CONTRACT OF INSURANCE
manager, he new nothing of what became of it. The local manager, Mr. White, testified to
G.R. No. L-15895             November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma.
Herrer, plaintiff-appellant, 
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin
Ma. Herrer to recover from the defendant life insurance company the sum of pesos 6,000
paid by the deceased for a life annuity. The trial court gave judgment for the defendant.
Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application
to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity.
Two days later he paid the sum of P6,000 to the manager of the company's Manila office
and was given a receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta
Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y
aprobacion de la Oficina Central de la Compañia.
The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to
Manila. (Whether on the same day the cable was received notice was sent by the Manila
office of Herrer that the application had been accepted, is a disputed point, which will be
discussed later.) On December 4, 1917, the policy was issued at Montreal. On December
18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that
Herrer desired to withdraw his application. The following day the local office replied to Mr.
Torres, stating that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning of December 21,
1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received
notice of acceptance of his application. To resolve this question, we propose to go directly
to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the
time of the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of
date November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature.
Page 1 of 4
The witness admitted on cross-examination that after preparing the letter and giving it to he
having received the cablegram accepting the application of Mr. Herrer from the home office
on November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer
of this acceptance. The witness further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission. The witness could not tell if the
letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
mentioned his application for a life annuity, and that he said that the only document relating
to the transaction in his possession was the provisional receipt. Rafael Enriquez, the
administrator of the estate, testified that he had gone through the effects of the deceased
and had found no letter of notification from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the
local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which
should be applied to the facts. In order to reach our legal goal, the obvious signposts along
the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were
found in the Code of Commerce and the Civil Code. In the Code of the Commerce, there
formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with
insurance contracts. In the Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of
Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No.
2427. Chapter IV of this Act concerns life and health insurance. The Act expressly repealed
Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The law of
insurance is consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the
methods to be followed in order that there may be a contract of insurance. On the other
hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly
similar to the one we are considering, but in two other articles, gives strong clues as to the
proper disposition of the case. For instance, article 16 of the Civil Code provides that "In
matters which are governed by special laws, any deficiency of the latter shall be supplied by
the provisions of this Code." On the supposition, therefore, which is incontestable, that the
special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the concurrence of offer
and acceptance with respect to the thing and the consideration which are to constitute the
contract. An acceptance made by letter shall not bind the person making the offer except
from the time it came to his knowledge. The contract, in such case, is presumed to have
been entered into at the place where the offer was made." This latter article is in opposition
to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a
conclusion, then the only duty remaining is for the court to apply the law as it is found. The
legislature in its wisdom having enacted a new law on insurance, and expressly repealed
the provisions in the Code of Commerce on the same subject, and having thus left a void in
the commercial law, it would seem logical to make use of the only pertinent provision of law
found in the Civil code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the
offer only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and
tends to security. Not only this, but in order that the principle may not be taken too lightly, let
it be noticed that it is identical with the principles announced by a considerable number of
respectable courts in the United States. The courts who take this view have expressly held
that an acceptance of an offer of insurance not actually or constructively communicated to
the proposer does not make a contract. Only the mailing of acceptance, it has been said,
completes the contract of insurance, as the locus poenitentiae is ended when the
acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp.
235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had to be a medical examination
of the applicant; (2) there had to be approval of the application by the head office of the
company; and (3) this approval had in some way to be communicated by the company to
the applicant. The further admitted facts are that the head office in Montreal did accept the
application, did cable the Manila office to that effect, did actually issue the policy and did,
through its agent in Manila, actually write the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the letter of notification thus fails
to concur with the essential elements of the general rule pertaining to the mailing and
delivery of mail matter as announced by the American courts, namely, when a letter or other
mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it could have been transmitted to
him in the ordinary course of the mails. But if any one of these elemental facts fails to
appear, it is fatal to the presumption. For instance, a letter will not be presumed to have
been received by the addressee unless it is shown that it was deposited in the post-office,
properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq.,
notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it
has not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum
of P6,000 with legal interest from November 20, 1918, until paid, without special finding as
to costs in either instance. So ordered.
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, 
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner, 
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek
similar relief, through these petitions for certiorari by way of appeal, from the amended
decision of respondent Court of Appeals which affirmed in toto the decision of the Court of
First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe
Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private
respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the
filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the
Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-
year endownment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu
D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding
form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the
application form which was signed by private respondent Ngo Hing. The latter paid the

Page 2 of 4
annual premuim the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life.
Upon the payment of the insurance premuim, the binding deposit receipt (Exhibit E) was
issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his strong recommendation for the approval
of the insurance application. Then on April 30, 1957, Mondragon received a letter from
Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the
said life insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated
by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-
year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of
the proceeds of the insurance, but having failed in his effort, he filed the action for the
recovery of the same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private
respondent Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered
a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said insurance
shan be in force and in effect from the date of such medical examination, for such period as
is covered by the deposit ..., PROVIDED the company shall be satisfied that on said date
the applicant was insurable on standard rates under its rule for the amount of insurance and
the kind of policy requested in the application.
D. If the Company does not accept the application  on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to issue
a policy for a different plan and/or amount ..., the insurance shall not be in force and in
effect until the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
Page 3 of 4
E. If the applicant shall not have been insurable under Condition A above, and the
Company declines to approve the application the insurance applied for shall not have been
in force at any time and the sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is
merely an acknowledgment, on behalf of the company, that the latter's branch office had
received from the applicant the insurance premium and had accepted the application
subject for processing by the insurance company; and that the latter will either approve or
reject the same on the basis of whether or not the applicant is "insurable on standard rates."
Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing,
the binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional
and does not insure outright. As held by this Court, where an agreement is made between
the applicant and the agent, no liability shall attach until the principal approves the risk and
a receipt is given by the agent. The acceptance is merely conditional and is subordinated to
the act of the company in approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit
3-M), Pacific Life disapproved the insurance application in question on the ground that it is
not offering the twenty-year endowment insurance policy to children less than seven years
of age. What it offered instead is another plan known as the Juvenile Triple Action, which
private respondent failed to accept. In the absence of a meeting of the minds between
petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between thenl
Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific
Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or by
their agents ... The contract, to be binding from the date of the application, must have been
a completed contract, one that leaves nothing to be dione, nothing to be completed, nothing
to be passed upon, or determined, before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not have
any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp.
13-14). In this first place, there was no contract perfected between the parties who had no
meeting of their minds. Private respondet, being an authorized insurance agent of Pacific
Life at Cebu branch office, is indubitably aware that said company does not offer the life
insurance applied for. When he filed the insurance application in dispute, private respondent
was, therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his
proposal that the insurance company starts to offer the 20-year endowment insurance plan
for children less than seven years. Nonetheless, the record discloses that Pacific Life had
rejected the proposal and recommendation. Secondly, having an insurable interest on the
life of his one-year old daughter, aside from being an insurance agent and an offense
associate of petitioner Mondragon, private respondent Ngo Hing must have known and
followed the progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M)
nor the reply thereto of appellant Mondragon reiterating the desire for applicant's father to
have the application considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced that this
was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who
wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the progress in the
processing of the application was not brought home to his knowledge. He must have been
duly apprised of the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who insisted on the
application as originally filed, thereby implictly declining the offer to consider the application
under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was,
Ngo Hing should only be presumed to know what kind of policies are available in the
company for minors below 7 years old. What he and Mondragon were apparently trying to
do in the premises was merely to prod the company into going into the business of issuing
endowment policies for minors just as other insurance companies allegedly do. Until such a
Page 4 of 4
definite policy is however, adopted by the company, it can hardly be said that it could have
been bound at all under the binding slip for a plan of insurance that it could not have, by
then issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that
private respondent had deliberately concealed the state of health and piysical condition of
his daughter Helen Go. Wher private regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his one-year old daughter is typically a
mongoloid child. Such a congenital physical defect could never be ensconced nor
disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact
materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to
such a material fact. Had he diamond said significant fact in the insurance application fom
Pacific Life would have verified the same and would have had no choice but to disapprove
the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally
so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu
Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and ordering
the aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to
private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.