G.R. No.

L-30685 May 30, 1983

NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of Manila, ordering the
appellant Asian-Crusader Life Assurance Corporation to pay the face value of an insurance
policy issued on the life of Kwong Nam the deceased husband of appellee Ng Gan Zee.
Misrepresentation and concealment of material facts in obtaining the policy were pleaded to
avoid the policy. The lower court rejected the appellant's theory and ordered the latter to pay
appellee "the amount of P 20,000.00, with interest at the legal rate from July 24, 1964, the date
of the filing of the complaint, until paid, and the costs. "
The Court of Appeals certified this appeal to Us, as the same involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
appellant, upon receipt of the required premium from the insured, approved the application and
issued the corresponding policy. On December 6, 1963, Kwong Nam died of cancer of the liver
with metastasis. All premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for
payment of the face value of the policy. On the same date, she submitted the required proof of
death of the insured. Appellant denied the claim on the ground that the answers given by the
insured to the questions appealing in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco
Y. Mandamus, and the latter, after conducting an investigation, wrote the appellant that he had
found no material concealment on the part of the insured and that, therefore, appellee should be
paid the full face value of the policy. This opinion of the Insurance Commissioner
notwithstanding, appellant refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insuranceHas any life insurance company ever refused your application for insurance
or for reinstatement of a lapsed policy or offered you a policy different from
that applied for? If, so, name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the essential facts in this
case, the insured had in January, 1962, applied for reinstatement of his
lapsed life insurance policy with the Insular Life Insurance Co., Ltd, but this
was declined by the insurance company, although later on approved for
reinstatement with a very high premium as a result of his medical

examination. Thus notwithstanding the said insured answered 'No' to the

[above] question propounded to him. ... 1
The lower court found the argument bereft of factual basis; and We quote with approval its
disquisition on the matterOn the first question there is no evidence that the Insular Life Assurance
Co., Ltd. ever refused any application of Kwong Nam for insurance. Neither
is there any evidence that any other insurance company has refused any
application of Kwong Nam for insurance.
... The evidence shows that the Insular Life Assurance Co., Ltd. approved
Kwong Nam's request for reinstatement and amendment of his lapsed
insurance policy on April 24, 1962 [Exh. L-2 Stipulation of Facts, Sept. 22,
1965). The Court notes from said application for reinstatement and
amendment, Exh. 'L', that the amount applied for was P20,000.00 only and
not for P50,000.00 as it was in the lapsed policy. The amount of the
reinstated and amended policy was also for P20,000.00. It results,
therefore, that when on May 12, 1962 Kwong Nam answered 'No' to the
question whether any life insurance company ever refused his application
for reinstatement of a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the Insular
Life Assurance Co., Ltd. was for the reinstatement and amendment of his
lapsed insurance policy-Policy No. 369531 -not an application for a 'new
insurance policy. The Insular Life Assurance Co., Ltd. approved the said
application on April 24, 1962. Policy No. 369531 was reinstated for the
amount of P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L2']. No new policy was issued by the Insular Life Assurance Co., Ltd. to
Kwong Nam in connection with said application for reinstatement and
amendment. Such being the case, the Court finds that there is no
misrepresentation on this matter. 2
Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The alleged false statements given by
Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has
been associated with ulcer of stomach. Tumor taken out was hard and of a
hen's egg size. Operation was two [2] years ago in Chinese General
Hospital by Dr. Yap. Now, claims he is completely recovered.
To demonstrate the insured's misrepresentation, appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese General
Hospital on May 22, 1960, i.e., about 2 years before he applied for an insurance policy on May
12, 1962. According to said report, Dr. Fu Sun Yuan had diagnosed the patient's ailment as
'peptic ulcer' for which, an operation, known as a 'sub-total gastric resection was performed on
the patient by Dr. Pacifico Yap; and

[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed
from the patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm. along the
lesser curvature with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that the insured was operated on
for peptic ulcer", involving the excision of a portion of the stomach, appellant argues that the
insured's statement in his application that a tumor, "hard and of a hen's egg size," was removed
during said operation, constituted material concealment.
The question to be resolved may be propounded thus: Was appellant, because of insured's
aforesaid representation, misled or deceived into entering the contract or in accepting the risk at
the rate of premium agreed upon?
The lower court answered this question in the negative, and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must communicate to the other,
in good faith, all facts within his knowledge which are material to the
contract, and which the other has not the means of ascertaining, and as to
which he makes no warranty. 3
Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but
he designedly and intentionally withholds the same." 4
It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant.
Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the
part of the insured be established to entitle the insurer to rescind the contract. And as correctly
observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by satisfactory and convincing
evidence rests upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."

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

Section 32. The right to information of material facts maybe waived either by
the terms of insurance or by neglect to make inquiries as to such facts
where they are distinctly implied in other facts of which information is
communicated.
It has been held that where, upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any further
inquiry, they waive the imperfection of the answer and render the omission to answer more fully
immaterial. 6
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an
important bearing on the question of whether the defendant would undertake the insurance or
not, the court cannot understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or require copies of the
hospital records from the appellant before acting on the application for insurance. The fact of the
matter is that the defendant was too eager to accept the application and receive the insured's
premium. It would be inequitable now to allow the defendant to avoid liability under the
circumstances."
Finding no reversible error committed by the trial court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader life Assurance Corporation.
SO ORDERED.
G.R. No. L-16163

February 28, 1963

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.
Eleazaro A. Samson for plaintiffs-appellants.
Abello & Macias for defendant-appellee.
MAKALINTAL, J.:

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

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

and medical history. The written application in this case was submitted by Saturnino to appellee
on November 16, 1957, witnessed by appellee's agent Edward A. Santos. The policy was issued
on the same day, upon payment of the first year's premium of P339.25. On September 19, 1958
Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving
husband and minor child, respectively, demanded payment of the face value of the policy. The
claim was rejected and this suit was subsequently instituted.
It appears that two months prior to the issuance of the policy or on September 9, 1957,
Saturnino was operated on for cancer, involving complete removal of the right breast, including
the pectoral muscles and the glands found in the right armpit. She stayed in the hospital for a
period of eight days, after which she was discharged, although according to the surgeon who
operated on her she could not be considered definitely cured, her ailment being of the malignant
type.
Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure
thereof in her application for insurance. On the contrary, she stated therein that she did not have,
nor had she ever had, among other ailments listed in the application, cancer or other tumors;
that she had not consulted any physician, undergone any operation or suffered any injury within
the preceding five years; and that she had never been treated for nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus, and menstrual
disorders. The application also recites that the foregoing declarations constituted "a further basis
for the issuance of the policy."
The question at issue is whether or not the insured made such false representations of material
facts as to avoid the policy. There can be no dispute that the information given by her in her
application for insurance was false, namely, that she had never had cancer or tumors, or
consulted any physician or undergone any operation within the preceding period of five years.
Are the facts then falsely represented material? The Insurance Law (Section 30) provides that
"materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming his estimate
of the proposed contract, or in making his inquiries." It seems to be the contention of appellants
that the facts subject of the representation were not material in view of the "non-medical" nature
of the insurance applied for, which does away with the usual requirement of medical examination
before the policy is issued. The contention is without merit. If anything, the waiver of medical
examination renders even more material the information required of the applicant concerning
previous condition of health and diseases suffered, for such information necessarily constitutes
an important factor which the insurer takes into consideration in deciding whether to issue the
policy or not. It is logical to assume that if appellee had been properly apprised of the insured's
medical history she would at least have been made to undergo medical examination in order to
determine her insurability.
Appellants argue that due information concerning the insured's previous illness and operation
had been given to appellees agent Edward A. Santos, who filled the application form after it was
signed in blank by Estefania A. Saturnino. This was denied by Santos in his testimony, and the
trial court found such testimony to be true. This is a finding of fact which is binding upon us, this
appeal having been taken upon questions of law alone. We do not deem it necessary, therefore,
to consider appellee's additional argument, which was upheld by the trial court, that in signing
the application form in blank and leaving it to Edward A. Santos to fill (assuming that to be the
truth) the insured in effect made Santos her agent for that purpose and consequently was
responsible for the errors in the entries made by him in that capacity.

In the application for insurance signed by the insured in this case, she agreed to submit to a
medical examination by a duly appointed examiner of appellee if in the latter's opinion such
examination was necessary as further evidence of insurability. In not asking her to submit to a
medical examination, appellants maintain, appellee was guilty of negligence, which precluded it
from finding about her actual state of health. No such negligence can be imputed to appellee. It
was precisely because the insured had given herself a clean bill of health that appellee no
longer considered an actual medical checkup necessary.
Appellants also contend there was no fraudulent concealment of the truth inasmuch as the
insured herself did not know, since her doctor never told her, that the disease for which she had
been operated on was cancer. In the first place the concealment of the fact of the operation itself
was fraudulent, as there could not have been any mistake about it, no matter what the ailment.
Secondly, in order to avoid a policy it is not necessary to show actual fraud on the part of the
insured. In the case of Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S. 211, 214, it was held:
Moreover, if it were the law that an insurance company could not depend a policy on
the ground of misrepresentation, unless it could show actual knowledge on the part of
the applicant that the statements were false, then it is plain that it would be impossible
for it to protect itself and its honest policyholders against fraudulent and improper
claims. It would be wholly at the mercy of any one who wished to apply for insurance,
as it would be impossible to show actual fraud except in the extremest cases. It could
not rely on an application as containing information on which it could act. There would
be no incentive to an applicant to tell the truth.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of facts.
1wph1.t
In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to
rescind the contract of insurance, concealment being defined as "negligence to communicate
that which a party knows and ought to communicate" (Sections 24 & 26, Act No. 2427). In the
case of Argente v. West Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting
from Joyce, The Law of Insurance, 2nd ed., Vol. 3:
"The basis of the rule vitiating the contract in cases of concealment is that it misleads
or deceives the insurer into accepting the risk, or accepting it at the rate of premium
agreed upon. The insurer, relying upon the belief that the assured will disclose every
material fact within his actual or presumed knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist."
The judgment appealed from, dismissing the complaint and awarding the return to appellants of
the premium already paid, with interest at 6% up to January 29, 1959, affirmed, with costs
against appellants.
G.R. No. L-10436

January 24, 1916

FRANCISCA EGUARAS, plaintiff-appellee,

vs.
THE GREAT EASTERN LIFE ASSURANCE COMPANY, LTD., and WEST G. SMITH,

defendants.
THE GREAT EASTERN LIFE ASSURANCE COMPANY, LTD., appellant.
TORRES, J.:
This is an appeal filed through bill of exceptions by the counsel for the defendant, the Great
Eastern Life Assurance Company, Ltd., from the judgment of September 14, 1914, whereby the
Court of First Instance of Laguna sentenced it to pay to the plaintiff the sum of P5,000, the value
of the insurance policy in question, with legal interest from April 15, 1913, the date when the
complaint was filed, and the costs. W.G. Smith was absolved from the complaint, and the claim
fro damages dismissed, as they were not proven.
On April 14, 1913, counsel for Francisca Eguaras filed a written complaint in the said Laguna
court, alleging as a cause of action that about October 14, 1912, her son-in-law Dominador
Albay had applied in writing to the defendant insurance company to insure his life for the sum of
P5,000, naming as the beneficiary in case of his death the plaintiff Francisca Eguaras; that after
compliance with the requisites and the investigation carried on by the defendant company, and it
had been satisfied concerning the physical condition of the applicant, it accepted the application
for insurance and on November 6, 1912, issued policy No. 5592, Exhibit A, which has been
made a part of the complaint, whereby the said insurance company insured the life of the said
Dominador Albay in the sum of P5,000, payable in the event of his death to Francisca Eguaras;
that on December 6, 1912, said policy No. 5592 being in force, the insured Dominador Albay,
died in the municipality of Santa Cruz, Laguna, and despite the fact that the beneficiary
submitted satisfactory proofs of his death and that the defendant company investigated the
event, still it refused and continues to refuse to pay to the plaintiff the value of the policy, Exhibit
A, thereby causing damages estimated at P1,000. The court was therefore asked to render
judgment against the Great Eastern Life Assurance Company, Ltd., and its general agent, West
G. Smith, by sentencing them to pay to the plaintiff the sum of P5,000, the value of policy No.
5592, plus the sum of P1,000 for damages inflicted upon them, in addition to the costs of the
suit.
The demurrer filed to the foregoing complaint having been overruled, counsel for the insurance
company and for West G. Smith replied thereto, admitting the allegations of the complaint with
respect to the legal status of the parties by denying all the rest, and setting forth in special
defense that the insurance policy issued in the name of Dominador [Albay] had been obtained
through fraud and deceit known and consented to by the interested parties and is therefore
completely illegal, void, and ineffective; wherefore he prayed that the defendants be absolved
from the complaint, with the costs against the plaintiff.
In answer to the reply of the defendants the plaintiff alleged that the grounds set forth in the
special defense had been made the basis of a criminal complaint against the plaintiff, Francisca
Eguaras, and Ponciano Remegio for the crime of frustrated estafa in the Court of First Instance
of Laguna, but that they had been acquitted on said complaint, as is demonstrated by the copy
of the judgment, marked Exhibit b, which was made an integral part of the answer, and therefore
the plaintiff prayed that the relief sought in her complaint be granted.
After trial and examination of the evidence submitted by both parties, the court rendered the
judgment that has been set forth, whereto the defendant, The Great Eastern Life Assurance
Company, Ltd., saved its exception, and in writing moved for a reopening of the case and a new
trial. This motion was denied, with exception on appellant's part, so the corresponding bill of
exceptions was filed, approved and forwarded to the clerk of this court.

The question to be determined in this suit consists in whether the life insurance obtained by
Dominador Albay, with the assistance of the insurance agent, Ponciano Remegio, is legal and
valid or whether on the contrary it was issued through fraud and deceit, and in such case,
whether the defendant, The Great Eastern Life Assurance Company, Ltd., is still under obligation
to pay the value thereof to the plaintiff.
It is demonstrated in the case by evidence submitted by the plaintiff that on October 14, 1912,
through the efforts of the defendant company's agent, Ponciano Remigio, Dominador Albay got
the insurance company to insure his life for the sum of P5,000 and that through the
representations and statements made by said Dominador Albay in his application and the
favorable medical examination made by Dr. Jose A. Vidal (record, p. 126), the company agreed
to the life insurance sought, and on November 6,. 1912, issued the policy No. 5592, the value
whereof was payable to the insured's mother-in-law, Francisca Eguaras. One month after said
insurance policy had been issued, that is, on December 6, 1912, the insured Dominador Albay
died in the municipality of Santa Cruz, Laguna, of intestinal occlusion, according to the certificate
of Dr. R. Kamatoy, after an illness of three days, wit medical attendance. (Exhibit B, p. 154;
Exhibit B, criminal case No. 2616.) The defendant company, according to the declaration of its
own agent in these Islands, despite having received satisfactory proofs of the death of the
insured, refused to pay the amount of the insurance, alleging that it had been secured through
fraud and deceit and was therefore illegal and void.
The contract of life insurance executed between The Great Eastern Life Assurance Company,
Ltd., and Dominador Albay is set forth in the policy itself and in the original and supplementary
applications signed apparently by Dominador Albay, it appearing to have been stipulated that
"This insurance is granted in consideration of the foregoing statements and agreement in the
application presented to obtain this policy, which application forms a part of the present
contract." This condition is repeated in Clause VIII of the conditions and the privileges granted to
the insured, that "This policy and the application presented to secure it, taken together,
constitute the whole contract, which cannot be altered except in writing by the general manager
or some person expressly appointed therefor by the board of directors."
Now then, in the supplementary application presented by the insured on October 14, 1912, to
the question: "Do you think that you are free from disease and that you have a good
constitution?" he answered: "Yes;" and to another question: "Have you suffered from any
affection of ... (c) Chest Cough, asthma, spitting blood, pleurisy?" the applicant answered:
"No." (p. 126.)
The physician of the insurance company in charge of the physical examination of the person
applying for insurance in Laguna, Dr. Jose A. Vidal, made the physical examination of the person
who presented himself to him as Dominador Albay and in his report to the said company (pp.
126-127), dated October 14, 1912, he recorded that the development, expansion, percussion,
and auscultation of the applicant's chest were "normal" and recommended to the company that it
could "take the risk" of insuring the applicant Dominador Albay and on said professional report a
certain Lunn, who must be the medical officer of the company, placed his O.K. On the basis of
these medical reports and of the exact and faithful performance of its obligations on the part of
the insurance agent, Ponciano Remigio, The Great Eastern Life Assurance Company issued the
corresponding policy in favor of Dominador Albay, insuring his life for P5,000. The first premium,
amounting to P82.25, was paid on November 6, 1912, and while said policy was in full force and
effect the death of the death of the insured Albay occurred the next month.
It appears from the record that the insured had knowledge of the false replied contained in the
two applications for insurance and knowing permitted fraud to be practised upon the insurance

company, for in his acknowledgment and consent his mother-in-law was designated as the
beneficiary of the insurance, despite the fact that he had children and his mother was still living.
In the present case the fraud consisted in the fact that a healthy and robust person was
substituted in place of insured invalid when Dr. Vidal made the physical examination of the one
who seeking to be insured, for the real person who desired to be insured and who ought to have
been examined was in bad health on and before the date of executing the insurance contract of
which facts the insured Dominador Albay and the insurance agent Ponciano Remigio had full
knowledge.
The insurance company endeavored to prove by means of cross-examination of Ponciano
Remigio, while he was testifying as a witness for the plaintiff, and by means of the declaration of
another insurance agent, Jose D. Arce, that said Ponciano Remigio had always been in the habit
of securing the insurance of sick persons, who died shortly after it was issued, in fraud and to
the serious injury of the defendant company; but at the request of the opposition party the court
overruled this attempt of the defendant and did not permit proof of specific fraudulent acts
performed by its agent Remegio. It is to be observed that the said Remegio has already been
convicted of the crime of estafa and sentenced to two months and one day of arresto and to the
restitution of P20 to The Insular Life Insurance Company, as stated in the copy of the sentence.
(Record, p. 158.)
It is unquestionable that the person who on October 14, 1912, presented himself to Dr. Vidal to
be examined under the name of Dominador Albay, and who signed the supplementary
application before said physician, was not the real Dominador Albay, who died on December 6,
1912. In case No. 2616, prosecuted against Ponciano Remegio, Castor Garcia, and Francisca
Eguaras for frustrated estafa, part of which was exhibited at the hearing in this suit, Dr. Vidal
testified that on October 14, 1912, while he was in the employ of the defendant company as a
physician, he proceeded to examine, in San Pablo, Laguna, a person presented to him by the
insurance agent, Ponciano Remegio, who said that such person was named Dominador Albay
and desired to insured; that after he had conducted the examination for the space of about an
hour the person examined by him signed the supplementary application (Exhibit F) with the
name of Dominador Albay; that the person whom he examined and who signed the application
with the name of Dominador Albay, if he were not mistaken, was the individual he saw before
him, the accused Castor Garcia. When he saw urged to state positively whether he had any
doubt that the person he had examined was the accused Castor Garcia, he first asked
permission to examine the latter's body, and finally reaffirmed that, judging from the general
appearance of the accused, Castor Garcia, the latter was the very person he had examined in
San Pablo and that he had assured Major Grove of the Constabulary and the attorney of the
defendant company that said Garcia was the person who had presented himself to him, saying
that his name was Dominador Albay. He further stated that about March 24, 1913, Ponciano
Remegio had visited his house in Manila to request that he should testify in favor of said
Remegio, who at the same time had offered him P600 not to identify the person of Castor Garcia
at the trial. Major Grove of the Constabulary affirmed under oath at the trial of the same case
that on April 4, 1913, when Dr. Vidal and the accused Castor Garcia were in his house, Dr. Vidal
had told him that he had not the least doubt that Castor Garcia was the person whom he had
examined in San Pablo.
Attorney O'Brien, among other things, stated in a sworn declaration, that Ponciano Remegio
interviewed him in his office about March 15, 1914, telling him that the signatures affixed to the
original application for insurance and the supplementary application signed before Dr. Vidal at
the time of the physical examination were false, and then indicated where he could get
documents with authentic signatures of the said Albay. Remegio further told him that he
(Remegio) was disgusted with his accomplices because they could not reach an agreement
regarding the distribution among them of the amount of the policy when it should be collected.

All the statements of said Remegio were made before him under oath as a notary public in the
presence of Jose D. Arce, which statements were annotated in the memorandum, Exhibit 3, he
being unable to draw up a formal document for signature as the day of the interview was Sunday
and he had no stenographer in his office. Jose D. Arce corroborated the statements of the
foregoing witness, and added that as the said Ponciano Remegio lodged in his house, the latter
had told him the details of the substitution of another person in place of Dominador Albay at the
examination made by the physician of the company, and that the cedulas of said Albay and two
letters (pp. 171, 173), in which authentic signatures of Albay appeared, were delivered to
Attorney O'Brien by Albay's mother, named Manuela Flores. Captain Barrows of the
Constabulary testified how Ponciano Remegio had promised O'Brien in a conference held by the
three in his house in Santa Cruz some ten days before the trial, that on the day of the trial he
would testify that the person who had signed the applications with the name of Dominador Albay
was Castor Garcia, who was then outside of the Philippine Islands (p. 35). It is true that said
Remegio denied all this in his testimony given at the trial in favor of the plaintiff, but it is to be
observed that the said Remegio in March, 1914, told Attorney O'Brien in his office in Manila that
the person who had signed the insurance applications had left the Philippines, but afterwards he
stated to said O'Brien and Barrows that the person mentioned was Castor Garcia, and it the said
Remegio did not so testify at the trial it was through fear of being prosecuted for perjury.
Dr. Getrudo Reyes stated at the trial that in March, 1912, he had been consulted by Dominador
Albay regarding the cough he had and after a medical examination witness had reached the
conclusion that the person concerned was suffering from tuberculosis in the first stage, although
it does not appear that said physician made a microscopic analysis of the patient's sputum; but
there is circumstantial evidence in the case that the said Dominador Albay died of tuberculosis,
for his own mother, Manuela Flores, so affirmed in the affidavit (p. 199) drawn up before a notary
on April 17, 1914, although said affidavit was not admitted as evidence because she repudiated
its contents in the courts. The motive for this change of front on the part of the said Manuela
Flores seems to have been due to the fact that the insurance company was unwilling to give her
and her husband money for the statements they would make in the court, for in the letter (Exhibit
9) of Leodegario v. Lambonga, Manuela Flores' husband, addressed to Jose D. Arce on August
26, 1914, Lambonga informed Arce that they would not appear the next day, not saying where,
because they first wanted to agree upon the sum that they would receive in the event Smith,
defendant's agent, should win the case, and accordingly it execute "an instrument we can hold
to" (literal). Jose Valencia testified that on November 27, 1912, he went to the municipal building
to sign a declaration in the name Dominador Albay because the latter was then ill and could not
leave his house a fact admitted by plaintiff. Attorney O'Brien also testified that Ponciano
Remegio had assured him that Dominador Albay was suffering from tuberculosis, and also that
Remegio had told him that there was a physician in Santa Cruz, who must have been Dr. Reyes,
that could attest that said Albay was really affected with tuberculosis.
It is immaterial that Albay may have died of intestinal occlusion, as Dr. Kamatoy affirms in the
death certificate (p. 154), because said aliment does not demonstrate that Albay was not
suffering from some other chronic disease; or that in the month of October, 1912, when he
applied for insurance on his life, he was not affected by malady that would have been sufficient
cause for his rejection by the physician of the insurance company.
To secure the insurance on the life of Dominador Albay, the parties interested used a person
who signed the name of Dominador Albay as the insured in all the documents connected with
his application, for the signatures to the letter and the document relating to the insurance,
exhibited at the trial, and signed by "Dominador Albay" (pp. 50, 54), are different from the
authentic signatures of the real Dominador Albay which appear in the official documents and the
instruments of conveyance of reality. (Exhibits 12, 13, 15, pp. 207-211 of the record.) The
signatures on these three documents of an official nature, as well as those on the letters

(Exhibits 7 and 8; pp. 171, 173) addressed by the said Albay to his sister Odang and his relative
Lambonga, although not admitted as evidence because they were not duly identified are the
genuine signatures of the real Dominador Albay, who was accustomed to fashion his letters in
the Spanish style of handwriting. The documents exhibited under the letters D, E, F, and G by
the plaintiff, which bear the signatures of "Dominador Albay," appear to have been signed by the
same hand, and therefore it is not strange that the signatures on these documents are similar,
for it is to be observed that the characters in these signatures are firm and strong, demonstrating
that the person who made them had learned to write in American schools where the style of
handwriting taught is very different from the Spanish.
Plaintiff's claim is based especially on the genuineness of the signatures of "Dominador Albay" in
the elector's oath (Exhibit G, p. 124), which was signed before the board of election inspectors
on May 4, 1912, and duly identified by the chairman of said board, Proceso Maximo, on the
contention that if the signature on said elector's oath is genuine, those which appear on the
insurance applications, Exhibits E and F (pp. 125-127), and that affixed to the letter, Exhibit D (p.
50), addressed by said Albay in November, 1912, to the insurance also be true and genuine. But
if the real Dominador Albay wrote in the Spanish style in the months of January, February, and
March of the year 1912, as demonstrated by the signatures affixed to the documents Exhibits 7,
8, and 15, it is impossible to believe that he should have radically changed his form of writing,
two months later by adopting a different handwriting, as can be seen in the alleged signature,
said to be authentic, in the elector's oath, Exhibit G, written on May 4, 1912, and subsequently
imitated in the months of October and November of the same year in the Exhibits E, F, and D.
The signatures that appear on the papers referring to the insurance are so different from those
which appear on the other documents which unquestionably bear the signature of the real
Dominador Albay that, in consideration of the short time which elapsed between the last genuine
signature in March, 1912, when he sold a tract of land, and his oath as elector in May of the
same year 1912, and the great difference that exist between the two signatures, we can do no
less than reach the conclusion already stated that there was a person who passed himself off as
Dominador Albay and said person was the one who went to signing the documents relating to
the alleged insurance of Dominador Albay who died on December 6, 1912.
Moreover, Dominador Albay's age, according to the alleged insurance application and the
insurance policy, was 40 years in 1912, while according to his personal cedulas he was only 32
years of age in 1911, so that when he was insured he must have been only 33.
It is therefore proven that the signatures on the insurance applications reading "Dominador
Albay" are false and forged; that the person who presented himself to Dr. Vidal to be examined
was not the real Dominador Albay, but another different person; that at the time of the application
for insurance and the issuance of the policy which is the subject matter of this suit the real
Dominador Albay was informed of all those machinations, wherefore it is plain that the insurance
contract between the defendant and Dominador Albay is null and void because it is false,
fraudulent and illegal.
Article 1269 of the Civil Code states:
There is deceit when by words or insidious machinations on the part of one of the
contracting parties the other is induced to execute a contract which without them he
would not have made.
It is essential to the nature of the deceit, to which the foregoing article refers, that said deceit be
prior to or contemporaneous with the consent that is a necessary requisite for perfecting the
contract, but not that it may have occurred or happened thereafter. A contract is therefore

deceitful, for the execution whereof the consent of one of the parties has been secured by
means of fraud, because he was persuaded by words or insidious machinations, statements or
false promises, and a defective consent wrung from him, even though such do not constitute
estafa or any other criminal subject to the penal law.
The defendant company accepted the application for insurance made by Dominador Albay and
executed the contract comprised under articles 416 of the Code of Commerce, although for the
perfecting thereof the insured, Albay, as he was not in good health, by connivance with the
insurance company's agent, presented Castor Garcia to the physician Vidal, who was
commissioned by the company to examine applicants for life insurance and in view of the
favorable report of the said physician, who reported and certified that the person examined by
him under the name of Dominador Albay was in good health and possessed the qualifications
required by said insurance company for perfecting the contract, so the company freely and
willingly consented to the execution thereof, effectively induced thereto by the result of the
medical examination and of the favorable professional report issued in view of the appearance
of an individual who was in good health, but different from the individual who was seeking to be
insured and who died one month and twenty-three days after the insurance had been granted.
The fraud which gave rise to the mistaken consent, given by the defendant company to the
application for insurance made by Albay and to the execution of the contract through deceit, is
plain and unquestionable. This fraud consisted in the substitution at the examination of Castor
Garcia in place of the insured Dominador Albay, and as the deceit practiced in the said contract
is of a serious nature, the same is ipso facto void and ineffective, in accordance with the
provisions of article 1270 of the Civil Code.
If there had been no substitution, if the insured Dominador Albay had been the person who
appeared and was examined by the physician Vidal, said Albay being manifestly different from
Castor Garcia, the said physician would not have affirmed at the trial that it was Garcia who
presented himself for the physical examination, accompanied by the insurance company's
agent, at his residence in San Pablo, and he would have failed to recognize him when he saw
him in the court, nor is any mistake on the physician's part possible as the inspection and
physical examination of the individual lasted for something like the space of an hour.
The supposition that Dominador Albay was not ill in October, 1912, would not explain why he did
not present himself in person to be examined by the physician Vidal; and when he failed to do so
and by agreement with the agent Remegio was willing to be substituted by Castor Garcia to the
end that in any event no defect or personal quality should be discovered to hinder the perfecting
of the insurance contract, such a change in the person constitutes one of the means of fraud
which, although it may not partake of the nature of a crime, essentially nullifies the insurance
contract executed.
With this array of circumstantial evidence derived from facts duly proven as a result of the
present suit, we get, if not a moral certainly, at least a full conviction that when Castor Garcia
presented himself to be examined by the physician Vidal in place of Dominador Albay, serious
deceit occurred in perfecting the insurance contract, for had the agent of the company not been
deceived it would not have granted the insurance applied for by Albay, nor would it have
executed the contract by virtue of whereof payment is claimed of the value of policy obtained
through fraud; and consequently on such assumptions it is improper, nor is it permitted by the
law, to order collection of the amount claimed.
With reference to the effect produced by the final judgment rendered in the cae for estafa in
connection with this suit, it is unquestionable that said judgment does not give rise to the

presumption of res adjudicata, applicable to the present case (art. 1252, Civil Code), nor does it
constitute an estoppel to the matters litigated in the said criminal case for estafa and
consequently there cannot be applied in the present suit the principle laid down in the decision
of Pealosa vs. Tuason (22 Phil. Rep., 303), for the reason that said case was instituted by
virtue of an information on the charge that the deceitful acts executed by the company's agent
and others interested in the result of the fraud constitute the crime of estafa to the injury of the
said insurance company, even though the court acquitted the accused on account of the lack of
satisfactory proof of the acts ascribed to them and of their guilt, while the exception taken by the
defendant company is based on the nullity of the insurance contract because deceit occurred in
the perfecting and execution thereof.
In view of that acquittal the beneficiary of the insurance, Francisca Eguaras, instituted the
present suit against The Great Eastern Life Assurance Company, Ltd., claiming payment of the
sum of P5,000, the value of policy No. 5592, Exhibit A, which claim the defendant opposed with
the contention that said policy was void and illegal because it had been obtained by means of
deceit and fraud.
The judgment of acquittal rendered in the criminal case for estafa against the said Francisca
Eguaras does not produce the effect of res adjudicata in the present suit to the extent that
because she was acquitted of the crime of estafa she has necessarily acquired as a plaintiff the
right to collect the value of the insurance, or that the insurance company cannot contend that the
insurance contract is null and void because it was executed by means of deceit, which upon
being proven, as it has been in this case, invalidates the contract that gave rise to the obligation
to pay the value of said policy.
In the said criminal case the question raised was whether the acts performed by Eguaras and
her co-accused partook of the nature of the crime of estafa, and when it was decided in the
negative, the said Eguaras was not therefore unquestionably entitled to collect the value of the
insurance, for after deceit had once been proven in the contract, no obligation rested upon the
insurance company to pay the sum stipulated.
In the present civil suit it is not a question whether the acts performed by Eguaras and others
interested in the proceeds of the insurance were criminal, but whether in taking out the
insurance on the life of Dominador Albay there occurred in the operation deceit and fraud of a
civil nature, in the form and under the conditions defined by the Civil Code.
In a contract executed with the requisites fixed in article 1261, one of the contracting parties may
have given his consent through error, violence, intimidation, or deceit, and in any of such cases
the contract is void, even though, despite this nullity, no crime was committed. (Article 1265, Civil
Code.) There may not have been estafa in the case at bar, but it was conclusively demonstrated
by the trial that deceit entered into the insurance contract, fulfillment whereof is claimed, and
therefore the conclusions reached by the court in the judgment it rendered in the criminal
proceedings for estafa do not affect this suit, nor do they influence the decision proper herein,
nor can they produce in the present suit, over the exception of the defendant, the force of res
adjudicata.
For all the foregoing reasons the first part of the judgment appealed from, with reference to the
payment of P5,000 to the plaintiff, must be reversed and the defendant, The Great Eastern Life
Assurance Company, Ltd., absolved from the complaint, as we do absolve it; and we affirm the
second part of said judgment in so far it absolves W. G. Smith and dismissed the petition for
damages; without special finding as to the costs in both instances. So ordered.

G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI,
respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No.
29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity
in case of accidental death. The designated beneficiary was his mother, respondent Bernarda
Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered
the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other
medical facility?

6. Have you ever had or sought advice for:

xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and
hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health condition
(Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission of
the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, condemning the latter to pay the former the amount
of One Hundred Thousand Pesos (P100,000.00) the face value of insured's
Insurance Policy No. 3903766, and the Accidental Death Benefit in the
amount of One Hundred Thousand Pesos (P100,000.00) and further sum of
P5,000.00 in the concept of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under a belief that they need not be disclosed. Moreover, it held
that the health history of the insured was immaterial since the insurance policy was "nonmedical".

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment because
the cause of death was unrelated to the facts concealed by the insured. It also sustained the
finding of the trial court that matters relating to the health history of the insured were irrelevant
since petitioner waived the medical examination prior to the approval and issuance of the
insurance policy. Moreover, the appellate court agreed with the trial court that the policy was
"non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court
is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment
and misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to
communicate, is called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec.
31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably assess the risk involved in
accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend
on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts
about his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code,
which allows the injured party to rescind a contract of insurance where there is concealment,
ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it
is well settled that the insured need not die of the disease he had failed to disclose to the
insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the
risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine American
Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance
by reason of the concealment employed by the insured. It must be emphasized that rescission
was exercised within the two-year contestability period as recognized in Section 48 of The
Insurance Code.

The material operative facts upon which the appealed judgment was based are summarized by
the Court of Appeals in its assailed decision as follows:
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5)
insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in
Pasay City and Manila] . . . .
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May
1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at
2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13,
1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's
Checks in the total amount of P225,753.45 as renewal premium payments for which
Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by
defendant. On July 14, 1992, Masagana made its formal demand for indemnification
for the burned insured properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it was
rejecting Masagana's claim on the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for
another term;
b) Defendant had put plaintiff and its alleged broker on notice of nonrenewal earlier; and
c) The properties covered by the said policies were burned in a fire that took
place last June 13, 1992, or before tender of premium payment."

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

(Record, p. 5)

SO ORDERED.
G.R. No. 137172

Hence Masagana filed this case.

April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.
RESOLUTION
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision 1 of
the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal
of the five insurance policies on Respondent's properties; (b) declaring the replacement-renewal
policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to
pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewalreplacement policies. The modification consisted in the (1) deletion of the trial court's declaration
that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the
award of the attorney's fees from 25% to 10% of the total amount due the Respondent.

The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of payment of
the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. Unless the company at least forty five days in advance of the
end of the policy period mails or delivers to the assured at the address shown in the
policy notice of its intention not to renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages, the assured shall be entitled to renew
the policy upon payment of the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent,
which had procured insurance coverage from Petitioner for a number of years, had been granted
a 60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the
time the claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued
on May 7, 1990 but premium was paid more than 90 days later on August 31, 1990

under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for
Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB
on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more
than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other
policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22,
1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990
under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661
covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but
premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1").
Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May
22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990
under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover
insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but
premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799
(Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from
January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's
sister company) dated December 10, 1988 but premium therefor was paid only on
February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance
Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25,
1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22,
1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May
22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for
insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1").
Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was
paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from
May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No.
26303 was issued on November 22, 1988 but premium therefor was collected only on
March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December
15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").
Moreover, according to the Court of Appeals the following circumstances constitute
preponderant proof that no timely notice of non-renewal was made by Petitioner:
(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from
Ultramar Reinsurance Brokers that plaintiff's reinsurance facility had been confirmed
up to 67.5% only on April 15, 1992 as indicated on Exhibit "11". Apparently, the notice
of non-renewal (Exhibit "7," Record, p. 320) was sent not earlier than said date, or
within 45 days from the expiry dates of the policies as provided under Policy Condition
No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt
for, the premium payment on July 1[3], 1992 which indicates defendant's willingness to
assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant
insurer appointed Esteban Adjusters and Valuers to investigate plaintiff's claim as
shown by the letter dated July 17, 1992 (Exhibit "11", Record, p. 254).
In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 . . . had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date and after the occurrence of the (fire) risk
insured against." We resolved this issue in the negative in view of Section 77 of the Insurance
Code and our decisions in Valenzuela v. Court of Appeals; 2 South Sea Surety and Insurance
Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set
aside the decision of the Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in
the motion that we had made in the decision our own findings of facts, which are not in accord
with those of the trial court and the Court of Appeals. The courts below correctly found that no

notice of non-renewal was made within 45 days before 22 May 1992, or before the expiration
date of the fire insurance policies. Thus, the policies in question were renewed by operation of
law and were effective and valid on 30 June 1992 when the fire occurred, since the premiums
were paid within the 60- to 90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree expressly or
impliedly on the extension of credit or time to pay the premium nor consider a policy binding
before actual payment. It urges the Court to take judicial notice of the fact that despite the
express provision of Section 77 of the Insurance Code, extension of credit terms in premium
payment has been the prevalent practice in the insurance industry. Most insurance companies,
including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a
prohibitive injunction but is merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding nonpayment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its
awareness of Section 77 Petitioner persuaded and induced Respondent to believe that payment
of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments
within 60 to 90 days after the due dates. By extending credit and habitually accepting payments
60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor
of the insurance policy and in effect waived the provision therein that it would pay only for the
loss or damage in case the same occurred after payment of the premium.
Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that both
the trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by
ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy
thereof to Respondent's broker, Zuellig. Both courts likewise ignored the fact that Respondent
was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code
readily shows that in order for an insured to be entitled to a renewal of a non-life policy, payment
of the premium due on the effective date of renewal should first be made. Respondent's
argument that Section 77 is not a prohibitive provision finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues raised in the motion for
reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion
for reconsideration. The following facts, as found by the trial court and the Court of Appeals, are
indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these
policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to
pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as there is no
proof at all that the notice sent by ordinary mail was received by Respondent, and the
copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of P225,753.95
were paid by Respondent within the 60- to 90-day credit term and were duly accepted
and received by Petitioner's cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance
Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner's advantage despite its
practice of granting a 60- to 90-day credit term for the payment of premiums.
Section 77 of the Insurance Code of 1978 provides:

SECTION 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace period provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated
on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427
otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June
1963, which read:
SECTION 72. An insurer is entitled to payment of premium as soon as the thing
insured is exposed to the peril insured against, unless there is clear agreement to
grant the insured credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid. (Italic supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to
Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SECTION 78. Any acknowledgment in a policy or contract of insurance of the receipt
of premium is conclusive evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private respondent
intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in
1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted
all the installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting and
accepting the premiums, although paid on installments, and later deny liability on the
lame excuse that the premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the
Court of Appeals in its Resolution denying the motion for reconsideration of 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, We are not prepared to rule that the request to
make installment payments duly approved by the insurer would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. 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. Section
77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public
order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding
to allow insured to pay premiums in installments not so prescribed. At the very least,
both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for
the payment of the premium. This simply means that if the insurer has granted the insured a
credit term for the payment of the premium and loss occurs before the expiration of the term,
recovery on the policy should be allowed even though the premium is paid after the loss but
within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties. Article
1306 of the Civil Code provides:
ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not
be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for
the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking
refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then
is the fifth exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and
SET ASIDE, and a new one is hereby entered DENYING the instant petition for failure
of Petitioner to sufficiently show that a reversible error was committed by the Court of
Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.SO ORDERED.
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by
American International Underwriters (Phils.), Inc., respondent.
BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due
on an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612,
otherwise known as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the
thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner
Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452
on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March
1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March
1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by
private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP9210596, which replaced and renewed the previous policy, for a term covering 1 March 1983 to
1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13
April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All
payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this
renewed policy, petitioner made two installment payments, both accepted by private respondent,
the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05
for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AHCPP-9210651. 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, as well as the two (2) previous policies, stated the following reservations:
2. 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; and
3. Subject to no loss prior to premium payment. If there be any loss such is
not covered.
Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 198485, and in its answer with amended counterclaim, sought the refund of P924,206.10
representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, 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, 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, hence, it could not be said,
inspite of the reservations, that no risk attached under the policies.
Consequently, defendant's counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP9210651, 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, 1985. Therefore, the defendant was justified in refusing
to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals
rendered a decision 2 modifying that of the trial court by ordering herein petitioner to pay the
balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest
until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained
The obligation to pay premiums when due is ordinarily as indivisible
obligation to pay the entire premium. Here, the parties herein agreed to
make the premiums payable in installments, and there is no pretense that
the parties never envisioned to make the insurance contract binding
between them. It was renewed for two succeeding years, the second and
third policies being a renewal/replacement for the previous one. And the
insured never informed the insurer that it was terminating the policy
because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the
parties may not agree to make the insurance contract valid and binding
without payment of premiums, there is nothing in said section which
suggests that the parties may not agree to allow payment of the premiums
in installment, or to consider the contract as valid and binding upon payment
of the first premium. Otherwise, we would allow the insurer to renege on its
liability under the contract, had a loss incurred (sic) before completion of
payment of the entire premium, despite its voluntary acceptance of partial
payments, a result eschewed by a basic considerations of fairness and
equity.
To our mind, the insurance contract became valid and binding upon
payment of the first premium, and the plaintiff could not have denied liability
on the ground that payment was not made in full, for the reason that it
agreed to accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the insurance policies
for 1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the

Insurance Code, as amended, and by the conditions stipulated by the insurer in its receipts,
disclaiming liability for loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only be effective if
there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the
Insurance Code. The absence of an express acknowledgment in the policies of such receipt of
the corresponding premium payments, and petitioner's failure to pay said premiums on or before
the effective dates of said policies rendered them invalid. Petitioner thus concludes that there
cannot be a perfected contract of insurance upon mere partial payment of the premiums
because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a
consequence, petitioner seeks a refund of all premium payments made on the alleged invalid
insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. 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. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3)
years, the insurer accepted all the installment payments. Such acceptance of payments speaks
loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepared in full.
We therefore sustain the Court of Appeals. 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, We are not prepared to
rule that the request to make installment payments duly approved by the
insurer, would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment.

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.
Section 77 merely precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have
voluntarily accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in the case at
bar. In Arce, no payment was made by the insured at all despite the grace period given. In the
case before Us, petitioner paid the initial installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner
paid two (2) installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, 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. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate
court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund
of the premiums paid if the insurer was exposed to the risk insured for any period, however brief
or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is
AFFIRMED. Costs against petitioner.SO ORDERED.