B. Blg." This argument is not persuasive. in the case at bar. Such failure precisely constituted concealment on the part of Canilang. Indeed. The preceding statute. Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether such concealment is intentional or unintentional. 59 .P. for the reason that Jaime Canilang believed that he was suffering from minor ailment like a common cold. The deletion of the phrase "whether intentional or unintentional" could not have had the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance." Thus. it may be noted that "intentional" and "unintentional" cancel each other out. Petitioner's argument. . if accepted. in 1985. as it stood from 1914 up to 1974. In all probability. (Emphasis supplied) Upon the other hand. entitles the injured party to rescind a contract of insurance. provided that: Sec. As a simple matter of grammar. . A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. 874) intended to limit the kinds of concealment which generate a right to rescind on the part of the injured party to "intentional concealments." We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. 27. Blg. Blg. throughout the time range material for present purposes. Jaime Canilang went to visit his doctor precisely because of the discomfort and concern brought about by his experiencing "sinus tachycardia. For Jaime Canilang could not have been unaware that his heart beat would at times rise to high and alarming levels and that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance. for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not . 2427. the nature of the facts not conveyed to the insurer was such that the failure to communicate must have been intentional rather than merely inadvertent. Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985. the last medical consultation took place just the day before the insurance application was filed.P. In any case. 27. the statute did not require proof that concealment must be "intentional" in order to authorize rescission by the injured party. concerning previous condition of health and diseases suffered. the Insurance Code of 1978 was amended by B. 874. whether intentional or unintentional." the Insurance Code of 1978 (prior to its amendment by B. would obviously erase Section 27 from the Insurance Code of 1978.P. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows: Sec. 26. had provided: Sec. The phrase "whether intentional or unintentional" was in fact superfluous. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all throughout (from 1914 to 1985). (Emphasis supplied) The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase "intentional or unintentional.

-G.). the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals dated 16 October 1989 in C.. Romero and Melo. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured against. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. No.103. JJ. 9 September 1983. BELLOSILLO. 1992 MAKATI TUSCANY CONDOMINIUM CORPORATION. Inc. which provides: Sec.e. 95546 November 6. private respondent American Home Assurance Co.). On this renewed policy. On 10 February 1983.It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial before the Insurance Commission that the relevant issue was whether or not Jaime Canilang had intentionally concealed material information from the insurer. represented by American International Underwriters (Phils. the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial Conference dated 15 October 1984. THE COURT OF APPEALS. G." 18 WHEREFORE. vs. The premium was paid on installments on 12 March 1982. no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid. which replaced and renewed the previous policy.D. The premium in the amount of P466. was supported by the evidence of record. respondent. 612.103. except in the case of a life or an industrial life policy whenever the grace period provision applies. with a total premium of P466..R. SO ORDERED. i. concur.. for a period beginning 1 March 1982 and ending 1 March 1983. All payments were likewise accepted by private respondent. all of which were accepted by private respondent. 77. petitioner. otherwise known as the Insurance Code. and 21 November 1983. private respondent issued to petitioner Insurance Policy No. 13 July 1983.A. Jr. both accepted by private respondent. SP No. Sometime in early 1982.. 60 . 77 of P. issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AMERICAN HOME ASSURANCE CO. 08696 is hereby AFFIRMED.: This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance. 20 May 1982. for a term covering 1 March 1983 to 1 March 1984. AH-CPP-9210452 on the latter's building and premises. On 20 January 1984.05 was again paid on installments on 13 April 1983. petitioner made two installment payments. Davide. J. in view of Sec. Notwithstanding any agreement to the contrary.R. 21 June 1982 and 16 November 1982. represented by American International Underwriters (Phils. which "readily shows that the word "intentional" does not appear in the statement or definition of the issue in the said Order and Minutes. the policy was again renewed and private respondent issued to petitioner Insurance Policy No. Inc. Bidin.. (AHAC). 3 August 1983. No pronouncement as to the costs.05. as amended. AH-CPP- 9210596..

1985. Consequently. AH-CPP-9210651. the parties herein agreed to make the premiums payable in installments. Consequently. AH- CPP-9210651. stated the following reservations: 2. petitioner refused to pay the balance of the premium. that no risk attached under the policies. and in its answer with amended counterclaim. Petitioner further claimed that the policy was never binding and valid. It then pleaded a counterclaim for P152. and no risk attached to the policy. in view of the reservation in the receipts ordinarily issued by the plaintiff on premium payments the only plausible conclusion is that plaintiff has no right to demand their payment after the lapse of the term of said policy on March 1. Thereafter. AH-CPP-9210651.00 and the second. If there be any loss such is not covered. 61 . defendant's counterclaim for refund is not justified. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy. petitioner and private respondent moved for summary judgment. 1 Both parties appealed from the judgment of the trial court. Here. petitioner admitted the issuance of Insurance Policy No. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85. the defendant was justified in refusing to pay the same. inspite of the reservations. private respondent filed an action to recover the unpaid balance of P314. It was renewed for two succeeding years.the first on 6 February 1984 for P52.05 for Insurance Policy No. In its answer with counterclaim. the trial court dismissed the complaint and the counterclaim upon the following findings: While it is true that the receipts issued to the defendant contained the aforementioned reservations. hence. Subject to no loss prior to premium payment. it is equally true that payment of the premiums of the three aforementioned policies (being sought to be refunded) were made during the lifetime or term of said policies.000.000. The appellate court thus explained — The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. sought the refund of P924. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable. or P314. as well as the two (2) previous policies.206. and 3. the Court of Appeals rendered a decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No. it could not be said.10 representing the premium payments for 1982-85.103.05 plus legal interest until fully paid.00 for the premiums already paid for 1984- 85. AH-CPP-921-651. As regards the unpaid premiums on Insurance Policy No. After some incidents. and there is no pretense that the parties never envisioned to make the insurance contract binding between them. On 8 October 1987.00.103. on 6 June 1984 for P100.000. the second and third policies being a renewal/replacement for the previous one. Thereafter. and affirming the denial of the counterclaim. Therefore.

would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. We therefore sustain the Court of Appeals. had a loss incurred (sic) before completion of payment of the entire premium. as amended. 1983 and 1984 invalidated said policies because of the provisions of Sec. The records clearly show that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. notwithstanding any agreement to the contrary. 3 Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982. It argues that where the premiums is not actually paid in full. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid. While it may be true that under Section 77 of the Insurance Code. disclaiming liability for loss for occurring before payment of premiums. then in 1984. for the reason that it agreed to accept installment payment. In those three (3) years. Petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. the insurance contract became valid and binding upon payment of the first premium. Otherwise. petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies. . and the plaintiff could not have denied liability on the ground that payment was not made in full. the policy would only be effective if there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. but does not expressly prohibit an agreement granting credit extension. basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums. and such an 62 . Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. and later deny liability on the lame excuse that the premiums were not prepared in full. 77 of the Insurance Code. 77 of the Insurance Code. To our mind. the insurer accepted all the installment payments. We quote with approval the well-reasoned findings and conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision — While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract. a result eschewed by a basic considerations of fairness and equity. or to consider the contract as valid and binding upon payment of the first premium. The initial insurance contract entered into in 1982 was renewed in 1983. . there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment. we would allow the insurer to renege on its liability under the contract. We hold that the subject policies are valid even if the premiums were paid on installments. We are not prepared to rule that the request to make installment payments duly approved by the insurer. no contract of insurance is valid and binding unless the premium thereof has been paid. and petitioner's failure to pay said premiums on or before the effective dates of said policies rendered them invalid. although paid on installments. despite its voluntary acceptance of partial payments. the parties may not agree to make the insurance contract valid and binding without payment of premiums. The absence of an express acknowledgment in the policies of such receipt of the corresponding premium payments. and by the conditions stipulated by the insurer in its receipts. . Certainly. As a consequence. 78 of the Insurance Code. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner.

. The facts are undisputed and may be related as follows: On April 15.645.: The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals. In March 1992. INC. Padilla and Griño-Aquino. Inc. the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period. petitioner. So is an understanding to allow insured to pay premiums in installments not so proscribed. 63 . effective and binding. 1992. Medialdea.. 1999 UCPB GENERAL INSURANCE CO. both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. Petitioner advised respondent's broker. It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid. G. AH-CPP-9210651) in March 1985. Moreover. 25% of the total amount due as attorney's fees and P25. Capital Surety and Insurance Co. 1991 to May 22. petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. SO ORDERED. vs. In Arce. is on leave.000. ordering petitioner to pay respondent the sum of P18.00. J. the same is AFFIRMED. for the period from May 22. PARDO. Cruz. where the risk is entire and the contract is indivisible. Zuellig Insurance Brokers. JJ. 1992. petitioner issued five (5) insurance policies covering respondent's various property described therein against fire. public order or public policy (De Leon. petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22. at p. 137172 June 15. J.00 as litigation expenses. Branch 58. petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (No. MASAGANA TELAMART. 4 The reliance by petitioner on Arce vs. Makati. as the proceeds of the insurance coverage of respondent's property razed by fire. WHEREFORE.R. 1 affirming with modification that of the Regional Trial Court. concur. the Insurance Code.. however brief or momentary. Costs against petitioner. agreement is not contrary to morals. 5 is unavailing because the facts therein are substantially different from those in the case at bar. At the very least. No. INC. For the 1984 policy. of its intention not to renew the policies. finding no reversible error in the judgment appealed from. petitioner paid two (2) installments although it refused to pay the balance. respondent. 175). In the case before Us.. as correctly observed by the appellate court.000. no payment was made by the insured at all despite the grace period given.. 1991. good customs. and costs.

95 (refused by the defendant) as full payment of the corresponding premiums for the replacement-renewal policies for Exhibits A. respondent filed with petitioner its formal claim for indemnification of the insured property razed by fire. as follows: (1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225. Branch 58. 1992. and (4) Ordering the defendant to pay plaintiff the sums of: (a) P18.645. respondent filed with the Regional Trial Court. No notice of loss was filed by respondent under the policies prior to July 14.000. and (b) that the fire occurred on June 13.00. On July 13. respectively.95. C.645. 1992. Makati. B.753. (c) P25. petitioner returned to respondent the five (5) manager's checks that it tendered. and at the same time rejected respondent's claim for the reasons (a) that the policies had expired and were not renewed. 1992. judgment is hereby rendered in favor of the plaintiff and against the defendant. 1992. 1992 and August 9. On the same day. representing premium for the renewal of the policies from May 22. 1992. 1991 to August 9. 1992 to May 22. D and E effective and binding for the duration May 22. premises considered. petitioner filed an answer to the complaint. before respondent's tender of premium payment. and for attorney's fees. 1993. 1992. C. (3) Declaring Exhibits A & B. the policies had long expired and were not renewed. B.00 as necessary litigation expenses. rendered decision. that petitioner was not liable to respondent for insurance proceeds under the policies because at the time of the loss of respondent's property due to fire.00 representing the latter's claim for indemnity under Exhibits A. (2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the replacement-renewal policy of Exhibits A. 1992 until May 22. 1993. a civil complaint against petitioner for recovery of P18. 1992. petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in the policies. (d) the costs of suit. 3 After due trial.On April 6. (b) 25% of the total amount due as and for attorney's fees. D and E. Makati City. in force from August 22. On July 14. 1993. ordering defendant to deliver forthwith to plaintiff the said replacement-renewal policies. 64 . 1991 up to August 23. On June 13. respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total amount of P225. and. after its motion to dismiss had been denied. Branch 58. 1992. 1992. It alleged that the complaint "fails to state a cause of action". 1992. July 14. the dispositive portion of which reads: WHEREFORE. representing the face value of the policies covering respondent's insured property razed by fire. and.000. 2 On October 23. B & C and/or its replacement-renewal policies. the Regional Trial Court.000. On July 21. fire razed respondent's property covered by three of the insurance policies petitioner issued.753. on March 10.

1992. The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the period May 22. is not valid and binding until actual payment of the premium. other than life. 9 Respondent submits that the Court of Appeals correctly ruled that no timely notice of non- renewal was sent. 1982. 10 We give due course to the appeal. ANGELES. ZOSIMO Z. 1993. 5 On September 7.. and that the acceptance of the late premium payment suggested an understanding that payment could be made later. 65 . including plaintiff's claim for interests. petitioner appealed to the Court of Appeals. SO ORDERED. issued originally or on renewal. Metro-Manila. In that case. 12 cited by the Court of Appeals. Respondent submits further that the Court of Appeals did not err in finding that there existed a sixty (60) to ninety (90) days credit agreement between UCPB and Masagana. vs. 1992. respondent filed its comment.4 In due time. March 10. By resolution adopted on March 24. Makati. the payment of the premium for renewal of the policies was tendered on July 13. a month after the fire occurred on June 13. an insurance policy. and the award of attorney's fees was reduced to 10% of the total amount due. 1992. Here. Hence. 7 The Court of Appeals held that following previous practise. the Court of Appeals promulgated its decision 6 affirming that of the Regional Trial Court with the modification that item No. this appeal. the Supreme Court could not review factual findings of the lower court affirmed by the Court of Appeals. is not applicable. Inc. Any agreement to the contrary is void. 1981. 1998. 1999. respondent was allowed a sixty (60) to ninety (90) day credit term for the renewal of its policies. The case of Malayan Insurance Co. we required respondent to comment on the petition. The notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the insurance agency but not respondent itself did not suffice. and that. All other claims and counterclaims asserted by the parties are denied and/or dismissed. payment of the premium was in fact actually made on December 24. and the fire occurred on January 18. No. Judge. The answer is easily found in the Insurance Code. 1991 to May 22. 3 of the dispositive portion was deleted. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire. finally. 8 On April 22. had expired on the latter date or had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date after the occurrence of the risk (fire) insured against. 11 The parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding before actual payment. 1999. Cruz-Arnaldo. not to file a motion to dismiss within ten (10) days from notice.

92-2023. 42321. JJ. C. in Civil Case No. Jr. Branch 58.. Makati City. 1âwphi 1. Melo. Kapunan and Ynares-Santiago. CV No. the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals in CA-G. concur.nêt SO ORDERED.R. Davide. 66 ..J.WHEREFORE.. Without costs. In lieu thereof the Court renders judgment dismissing respondent's complaint and petitioner's counterclaims thereto filed with the Regional Trial Court.