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Philam v Pineda G.R. No.

L-54216 July 19, 1989


J. Paras
petition for review on certiorari
Facts:
On January 15, 1968, private respondent Pineda procured an ordinary life
insurance policy from the petitioner company and designated his wife and
children as irrevocable beneficiaries.
Under date February 22, 1980 - He then filed a petition to amend the
designation of the beneficiaries in his life policy from irrevocable to
revocable.
The judge granted the request.
PHILAM - Petitioner promptly filed a Motion for Reconsideration in an Order
June 10, 1980. Hence, this petition raising the following issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES
COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE
IRREVOCABLE BENEFICIARIES.
II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM
IS ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY
GIVE CONSENT TO THE CHANGE OR AMENDMENT IN THE DESIGNATION OF
THE IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in
issuing the questioned Orders.
This was denied.
Hence, this petition.
Issues:
1. WON the designation of the irrevocable beneficiaries could be changed or
amended without the consent of all the irrevocable beneficiaries.
2. WON the irrevocable minor beneficiaries could give consent to the change
in designation
Held: No to both. Petition dismissed.
Ratio: Needless to say, the applicable law in the instant case is the Insurance
Act, otherwise known as Act No. 2427 as amended, the policy having been
procured in 1968. Under the said law, the beneficiary designated in a life

insurance contract cannot be changed without the consent of the beneficiary


because he has a vested interest in the policy

Under the Insurance Act, the beneficiary designated in a life insurance


contract cannot be changed without the consent of the beneficiary because
he has a vested interest in the policy.
There was an express stipulation to this effect: It is hereby understood and
agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch
as
the
designation
of
the
primary/contingent
beneficiary/beneficiaries in this Policy has been made without reserving the
right to change said beneficiary/ beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no right or privilege
under the Policy may be exercised, or agreement made with the Company to
any change in or amendment to the Policy, without the consent of the said
beneficiary/beneficiaries.
The alleged acquiescence of the six (6) children beneficiaries of the policy
cannot be considered an effective ratification due to the fact that they were
minors. Neither could they act through their father insured since their
interests are quite divergent from one another.
Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract, for otherwise, the vested rights of the
irrevocable beneficiaries would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the
parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and effectivity
of contracts. Likewise, contracts which are the private laws of the contracting
parties should be fulfilled according to the literal sense of their stipulations,
for contracts are obligatory, no matter in what form they may be, whenever
the essential requisites for their validity are present
The change in the designation of was not within the contemplation of the
parties. The lower court instead made a new contract for them. It acted in
excess of its authority when it did so.

Intestate estate of the late Esperanza J. Villanueva. MARIANO J.


VILLANUEVA, claimant-appellant,
vs.
PABLO ORO, administrator.
FACTS:

West Coast Life Insurance Company issued 2 policies of insurance on


the life of Esperanza J. Villanueva:

2,000 php - maturing on April 1, 1943


if living, on the 1st day of April 1943 - to insured
upon death during the continuance of this policy - to the

beneficiary Bartolome Villanueva, father of the insured, with right on the


part of the insured to change the beneficiary
1940: Bartolome Villanueva died, Mariano J.

Villanueva duly substituted as beneficiary, a brother of the insured


3,000 php - maturing on March 31, 1943
Esperanza J. Villanueva survived the insurance period, for she died only

on October 15, 1944, without, however, collecting the insurance proceeds.


CFI: estate of the insured Esperanza is entitled to the insurance
proceeds

The West Coast Life Insurance Company issued two policies of insurance on
the life of Esperanza J. Villanueva, one for two thousand pesos and maturing
on April 1, 1943, and the other for three thousand pesos and maturing on
March 31, 1943. In both policies (with corresponding variation in amount and
date of maturity) the insurer agreed "to pay two thousand pesos, at the home
office of the Company, in San Francisco, California, to the insured hereunder,
if living, on the 1st day of April 1943, or to the beneficiary Bartolome
Villanueva, father of the insured, immediately upon receipt of due proof of the
prior death of the insured, Esperanza J. Villanueva, of La Paz, Philippine
Islands, during the continuance of this policy, with right on the part of the
insured to change the beneficiary.
After the death of Bartolome Villanueva in 1940, the latter was duly
substituted as beneficiary under the policies by Mariano J. Villanueva, a
brother of the insured. Esperanza J. Villanueva survived the insurance period,
for she died only on October 15, 1944, without, however, collecting the
insurance proceeds. Adverse claims for said proceeds were presented by the
estate of Esperanza J. Villanueva on the one hand and by Mariano J.
Villanueva on the other, which conflict was squarely submitted in the
intestate proceedings of Esperanza J. Villanueva pending in the Court of First
Instance of Iloilo. From an order, dated February 26, 1947, holding the estate
of the insured is entitled to the insurance proceeds, to the exclusion of the
beneficiary, Mariano J. Villanueva, the latter has interposed the present
appeal.
The lower court committed no error. Under the policies, the insurer obligated
itself to pay the insurance proceeds (1) to the insured if the latter lived on the
dates of maturity or (2) to the beneficiary if the insured died during the
continuance of the policies. The first contingency of course excludes the
second, and vice versa. In other words, as the insured Esperanza J. Villanueva
was living on April 1, and March 31, 1943, the proceeds are payable
exclusively to her estate unless she had before her death otherwise assigned
the matured policies. (It is not here pretended and much less proven, that

there was such assignment.) The beneficiary, Mariano J. Villanueva, could be


entitled to said proceeds only in default of the first contingency. To sustain
the beneficiary's claim would be altogether eliminate from the policies the
condition that the insurer "agrees to pay . . . to the insured hereunder, if
living".

ISSUE: W/N the estate of insured Esperanza should be entitled to the


insurance proceeds since she outlived the insurance policy

HELD: YES. appealed order is, therefore, hereby affirmed

To sustain the beneficiary's claim would be altogether eliminate from

the policies the condition that the insurer "agrees to pay . . . to the
insured hereunder, if living
Upon the insured's death, within the period, the beneficiary will take,
as against the personal representative or the assignee of the insured.
Upon the other hand, if the insured survives the endowment period, the
benefits are payable to him or to his assignee, notwithstanding a
beneficiary is designated in the policy

Harvardian Colleges v Country Bankers (CA)


Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso
Yap, Virginia King Yap and their children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian
to insure its school building. Although at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed
to insure the same for P500,000 for which Harvardian paid an annual
premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance
policy. On March 12, 1980, (39 days before I was born hehehehe )during
the effectivity of said insurance policy, the insured property was totally
burned rendering it a total loss.
> A claim was made by plaintiff upon defendant but defendant denied it
contending that plaintiff had no insurable interest over the building

constructed on the piece of land in the name of the late Ildefonso Yap as
owner.
> It was contended that both the lot and the building were owned by
Ildefonso Yap and NOT by the Harvardian Colleges.

Issue:
Whether or not Harvardian colleges has a right to the proceeds.

Held:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have
title to the property insured, the contract of fire insurance should still be
upheld if his interest in or his relation to the property is such that he will be
benefited in its continued existence or suffer a direct pecuniary loss from its
destruction or injury. The test in determining insurable interest in property is
whether one will derive pecuniary benefit or advantage from its preservation,
or will suffer pecuniary loss or damage from its destruction, termination or
injury by the happening of the event insured against.

Here Harvardian was not only in possession of the building but was in fact
using the same for several years with the knowledge and consent of Ildefonso
Yap. It is reasonably fair to assume that had the building not been burned,
Harvardian would have been allowed the continued use of the same as the
site of its operation as an educational institution. Harvardian therefore would
have been directly benefited by the preservation of the property, and
certainly suffered a pecuniary loss by its being burned.

Gaisano v Insurance G.R. No. 147839 June 8, 2006


J. Martinez
Facts:
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent
fire insurance policies with book debt endorsements. The insurance policies
provide for coverage on "book debts in connection with ready-made clothing

materials which have been sold or delivered to various customers and dealers
of the Insured anywhere in the Philippines."
The policies defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered
under this Policy." The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months from
the date of the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their books
of accounts as unpaid and thus become receivable item from their customers
and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and
delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It
alleges that IMC and LSPI were paid for their claims and that the unpaid
accounts of petitioner on the sale and delivery of ready-made clothing
materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that
the fire was purely accidental; that the cause of the fire was not attributable
to the negligence of the petitioner. Also, it said that IMC and LSPI retained
ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered
Gaisano to pay Insurance the P 2 million and the P 500,000 the latter paid to
IMC and Levi Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as
one covering the unpaid accounts of IMC and LSPI since such insurance
applies to loss of the ready-made clothing materials sold and delivered to
petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of
the goods by stipulating in the sales invoices that "[i]t is further agreed that
merely for purpose of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until the purchase
price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts

4. WON it has been established that petitioner has outstanding accounts with
IMC and LSPI.
Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly
granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject
of the insurance is the goods sold and delivered to the customers and dealers
of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the loss through fire, and not
the loss or destruction of the goods delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for
the buyer, in pursuance of the contract and the ownership in the goods has
been retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the
time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay
its debt, the risk of loss is borne by the buyer. Petitioner bears the risk of loss
of the goods delivered.
IMC and LSPI had an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest
in property, whether real or personal, or any relation thereto, or liability in
respect thereof, of such nature that a contemplated peril might directly
damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction. Indeed, a vendor or seller
retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction,
as where he has a vendor's lien. In this case, the insurable interest of IMC and

LSPI pertain to the unpaid accounts appearing in their Books of Account 45


days after the time of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous
event under Article 117432 of the Civil Code is misplaced. As held earlier,
petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his
liability. The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and
there is no stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic
thing, the loss or destruction of anything of the same kind does not
extinguish the obligation." This rule is based on the principle that the genus
of a thing can never perish. An obligation to pay money is generic; therefore,
it is not excused by fortuitous loss of any specific property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim.
The P 3 m claim has been proven. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the insurance claim.
The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract.
As to LSPI, respondent failed to present sufficient evidence to prove its cause
of action. There was no evidence that respondent has been subrogated to
any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of P535,613.00.
G.R. No. 161713.August 20, 2008
LEPANTO CONSOLIDATED MINING COMPANY, petitioner, vs. LEPANTO LOCAL
STAFF UNION, respondent.
CARPIO,J.:
Facts:

*Note: this case involves interpretation of CBA.


ARTICLE VIIINIGHT SHIFT DIFFERENTIAL
Section3.Night Differential pay.The Company shall continue to pay
nightshift differential for work during the first and third shifts to all covered
employees within the bargaining unit as follows:
For the First Shift (11:00 p.m. to 7:00 a.m.), the differential pay will be 20% of
the basic rate. For the Third Shift (3:00 p.m. to 11:00 p.m.), the differential
pay will be 15% of the basic rate.
However, for overtime work, which extends beyond the regular day shift
(7:00 a.m. to 3:00 p.m.), there [will] be no night differential pay added before
the overtime pay is calculated.
ARTICLEXIIRIGHTS, PRIVILEGES AND OTHER BENEFITS
Section9.Longevity pay.The company shall grant longevity pay of
P30.00 per month effective July 1, 1998 and every year thereafter.
During the effectivity of the first three CBAs, petitioner paid night shift
differentials to other workers who were members of respondent for work
performed beyond 3:00 p.m. Petitioner also paid night shift differential for
work beyond 3:00 p.m. during the effectivity of the 4th CBA. However,
petitioner alleges that the payment of night shift differential for work
performed beyond 3:00 p.m. during the 4th CBA was a mistake on the part of
its accounting department.
Respondent Union filed a complaint with the National Conciliation and
Mediation Board, alleging that petitioner failed to pay the night shift
differential and longevity pay of respondents members as provided in the 4th
CBA. Petitioner and respondent failed to amicably settle the dispute so they
agreed to submit the issue to a voluntary arbitrator (VA).
VA ruled in favor of respondent (Union) that the inclusion of paragraph
3, Section 3, Article VIII of the 4th CBA disclosed the intent of the parties to
grant night shift differential benefits to employees who rendered work beyond
the regular day shift. The Voluntary Arbitrator ruled that if the intention were
otherwise, paragraph 3 would have been deleted.
CA affirmed VA and held that petitioners act disclosed the parties
intent to include employees in the second shift in the payment of night shift
differential.
Issue:
The issue is whether workers are entitled to night shift differential for
work performed beyond the regular day shift, from 7:00 a.m. to 3:00 p.m.
Held.

YES. SC affirmed CA. The first paragraph of Section 3 provides that


petitioner shall continue to pay night shift differential to workers of the first
and third shifts. It does not provide that workers who performed work beyond
the second shift shall not be entitled to night shift differential. The inclusion
of the third paragraph is not intended to exclude the regular day shift workers
from receiving night shift differential for work performed beyond 3:00 p.m. It
only provides that the night shift differential pay shall be excluded in the
computation of the overtime pay.
The CA correctly ruled that petitioner failed to present any convincing
evidence to prove that the payment was erroneous. In fact, the Court of
Appeals found that even after the promulgation of the Voluntary Arbitrators
decision and while the case was pending appeal, petitioner still paid night
shift differential for work performed beyond 3:00 p.m. It affirms the intention
of the parties to the CBA to grant night shift differential for work performed
beyond 3:00 p.m.
Doctrines:
The terms and conditions of a collective bargaining contract constitute
the law between the parties. If the terms of the CBA are clear and have no
doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall prevail.
In order to ascertain the intention of the contracting parties, the
Voluntary Arbitrator shall principally consider their contemporaneous and
subsequent acts as well as their negotiating and contractual history and
evidence of past practices.
Mrs. Henry Harding vs Commercial Union Assurance Company
In February 1916, Mrs. Harding applied for car insurance for a Studebaker she
received as a gift from her husband. She was assisted by Smith, Bell, and Co.
which

was

the

duly

authorized

representative

(insurance

agent)

of

Commercial Union Assurance Company in the Philippines. The cars value was
estimated with the help of an experienced mechanic (Mr. Server) of the
Luneta Garage. The car was bought by Mr. Harding for P2,800.00. The
mechanic, considering some repairs done, estimated the value to be at
P3,000.00. This estimated value was the value disclosed by Mrs. Harding to
Smith, Bell, and Co. She also disclosed that the value was an estimate made
by Luneta Garage (which also acts as an agent for Smith, Bell, and Co).
In March 1916, a fire destroyed the Studebaker. Mrs. Harding filed an
insurance claim but Commercial Union denied it as it insisted that the
representations and averments made as to the cost of the car were false; and
that said statement was a warranty. Commercial Union also stated that the

car does not belong to Mrs. Harding because such a gift [from her husband] is
void under the Civil Code.
ISSUE: Whether or not Mrs. Harding is entitled to the insurance claim.
HELD: Yes. Commercial Union is not the proper party to attack the validity of
the gift made by Mr. Harding to his wife.
The statement made by Mrs. Harding as to the cost of the car is not a
warranty. The evidence does not prove that the statement is false. In fact, the
evidence shows that the cost of the car is more than the price of the
insurance. The car was bought for P2,800.00 and then thereafter, Luneta
Garage made some repairs and body paints which amounted to P900.00. Mr.
Server attested that the car is as good as new at the time the insurance was
effected.
Commercial Union, upon the information given by Mrs. Harding, and after an
inspection of the automobile by its examiner, having agreed that it was worth
P3,000, is bound by this valuation in the absence of fraud on the part of the
insured. All statements of value are, of necessity, to a large extent matters of
opinion, and it would be outrageous to hold that the validity of all valued
policies must depend upon the absolute correctness of such estimated value.
Lampano v Jose, GR L-9401, 30 March 1915
FACTS:

Mariano R. Barretto, constructed a house for Placida A. Jose sold the

house to Antonina Lampano for P6,000


The house was destroyed by fire during which Lampano still owed Jose

P2,000 as evidenced by a promissory note. Jose also owed Barretto


P2,000 for the construction.
After the completion of the house and before it was destroyed, Mariano

R. Barretto took out an insurance policy upon it in his own name, with the
consent of Placida A. Jose, for the sum of P4,000. After its destruction, he
collected P3,600 from the insurance company, having paid in premiums
the sum of P301.50
Lampano filed a complaint against Barreto and Jose alleging that Jose

in a verbal agreement told her that the policy will be delivered to her so
she should collected P3,600 from each of them
RTC: favored Jose ordering Barreto to pay him P1,298.50 and offsetting

the P2,000
Barreto alone appealed

ISSUE: W/N Barreto had insurable interest in the house and could insure it for
his it for his own protection
HELD: YES. reversed and Barretto is absolved

Where different persons have different interests in the same property,

the insurance taken by one in his own right and in his own interest does
not in any way insure to the benefit of another
A contract of insurance made for the insurer's (insured) indemnity only,

as where there is no agreement, express or implied, that it shall be for the


benefit of a third person, does not attach to or run with the title to the
insured property on a transfer thereof personal as between the insurer
and the insured.
Barretto had an insurable interest in the house. He construed the
building, furnishing all the materials and supplies, and insured it after it
had been completed

Lopez V. Del Rosario And Quiogue (1922)


Lessons Applicable: Carrier or Depositary (Insurance)

FACTS:

Benita Quiogue de V. del Rosario (Mrs. del Rosario), owner of a bonded

warehouse where Froilan Lopez, holder or 14 waehouse receipts and Elias


Zamora had their copra deposited
The warehouse recipts states an insurance of 1% their declared value

which can be increase or decrease by giving 1 month's notice in writing


Lopez paid the insurance to May 18, 1920, but not thereafter

June 6, 1920: the warehouse was destroyed by fire. Only copra worth

P49,985 was salvaged. At that time Lopez was still liable for the storage
and insurance of P315.90
Mrs. Del Rosario submitted the insurance with the arbitrators and

seems to have satisfied all of the persons who had copra stored in her
warehouse, including the stockholders in the Compaia Coprera de
Tayabas (whose stock she took over), with the exception of Froilan Lopez
Ineffectual attempts by Mrs. Del Rosario to effect a compromise with

Lopez first for P71,994, later raised to P72,724, and finally reduced to
P17,000, were made. But Lopez stubbornly contended, or, at least, his
attorney contended for him, that he should receive not a centavo less
than P88,595.43 (from originally P107,990.40)
ISSUE: W/N Mrs. Del Rosario should be held liable to Lopez even if he has not
paid the insurance at the time of the fire

HELD: YES. entitled to P88,595.43 minus P7,185.88, his share of the


expenses, minus P315.90, due for insurance and storage, or approximately a
net amount of P81,093.65, with legal interest
San Miguel Brewery V. Law Union And Rock Insurance Co. (1920)
Lessons Applicable:

Mortgagor (Insurance)
Measure of Insurable Interest (Insurance)

Effect of Change of Interest in Thing Insured (Insurance)


Effect of transfer of thing insured (Insurance)

Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of
the Insurance Code (all old law)

FACTS:

In the contract of mortgage, the owner P.D. Dunn had agreed, at his

own expense, to insure the mortgaged property for its full value and to
indorse the policies in such manner as to authorize the Brewery Company
to receive the proceeds in case of loss and to retain such part thereof as
might be necessary to satisfy the remainder then due upon the mortgage
debt. Instead, however, of effecting the insurance himself Dunn
authorized and requested the Brewery Company to procure insurance on
the property in the amount of P15,000 at Dunn's expense.
San Miguel insured the property only as mortgagee.
Dunn sold the propert to Henry Harding. The insurance was not

assigned by Dunn to Harding.


When it was destroyed by fire, the two companies settled with San

Miguelto the extent of the mortgage credit.


RTC: Absolved the 2 companies from the difference. Henry Harding is

not entitled to the difference between the mortgage credit and the face
value of the policies.
Henry Harding appealed.

ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of
the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO

HELD: affirmed

section 19 of the Insurance Act:

a change of interest in any part of a thing insured

unaccompanied by a corresponding change of interest in the insurance,


suspends the insurance to an equivalent extent, until the interest in the
thing and the interest in the insurance are vested in the same person
section 55:

the mere transfer of a thing insured does not transfer the policy,

but suspends it until the same person becomes the owner of both the
policy and the thing insured
Undoubtedly these policies of insurance might have been so framed as

to have been "payable to the San Miguel Brewery, mortgagee, as its


interest may appear, remainder to whomsoever, during the continuance
of the risk, may become the owner of the interest insured." (Sec 54, Act
No. 2427.) Such a clause would have proved an intention to insure the
entire interest in the property, not merely the insurable interest of the San
Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
The blame for the situation thus created rests, however, with the

Brewery rather than with the insurance companies, and there is nothing in
the record to indicate that the insurance companies were requested to
write insurance upon the insurable interest of the owner or intended to
make themselves liable to that extent
If by inadvertence, accident, or mistake the terms of the contract were

not fully set forth in the policy, the parties are entitled to have it
reformed. But to justify the reformation of a contract, the proof must be
of the most satisfactory character, and it must clearly appear that the
contract failed to express the real agreement between the parties
In the case now before us the proof is entirely insufficient to authorize
reformation.

Spouses CHA and UNITED v. CA and CKS (August 18,1997)


FACTS: Petitioner-spouses, as lessess, entered into a lease contract with
private respondent CKS Development Corporation (CKS), as lessor. One of
the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or
space in the leased premises without first obtaining the written consent
and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof

without the consent of the LESSOR then the policy is deemed assigned
and transferred to the LESSOR for its own benefit; x x x 1

Notwithstanding the above stipulation in the lease contract, the


spouses insured against loss by fire their merchandise inside the
leased premises for 500K with the United Insurance Co., Inc. (United)
without the written consent of private respondents CKS.

On the day that the lease contract was to expire, fire broke out inside
the leased premises.

When CKS learned of the insurance earlier procured by the spouses


(without its consent), it wrote the United a demand letter asking that
the proceeds of the insurance contract (between the Cha spouses and
United) be paid directly to CKS, based on its lease contract with Cha
spouses.

United refused to pay CKS. Hence, the latter filed a complaint against
the spouses and United.

The RTC rendered a decision ordering United to pay CKS . the CA


affirmed the trial court decision. MR denied, hence this petition

ISSUE: WON the aforequoted paragraph 18 of the lease contract


entered into between CKS and the spouses is valid insofar as it
provides that any fire insurance policy obtained by the spouses is
deemed assigned or transferred to the CKS if said policy is obtained
without the prior written of the latter.

HELD: NO; the provision is void, as against public policy

It is basic in the law on contracts that the stipulations contained in a


contract cannot be contrary to law, morals, good customs, public order
or public policy.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be


enforceable except for the benefit of some person having an insurable
interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by


petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The
basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the


payment of loss, whether the person insured has or has not any
interest in the property insured, or that the policy shall be received as
proof of such interest, and every policy executed by way of gaming or
wagering, is void.

In the present case, it cannot be denied that CKS has no insurable


interest in the goods and merchandise inside the leased premises

under the provisions of Section 17 of the Insurance Code which


provide.

Section 17. The measure of an insurable interest in property is the


extent to which the insured might be damnified by loss of injury
thereof.

United) cannot be compelled to pay the proceeds of the fire insurance


policy to a person (CKS) who has no insurable interest in the property
insured

The liability of the spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct
issue which we do not resolve in this case.

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)


Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation

entered a 1 year lease contract with a stipulation not to insure against fire
the chattels, merchandise, textiles, goods and effects placed at any stall
or store or space in the leased premises without first obtaining the written
consent and approval of the lessor. But it insured against loss by fire their
merchandise inside the leased premises for P500,000 with the United
Insurance Co., Inc. without the written consent of CKS
On the day the lease contract was to expire, fire broke out inside the
leased premises and CKS learning that the spouses procured an insurance
wrote to United to have the proceeds be paid directly to them. But United
refused so CKS filed against Spouses Cha and United.

RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to

pay P50,000 as exemplary damages, P20,000 as attorneys fees and costs


of suit
CA: deleted exemplary damages and attorneys fees

ISSUE: W/N the CKS has insurable interest because the spouses Cha violated
the stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

Sec. 18. No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an insurable


interest in the property insured
A non-life insurance policy such as the fire insurance policy taken by

petitioner-spouses over their merchandise is primarily a contract of


indemnity. Insurable interest in the property insured must exist a t the
time the insurance takes effect and at the time the loss occurs. The basis
of such requirement of insurable interest in property insured is based on
sound public policy: to prevent a person from taking out an insurance
policy on property upon which he has no insurable interest and collecting
the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25
of the Insurance Code.
SECTION 25. Every stipulation in a policy of Insurance for the payment

of loss, whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is void
Section 17. The measure of an insurable interest in property is the

extent to which the insured might be damnified by loss of injury thereof


The automatic assignment of the policy to CKS under the provision of
the lease contract previously quoted is void for being contrary to law
and/or public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses. The liability of the Cha spouses to CKS
for violating their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the consent of CKS,
is a separate and distinct issue which we do not resolve in this case.

Tai Tong Chuache & Co. V. Insurance Commission (1988) - February 29,
1988
Lessons Applicable: When Insurable Interest Must Exist (Insurance)
FACTS:

Azucena Palomo bought a parcel of land and building from Rolando

Gonzales and assumed a mortgage of the building in favor of S.S.S. which


was insured with S.S.S. Accredited Group of Insurers
April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache

Inc. in the amount of P100,000 and to secure it, the land and building was
mortgaged
June 11, 1975: Pedro Palomo secured a Fire Insurance Policy covering

the building for P50,000 with Zenith Insurance Corporation


July 16, 1975: another Fire Insurance policy was procured from

Philippine British Assurance Company, covering the same building for


P50,000 and the contents thereof for P70,000
Before the occurrence of the peril insured against the Palomos had

already paid their credit due the


July 31, 1975: building and the contents were totally razed by fire
Palomo was able to claim P41,546.79 from Philippine British Assurance

Co., P11,877.14 from Zenith Insurance Corporation and P5,936.57 from


S.S.S. Group of Accredited Insurers but Travellers Multi-Indemnity refused
so it demanded the balance from the other three but they refused so they
filed against them
Insurance Commission, CFI: absolved Travellers on the basis that

Arsenio Cua was claiming and NOT Tai Tong Chuache


Palomo Appealed
Travellers reasoned that the policy is endorsed to Arsenio Chua,

mortgage creditor
Tai Tong Chuache & Co. filed a complaint in intervention claiming
the proceeds of the fire Insurance Policy issued by travellers
affirmative defense of lack of insurable interest that before the

occurrence of the peril insured against the Palomos had already paid their
credit due the petitioner
ISSUE: W/N Tai Tong Chuache & Co. has insurable interest

HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache &
Co.

when the creditor is in possession of the document of credit, he need

not prove non-payment for it is presumed


The validity of the insurance policy taken b petitioner was not

assailed by private respondent. Moreover, petitioner's claim that the loan


extended to the Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted to herein
petitioner
Chua being a partner of petitioner Tai Tong Chuache & Company is an

agent of the partnership. Being an agent, it is understood that he acted


for and in behalf of the firm
Upon its failure to prove the allegation of lack of insurable interest on
the part of the petitioner, Travellers must be held liable

Bachrach V. British American Assurance Co. (1910)

G.R. No. L-5715 December 20, 1910


Lessons Applicable: Effect of Change of Interest in Thing Insured (Insurance)
Laws Applicable:

FACTS:

E. M. Bachrach insured goods belonging to a general furniture store,

such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus,
washstands, mirrors, and sea-grass furniture stored in the ground floor
and first story of house and dwelling with an authorized agent of the
British American Assurance Company
British American Assurance Company denied alleging that:
property covered by the policy to H. W. Peabody & Co. to secure

certain indebtedness due and owing to said company


interest in certain of the goods covered by the said policy is
trasnferred to Macke to secure certain obligations assumed by Macke and
on behalf of Bachrach

willfully placed a gasoline can containing 10 gallons of gasoline

close to the insured goods


made no proof of the loss with the time required by the

condition
RTC: British American Assurance Company liable to bACHRACH

ISSUE: W/N Bachrach can claim

HELD: YES. lower court affirmed

keeping of inflammable oils on the premises, though prohibited by the

policy, does not void it if such keeping is incidental to the business


It may be added that there was no provision in the policy prohibiting

the keeping of paints and varnishes upon the premises where the insured
property was stored. If the company intended to rely upon a condition of
that character, it ought to have been plainly expressed in the policy.
alienation clause - forfeiture if the interest in the property pass from

the insured
there is no alienation within the meaning of the insurance law until the

mortgage acquires a right to take possession by default under the terms


of the mortgage. No such right is claimed to have accrued in the case at
bar, and the alienation clause is therefore inapplicable.
we can not find that there is a preponderance of evidence showing that

the plaintiff did actually set fire or cause fire to be set to the goods in
question
It does not positively appear of record that the automobile in question
was not included in the other policies. It does appear that the automobile
was saved and was considered as a part of the salvaged. It is alleged that
the salvage amounted to P4,000, including the automobile. This amount
(P4,000) was distributed among the different insurers and the amount of
their responsibility was proportionately reduced. The defendant and
appellant in the present case made no objection at any time in the lower
court to that distribution of the salvage. The claim is now made for the
first time.

San Miguel Brewery V. Law Union And Rock Insurance Co. (1920)
G.R. No. L-14300 January 19, 1920

Lessons Applicable:

Mortgagor (Insurance)

Measure of Insurable Interest (Insurance)

Effect of Change of Interest in Thing Insured (Insurance)

Effect of transfer of thing insured (Insurance)


Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of
the Insurance Code (all old law)

FACTS:

In the contract of mortgage, the owner P.D. Dunn had agreed, at his

own expense, to insure the mortgaged property for its full value and to
indorse the policies in such manner as to authorize the Brewery Company
to receive the proceeds in case of loss and to retain such part thereof as
might be necessary to satisfy the remainder then due upon the mortgage
debt. Instead, however, of effecting the insurance himself Dunn
authorized and requested the Brewery Company to procure insurance on
the property in the amount of P15,000 at Dunn's expense.
San Miguel insured the property only as mortgagee.
Dunn sold the propert to Henry Harding. The insurance was not

assigned by Dunn to Harding.


When it was destroyed by fire, the two companies settled with San

Miguelto the extent of the mortgage credit.


RTC: Absolved the 2 companies from the difference. Henry Harding is

not entitled to the difference between the mortgage credit and the face
value of the policies.
Henry Harding appealed.

ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of
the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO

HELD: affirmed

section 19 of the Insurance Act:

a change of interest in any part of a thing insured


unaccompanied by a corresponding change of interest in the insurance,

suspends the insurance to an equivalent extent, until the interest in the


thing and the interest in the insurance are vested in the same person
section 55:
the mere transfer of a thing insured does not transfer the policy,

but suspends it until the same person becomes the owner of both the
policy and the thing insured
Undoubtedly these policies of insurance might have been so framed as

to have been "payable to the San Miguel Brewery, mortgagee, as its


interest may appear, remainder to whomsoever, during the continuance
of the risk, may become the owner of the interest insured." (Sec 54, Act
No. 2427.) Such a clause would have proved an intention to insure the
entire interest in the property, not merely the insurable interest of the San
Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
The blame for the situation thus created rests, however, with the

Brewery rather than with the insurance companies, and there is nothing in
the record to indicate that the insurance companies were requested to
write insurance upon the insurable interest of the owner or intended to
make themselves liable to that extent
If by inadvertence, accident, or mistake the terms of the contract were

not fully set forth in the policy, the parties are entitled to have it
reformed. But to justify the reformation of a contract, the proof must be
of the most satisfactory character, and it must clearly appear that the
contract failed to express the real agreement between the parties
In the case now before us the proof is entirely insufficient to authorize
reformation.

Argente v West Coast G.R. No. L-24899 March 19, 1928


J. Malcolm
Facts:
Bernardo Argente signed an application for joint insurance with his wife in the
sum of P2,000. The wife, Vicenta de Ocampo, signed for the same. All the
information contained in the applications was furnished the agent by
Bernardo Argente.
Argente was examined by Dr. Sta. Ana, a medical examiner for the West
Coast. The result was recorded in the Medical Examiner's Report, and with the
exception of the signature of Bernardo Argente, was in the hand-writing of

Doctor Sta. Ana. But the information or answers to the questions contained
on the face of the Medical Examiner's Report were furnished the doctor by
Argente.
Vicenta de Ocampo, wife of the plaintiff, was examined at her residence by
the same doctor.
The spouses submitted to West Coast Life an amended application, increasing
the amount to P15,000, and asked that the policy be dated May 15, 1925.
The amended application was accompanied by the documents entitled "Short
Form Medical Report." In both of these documents appear certain questions
and answers.
A temporary policy for P15,000 was issued to Bernardo Argente and his wife
as of May 15, but it was not delivered until the first quarterly premium on the
policy was paid. More than thirty days had elapsed since the applicants were
examined. Each of them was required to file a certificate of health before the
policy was delivered.
Vicenta de Ocampo died of cerebral apoplexy. Argente presented a claim in
due form to the West Coast Life Insurance Co. for the payment of the sum of
P15,000. It was apparently disclosed that the answers given by the insured in
their medical examinations with regard to their health were untrue. West
Coastrefused to pay the claim and wrote Argente to the effect that the claim
was rejected due to fraud.
The trial court held the policy null and void, hence this appeal.
Issue: WON Argente and Ocampo were guilty of concealment and thereby
misled the insurer into accepting the risk?
Held: Yes. Petition dismissed.
Ratio:
Vicenta de Ocampo, in response to the question asked by the medical
examiner, answered no to "Have you ever consulted a physician for or have
you ever suffered from any ailment or disease of the brain or nervous
system?" She also answered none as to the question whether she
consumed alcohol of not.
To the question, "What physician or physicians, if any, not named above,
have you consulted or been treated by, within the last five years and for what
illness or ailment?" she answered "None."
But the facts show that she was taken to San Lazaro Hospital, her case was
diagnosed by the admitting physician as "alcoholism, moreover, she was
diagnosed with "phycho-neurosis."
Section 25 of the Insurance Code defined concealment as "a neglect to
communicate that which a party knows and ought to communicate."
The court held that the alleged concealment was not immaterial and
insufficient to avoid the policy. In an action on a life insurance policy where

the evidence conclusively shows that the answers to questions concerning


diseases were untrue, the truth of falsity of the answers become the
determining factor. If the true facts been disclosed by the assured, the
insurance would never have been granted.
Concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld. If no inquiries
are made and no fraud or design to conceal enters into the concealment the
contract is not avoided.
The assurer is entitled to know every material fact of which the assured has
exclusive or peculiar knowledge, as well as all material facts which directly
tend to increase the hazard or risk which are known by the assured, or which
ought to be or are presumed to be known by him. And a concealment of such
facts vitiates the policy.
If the assured has exclusive knowledge of material facts, he should fully and
fairly disclose the same, whether he believes them material or not. The
determination of the point whether there has or has not been a material
concealment must rest largely in all cases upon the exact terms of the
contract.
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs. HONORABLE
COURT OF APPEALS, respondents.
G.R. No. L-31845
April 30, 1979
LAPULAPU D. MONDRAGON, petitioner, vs. HON. COURT OF APPEALS and NGO
HING, respondents.
G.R. No. L-31878
April 30, 1979
Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific
Life Assurance Company (Pacific Life) for a twenty-year endowment policy in
the life of Helen Go, his one year old daughter. Petitioner Lapulapu D.
Mondragon, the branch manager, prepared application form using the
essential data supplied by respondent. The latter paid the annual premium
and Mondragon retained a portion of it as his commission. The binding
deposit receipt was issued to respondent. Mondragon wrote his strong
recommendation for the approval of the insurance application. However,
Pacific Life disapproved the application since the plan was not available for
minors below 7 years old but it can consider the same under another plan.
The non-acceptance of the insurance plan was allegedly not communicated
by Mondragon to respondent. Mondragon again asserted his strong
recommendation. Helen Go died of influenza. Thereupon, respondent sought
the payment of the proceeds of the insurance, but having failed in his effort,
he filed an action for the recovery of the same. Hence the case at bar.

Issue: Whether the binding deposit receipt constituted a temporary contract


of the life insurance in question, and thus negate the claim that the insurance
contract was perfected.
Held: YES. The provisions printed on the binding deposit receipt 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 refunded; and (3) that if the applicant is not insurable 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 Pacific Life disapproved the insurance application of Ngo Hing, the
binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt is, manifestly, merely
conditional and does not insure outright. 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. It bears repeating that through the intra-company communication of 30
April 1957, Pacific Life disapproved the insurance application in question on
the ground that it is not offering the 20-year endowment insurance policy to
children less than 7 years of age. What it offered instead is another plan
known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the
absence of a meeting of the minds between Pacific Life and 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 them.
Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific
Life.
Estefania Saturnino vs The Philippine American Life Insurance Company
7 SCRA 316 Mercantile Law Insurance Law Representation
Concealment Misrepresentation Fraud

In September 1957, Estefania Saturnino was operated for cancer in which her
right breast was removed. She was advised by her surgeon that shes not
totally cured because her cancer was malignant. In November 1957, she
applied for an insurance policy under Philamlife (Philippine American Life
Insurance Company). She did not disclose the fact that she was operated nor
did she disclose any medical histories. Philamlife, upon seeing the clean bill
of health from Estefania waived its right to have Estefania undergo a medical
checkup. In September 1958, Estefania died of pneumonia secondary to
influenza. Her heirs now seek to enforce the insurance claim.
ISSUE: Whether or not Saturnino is entitled to the insurance claim.
HELD: No. The concealment of the fact of the operation is fraudulent. Even if,
as argued by the heirs, Estefania never knew she was operated for cancer,
there is still fraud in the concealment no matter what the ailment she was
operated for. Note also that in order to avoid a policy, it is not necessary that
actual fraud be established otherwise insurance companies will be at the
mercy of any one seeking insurance.
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.
Also, the fact that Philamlife waived its right to have Estefania undergo a
medical examination is not negligence. Because of Estefanias concealment,
Philamlife considered medical checkup to be no longer necessary. Had
Philamlife been informed of her operation, she would have been made to
undergo medical checkup to determine her insurability.

Vda Canilang v CA G.R. No. 92492 June 17, 1993


J. Feliciano
Facts:
Canilang was found to have suffered from sinus tachycardia then bronchitis
after a check-up from his doctor. The next day, he applied for a "non-medical"

insurance policy with respondent Grepalife naming his wife, Thelma Canilang,
as his beneficiary. This was to the value of P19,700.
He died of "congestive heart failure," "anemia," and "chronic anemia." The
widow filed a claim with Great Pacific which the insurer denied on the ground
that the insured had concealed material information from it.
Petitioner then filed a complaint against Great Pacific for recovery of the
insurance proceeds. Petitioner testified that she was not aware of any serious
illness suffered by her late husband and her husband had died because of a
kidney disorder. The doctor who gave the check up stated that he treated the
deceased for sinus tachycardia and "acute bronchitis."
Great Pacific presented a physician who testified that the deceased's
insurance application had been approved on the basis of his medical
declaration. She explained that as a rule, medical examinations are required
only in cases where the applicant has indicated in his application for
insurance coverage that he has previously undergone medical consultation
and hospitalization.
The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal
interest and P2,000.00 as attorney's fees. On appeal by Great Pacific, the
Court of Appeals reversed. It found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment constituted material
information which should have been communicated to Great Pacific to enable
the latter to make proper inquiries.
Hence this petition by the widow.
Issue: Won Canilang was guilty of misrepresentation
Held: Yes. Petition denied.
Ratio:
There was a right of the insurance company to rescind the contract if it was
proven that the insured committed fraud in not affirming that he was treated
for heart condition and other ailments stipulated.
Apart from certifying that he didnt suffer from such a condition, Canilang
also failed to disclose in the that he had twice consulted a doctor who had
found him to be suffering from "sinus tachycardia" and "acute bronchitis."
Under the Insurance Code:
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the
other, in good faith, all factors within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has not
the means of ascertaining.

The information concealed must be information which the concealing party


knew and should have communicated. The test of materiality of such
information is contained in Section 31:
Sec. 31. 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 disadvantages of the
proposed contract, or in making his inquiries.
The information which Jaime Canilang failed to disclose was material to the
ability of Great Pacific to estimate the probable risk he presented as a subject
of life insurance. Had he disclosed his visits to his doctor, the diagnosis made
and medicines prescribed by such doctor, in the insurance application, it may
be reasonably assumed that Great Pacific would have made further inquiries
and would have probably refused to issue a non-medical insurance policy.
Materiality relates rather to the "probable and reasonable influence of the
facts" upon the party to whom the communication should have been made, in
assessing the risk involved in making or omitting to make further inquiries
and in accepting the application for insurance; that "probable and reasonable
influence of the facts" concealed must, of course, be determined objectively,
by the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great Pacific to
convey certain information to the insurer was not "intentional" in nature, for
the reason that Canilang believed that he was suffering from minor ailment
like a common cold. Section 27 stated that:
Sec. 27. A concealment whether intentional or unintentional entitles the
injured party to rescind a contract of insurance.
The failure to communicate must have been intentional rather than
inadvertent. Canilang could not have been unaware that his heart beat would
at times rise to high and alarming levels and that he had consulted a doctor
twice in the two (2) months before applying for non-medical insurance.
Indeed, the last medical consultation took place just the day before the
insurance application was filed. In all probability, Jaime Canilang went to visit
his doctor precisely because of the ailment.
Canilang's failure to set out answers to some of the questions in the
insurance application constituted concealment.
THELMA VDA. DE CANILANG vs. COURT OF APPEALS G.R. No. 92492,
17 June 1993

FACTS:
Jaime Canilang applied for a non-medical insurance policy with respondent
Great Pacific Life Assurance Company naming his wife, Thelma Canilang as
his beneficiary. But he did not disclose the fact that he was diagnosed as

suffering from sinus tachycardia and that he has consulted a doctor twice.
Jaime was issued an ordinary life insurance policy with the face value of
P19,700.00. Jaime died of congestive heart failure, anemia, and chronic
anemia. Petitioner widow and beneficiary of the insured, filed a claim with
Great Pacific which the insurer denied upon the ground that the insured had
concealed material information from it. Hence, Thelma filed a complaint
against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds.
ISSUE: Whether or not the non-disclosure of certain facts about the insureds
previous health conditions is material to warrant the denial of the claims of
Thelma Canilang
HELD: YES. The SC agreed with the Court of Appeals that the information
which Jaime Canilang failed to disclose was material to the ability of Great
Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made
and medicines prescribed by such doctor, in the insurance application, it may
be reasonably assumed that Great Pacific would have made further inquiries
and would have probably refused to issue a non-medical insurance policy or,
at the very least, required a higher premium for the same coverage. The
materiality of the information withheld by Great Pacific did not depend upon
the state of mind of Jaime Canilang. A mans state of mind or subjective belief
is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief
may be reasonably drawn. Neither does materiality depend upon the actual
or physical events which ensure. Materiality relates rather to the probable
and reasonable influence of the facts upon the party to whom the
communication should have been made, in assessing the risk involved in
making or omitting to make further inquiries and in accepting the application
for insurance; that probable and reasonable influence of the facts
concealed must, of course, be determined objectively, by the judge
ultimately. WHEREFORE, the Petition for Review is DENIED for lack of merit
and the Decision of the Court of Appeals dated 16 October 1989 in C.A.-G.R.
SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.

Sunlife v CA G.R. No. 105135 June 22, 1995


J. Quiason
Facts:
Robert John B. Bacani procured a life insurance contract for himself from
Sunlife. He was issued a policy for P100,000.00, with double indemnity in
case of accidental death. The designated beneficiary was his mother,
Bernarda Bacani.

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.
Sunlife informed 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.
The deceased answered claimed that he consulted a Dr. Raymundo of the
Chinese General Hospital for cough and flu complications. The other
questions were answered in the negative.
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 tests.
Bernarda Bacani and her husband filed an action for specific performance
against petitioner with the RTC. The court ruled in favor of the spouses and
ordered Sunlife to pay P100,000.00.
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. The court also held that the medial history was
irrelevant because it wasnt medical insurance.
The Court of Appeals 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. Petitioner's motion for reconsideration was denied.
Hence, this petition.
Issue: WON the insured was guilty of misrepresentation which made the
contract void.
Held: Yes. Petition dismissed.
Ratio:
Section 26 of The Insurance Code required 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.
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 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.
Vda. de Canilang v. Court of Appeals- 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.
Good faith" is no defense in concealment. The insured's failure to disclose
the fact that he was hospitalized raises grave doubts about his eligibility.
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.
Saturnino v. Philippine American Life Insurance " . . . 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 . . . "
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 nondisclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries as held in Henson.
FACTS:
Robert John Bacani procured a life insurance contract for himself from
petitioner-company, designating his mother Bernarda Bacani, herein private
respondent, as the beneficiary. He was issued a policy valued at P100,000.00
with double indemnity in case of accidental death. Sometime after, the
insured died in a plane crash. Bernarda filed a claim with petitioner, seeking
the benefits of the insurance policy taken by her son. However, said
insurance company rejected the claim on the ground that the insured did not
disclose material facts relevant to the issuance of the policy, thus rendering
the contract of insurance voidable. 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.
The RTC, as affirmed by the CA, this fact was concealed, as alleged by the
petitioner. But the fact that was concealed was not the cause of death of the
insured and that matters relating to the medical history of the insured is
deemed to be irrelevant since petitioner waived the medical examination
prior to the approval and issuance of the insurance policy.
ISSUE: Whether or not the concealment of such material fact, despite it not
being the cause of death of the insured, is sufficient to render the insurance
contract voidable
HELD:
YES. 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. 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. The SC, therefore, ruled that
petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized
that rescission was exercised within the two-year contestability period as
recognized in Section 48 of The Insurance Code. WHEREFORE, the petition is
GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.
Yu v CA G.R. No. L-12465 May 29, 1959
J. Bautista
Facts:
Yu Pang Eng submitted application for insurance consisting of the medical
declaration made by him to the medical examiner and the report. Yu then
paid the premium in the sum of P591.70.
The insured, in his application for insurance, said no to ever having
stomach disease, cancer, and fainting-spells. He also claimed to not have
consulted a physician regarding such diseases.
After submitting the form, he entered the hospital where he complained of
dizziness, anemia, abdominal pains and tarry stools. He was found to have
peptic ulcer.

The insured entered another hospital for medical treatment but he died of
"infiltrating medullary carcinoma, Grade 4, advanced cardiac and of lesser
curvature, stomach metastases spleen."
Yu Pang Cheng aimed to collect P10,000.00 on life of one Yu Pang Eng from
an insurance company.
The company set up the defense that the insured was guilty of
misrepresentation and concealment of material facts. They subsequently
refused to give the indemnity.
The trial court rendered judgment ordering defendant to pay plaintiff the sum
of P10,000.00, plus P2,000.00 as attorney's fees. The Court of Appeals
reversed the decision of the trial court, holding that the insured was guilty of
concealment of material facts. Hence the present petition.
Issue: Whether or not the insured is guilty of concealment of some facts
material to the risk insured that consequently avoids the policy.
Held: Yes. Petition dismissed.
Ratio:
The first confinement took place from January 29, 1950 to February 11, while
his application was submitted on September 5, 1950. When he gave his
answers to the policy, he concealed the ailment of which he was treated in
the hospital.
The negative answers given by the insured regarding his previous ailment
deprived defendant of the opportunity to make the necessary inquiry as to
the nature of his past illness so that as it may form its estimate relative to the
approval of his application. Had defendant been given such opportunity, the
company would probably had never consented to the issuance of the policy in
question. In fact, according to the death certificate, the insureds death may
have direct connection with his previous illness.
Under the law, a neglect to communicate that which a party knows and ought
to communicate, is called concealment. This entitles the insurer to rescind
the contract. The insured is required to communicate to the insurer all facts
within his knowledge which are material to the contract and which the other
party has not the means of ascertaining. The 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.
Argente vs. West Coast- One ground for the rescission of a contract of
insurance under the insurance Act is "a concealment", which in section 25 is
defined "A neglect to communicate that which a party knows and ought to
communicate."
In an action on a life insurance policy where the evidence conclusively
shows that the answers to questions concerning diseases were untrue, the
truth or falsity of the answers become the determining factor. If the policy

was procured by fraudulent representations, the contract of insurance was


never legally existent. It can fairly be assumed that had the true facts been
disclosed by the assured, the insurance would never have been granted.
YU PANG CHENG v. CA
1959 / Bautista Angelo / Petition for review by certiorari of a CA decision
FACTS
On September 1950, Yu Pang Eng submitted his application for insurance to
an insurance company [defendant]. He answered no to questions on his
medical history (stomach diseases, dizziness,ulcers, vertigo, cancer, tumors,
etc.) as well as to the question of WON he consulted any physician regarding
said diseases. Upon payment of the first premium, the company issued to
him an insurance policy. On December 1950, he went to St. Lukes for
medical treatment but he died two months later. According to the death
certificate, he died of infiltrating medullary carcinoma, Grade 4, advanced
cardiac and of lesser curvature, stomach metastases spleen.
His brother and beneficiary, Yu Pang Cheng [petitioner], demanded
from the insurance company the payment of the policy proceeds [10k], but
his demand was refused so he brought the present action. The insurance
companys defense was that the insured was guilty of misrepresentation and
concealment of material facts in that he gave false and untruthful answers to
questions asked him in his application; hence, the effect is the avoiding of the
policy.
It appears that the insured entered the Chinese General Hospital for
medical treatment on January 1950 [before application for insurance policy],
complaining of dizziness, anemia, abdominal pains and tarry stools. His
illness history shows that this started a year ago as frequent dizziness. An xray picture of his stomach and the diagnosis was that he suffered from peptic
ulcer, bleeding.
INSURED IS GUILTY OF CONCEALMENT OF MATERIAL FACTS
Concealment is a neglect to communicate that which a party knows and
ought to communicate. Whether intentional or not, concealment entitles the
insurer to rescind the contract. The law requires the insured to communicate
to the insurer all facts within his knowledge which are material to the contract
and which the other party has not the means of ascertaining. The
materiality is determined not by the event but by the probable and
reasonable influence of the facts upon the party to whom the
communication is due.
The insureds negative answers to the questions on his previous
ailments, or his concealment of his hospitalization deprived the insurance
company of the opportunity to make the necessary inquiry as to the nature of
his past illness so that it may form its estimate relative to the approval of his
application. Had the insurance company been given such opportunity, it
would not probably consent to the policy issuance.
Ng v Asian Crusader G.R. No. L-30685 May 30, 1983
J. Escolin:

Facts:
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, Asian Crusader, upon receipt of the required premium from the
insured, approved the application and issued the corresponding policy. Kwong
Nam died of cancer of the liver with metastasis. All premiums had been paid
at the time of his death.
Ng Gan Zee presented a claim 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 in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner.
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. The company 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.
The lower court ruled against the company on lack of evidence.
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 company contended that he was operated on for
peptic ulcer 2 years before the policy was applied for and that he never
disclosed such an operation.
Issue: WON Asian Crusader was deceived into entering the contract or in
accepting the risk at the rate of premium agreed upon because of insured's
representation?
Held: No. Petition dismissed.
Ratio:
Section 27 of the Insurance Law:
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.
"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."
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."
Fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by satisfactory
and convincing evidence rests upon the defendant. The evidence before the
Court does not clearly and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical
examiner of the 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.
While the information communicated was imperfect, the same was sufficient
to have induced appellant to make further inquiries about the ailment and
operation of the insured.
Section 32 of Insurance Law:
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.
Where 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.
The company or its medical examiner did not make any further inquiries on
such matters from the hospital 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."

Colado v. Insular Life - Tender of Overdue Payments


51 OG (No 12) 6269
Facts:
> Vivencio Collado applied for an insurance contract with Insular life in
1948. His application was approved and he began started making premium
payments. However, he defaulted and the insurance was cancelled.

> He then applied for the reinstatement of his insurance policy in Nov. of
1951 and tendered the amount of premium for the years 1950-1951.
> He stated that he was as of Nov. 1951 of good health, and that he had no
injuries, ailments or illnesses and had not been sick for any case since 1948
(his medical check up when he applied for insurance) and that he had not
consulted any physician or practitioner for any case since the date of such
latest medical exam.
> However, when Vivencio applied for the reinstatement, he was already sick
of a fatal disease known as carcinoma of the liver and that 4 days prior to his
application for insurance, he consulted a doctor regarding his condition.
> The reinstatement was approved. Vivencio again failed to pay the
premiums for the last quarter of Nov. 1951 and as such, Insular life sent him
a notice canceling the policy.
> Vivencio then died. The beneificiaries instituted the present action to
recover from Insular life the death benefits of a life insurance policy valued at
2T. Insular refused to pay claiming concealment on the part of Vivencio.
> Collado contends that Insular life had waived the right to rescine the policy
in view of its repeated acceptance of the overdue premiums for the second
and third years.
> Municipal court of Manila found for Collado and Insular filed an appeal with
CFI of Manila. CFI rendered judgment in favor of Insular and dismissed
Collados complaint.

Issue:

Whether or nor Insular life was estopped and could no longer cancel the
contract due to the fact that it accepted the tender of overdue payments
from Vivencio.

Held:
NO.

It is enormously clear that when the deceased applied for a reinstatement of


his policy in Nov. 1951, he had already been afflicted with the fatal ailment
for a period of about four months. Furthermore, in submitting together with
his application for reinstatement, a health statement to the effect that he was
in good health, Vivencio concealed the material fact that he had consulted a
doctor and was then found to be afflicted with the malady.

The acceptance of Insular life of the overdue premiums did not necessarily
deprive it of the right to cancel the policy in case of default incurred by the
Insured in the payment of future premiums. The case would be different had
the insured died at any time after the payment of overdue premiums but
previous to the reinstatement of the policy, for the, Insular, by its acceptance
of its overdue premiums is deemed to have waived its right to rescind the
policy.

The evidence at hand shows that insofar as the payment of the last quarterly
premium for 1951 was concerned, Insular had availed of the right to rescind
the policy by notifying the Insured that the policy had lapsed.