Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
SERAFIN D. FELICIANO ET AL., respondents.
Manuel Roxas and Araneta, Zaragoza, Araneta and
Bautista for petitioner.
Deflfin Joven and Pablo Lorenzo for respondents.
Ramirez and Ortigas as amici curiae.
OZAETA, J.:
In a four-to-three decision promulgated on September
13, 1941, this Court affirmed the judgment of the Court
1
of Appeals in favor of the respondents and against the
petitioner for the sum of P25,000, representing the value
of two insurance policies issued by the petitioner on the
life of Evaristo Feliciano. A motion to reconsider and set
aside said decision has been filed by the petitioner, and
both parties have submitted exhaustive and luminous
written arguments in support of their respective
contentions.
The facts of the case are set forth in the majority and
dissenting opinions heretofore handed down by this
Court, the salient points of which may be briefly restated
as follows:
Evaristo Feliciano, who died on September 29, 1935, was
suffering with advanced pulmonary tuberculosis when
he signed his applications for insurance with the
petitioner on October 12, 1934. On that same date
Doctor Trepp, who had taken X-ray pictures of his lungs,
informed the respondent Dr. Serafin D. Feliciano,
brother of Evaristo, that the latter "was already in a very
serious ad practically hopeless condition." Nevertheless
the question contained in the application — "Have you
ever suffered from any ailment or disease of the lungs,
pleurisy, pneumonia or asthma?" — appears to have been
answered , "No" And above the signature of the
applicant, following the answers to the various questions
propounded to him, is the following printed
statement:1awphil.net
I declare on behalf of myself and of any person who shall
have or claim any interest in any policy issued
hereunder, that each of the above answers is full,
complete and true, and that to the best of my knowledge
and belief I am a proper subject for life insurance.
(Exhibit K.)
The false answer above referred to, as well as the others,
was written by the Company's soliciting agent Romulo
M. David, in collusion with the medical examiner Dr.
Gregorio Valdez, for the purpose of securing the
Company's approval of the application so that the policy
to be issued thereon might be credited to said agent in
connection with the inter-provincial contest which the
Company was then holding among its soliciting agents to
boost the sales of its policies. Agent David bribed
Medical Examiner Valdez with money which the former
borrowed from the applicant's mother by way of
advanced payment on the premium, according to the
finding of the Court of Appeals. Said court also found
that before the insured signed the application he, as well
as the members of his family, told the agent and the
medical examiner that he had been sick and coughing for
some time and that he had gone three times to the Santol
Sanatorium and had X-ray pictures of his lungs taken;
but that in spite of such information the agent and the
medical examiner told them that the applicant was a fit
subject for insurance.
Each of the policies sued upon contains the following
stipulations:
This policy and the application herefor constitute the
entire contract between the parties hereto. . . . Only the
President, or the Manager, acting jointly with the
Secretary or Assistant Secretary (and then only in
writing signed by them) have power in behalf of the
Company to issue permits, or to modify this or any
contract, or to extend the same time for making any
premium payment, and the Company shall not be bound
by any promise or representation heretofore or hereafter
given by any person other than the above-named
officials, and by them only in writing and signed
conjointly as stated.
The application contains, among others, the following
statements:
18. — I [the applicant] hereby declare that all the above
statements and answers as well as all those that I may
make to the Company's Medical Examiner in
continuation of this application, to be complete, true and
correct to the best of my knowledge and belief, and I
hereby agree as follows:
1. That his declaration, with the answers to be given by
me to the Medical Examiner, shall be the basis of the
policy and form part of same.
xxx xxx xxx
3. That the said policy shall not take effect until the first
premium has been paid and the policy has been delivered
to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority
to make, modify or discharge contracts, or to waive any
of the Company's rights or requirements.
5. My acceptance of any policy issued on this application
will constitute a ratification by me of any corrections in
or additions to this application made by the Company in
the space provided "For Home Office Corrections or
Additions Only." I agree that photographic copy of this
applications as corrected or added to shall constitute
sufficient notice to me of the changes made. (Emphasis
added.)
The petitioner insists that upon the facts of the case the
policies in question are null and void ab initio and that
all that the respondents are entitled to is the refund of
the premiums paid thereon. After a careful re-
examination of the facts and the law, we are persuaded
that petitioner's contention is correct. To the reasons
adduced in the dissenting opinion heretofore published,
we only desire to add the following considerations:
When Evaristo Feliciano, the applicant for insurance,
signed the application in blank and authorized the
soliciting agent and/or medical examiner of the Company
to write the answers for him, he made them his own
agents for that purpose, and he was responsible for their
acts in that connection. If they falsified the answers for
him, he could not evade the responsibility for he
falsification. He was not supposed to sign the application
in blank. He knew that the answers to the questions
therein contained would be "the basis of the policy," and
for that every reason he was required with his signature
to vouch for truth thereof.
Moreover, from the facts of the case we cannot escape
the conclusion that the insured acted in connivance with
the soliciting agent and the medical examiner of the
Company in accepting the policies in question. Above
the signature of the applicant is the printed statement or
representation: " . . . I am a proper subject for life
insurance." In another sheet of the same application and
above another signature of the applicant was also printed
this statement: "That the said policy shall not take effect
until he first premium has been paid and the policy as
been delivered to and accepted by me, while I am in
good health." When the applicant signed the application
he was "having difficulty in breathing, . . . with a very
high fever." He had gone three times to the Santol
Sanatorium and had X-ray pictures taken of his lungs. He
therefore knew that he was not "a proper subject for life
insurance." When he accepted the policy, he knew that
he was not in good health. Nevertheless, he not only
accepted the first policy of P20,000 but then and there
applied for and later accepted another policy of P5,000.
We cannot bring ourselves to believe that the insured
did not take the trouble to read the answers contained in
the photostatic copy of the application attached to and
made a part of the policy before he accepted it and paid
the premium thereon. He must have notice that the
answers to the questions therein asked concerning his
clinical history were false, and yet he accepted the first
policy and applied for another. In any event, he
obligated himself to read the policy when he subscribed
to this statement: "My acceptance of any policy issued on
this application will constitute a ratification by me of any
corrections in or additions to this application made by
the Company . . ." By accepting the policy he became
charged with knowledge of its contents, whether he
actually read it or not. He could not ostrich-like hide his
head from it in order to avoid his part of the bargain and
at the same time claim the benefit thereof. He knew, or
was chargeable with knowledge, from the very terms of
the two policies sued upon (one of which is printed in
English and the other in Spanish) that the soliciting
agent and the medical examiner had no power to bind
the Company by any verbal promise or oral
representation. The insured, therefore, had no right to
rely — and we cannot believe he relied in good faith —
upon the oral representation. The insured, therefore, had
no right to rely — and we cannot believe he relied in
good faith — upon the oral representation of said agent
and medical examiner that he (the applicant) was a fit
subject for insurance notwithstanding that he had been
and was still suffering with advanced pulmonary
tuberculosis.
From all the facts and circumstances of this case, we are
constrained to conclude that the insured was a
coparticipant, and coresponsible with Agent David and
Medical Examiner Valdez, in the fraudulent
procurement of the policies in question and that by
reason thereof said policies are void ab initio.
Wheretofore, the motion for reconsideration is sustained
and the judgment of the Court of Appeals is hereby
reversed. Let another judgment be entered in favor of the
respondents and against the petitioner for the refund of
the premiums amounting to P1,389, with legal interest
thereon from the date of the complaint, and without any
finding as to costs.
.R. No. 175666 July 29, 2013
MANILA BANKERS LIFE INSURANCE
CORPORATION, Petitioner.
vs.
CRESENCIA P. ABAN, Respondent.
DECISION
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is
to compel insurers to solicit business from or provide
insurance coverage only to legitimate and bona fide
clients, by requiring them to thoroughly investigate
those they insure within two years from effectivity of the
policy and while the insured is still alive. If they do not,
they will be obligated to honor claims on the policies
they issue, regardless of fraud, concealment
misrepresentation. The law assumes that they will do just
that and not sit on their laurels, indiscriminately
soliciting and accepting insurance business from any
Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the
September 28, 2005 Decision2 of the Court of Appeals'
(CA) in CA-G.R. CV No. 62286 and its November 9, 2006
Resolution3 denying the petitioner’s Motion
Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life
insurance policy from Manila Bankers Life Insurance
Corporation (Bankers Life), designating respondent
Cresencia P. Aban (Aban), her niece, as her beneficiary.
5 petitioner’s investigator testified in court, stating among
Petitioner issued Insurance Policy No. 747411 (the
policy), with a face value of ₱100,000.00, in Sotero’s
favor on August 30, 1993, after the requisite medical
examination and payment of the insurance premium.
On April 10, 1996, when the insurance policy had been
7
in force for more than two years and seven months,
Sotero died. Respondent filed a claim for the insurance
proceeds on July 9, 1996. Petitioner conducted an
investigation into the claim,8 and came out with the
following findings:
1. Sotero did not personally apply for insurance coverage,
as she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the
insurance premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for
insurance; and
9 effectivity of the policy to question the same; since the
5. Respondent was the one who filed the insurance
application, and x x x designated herself as the
beneficiary.10
For the above reasons, petitioner denied respondent’s
claim on April 16, 1997 and refunded the premiums paid
on the policy.11
On April 24, 1997, petitioner filed a civil case for
rescission and/or annulment of the policy, which was
docketed as Civil Case No. 97-867 and assigned to Branch
134 of the Makati Regional Trial Court. The main thesis
of the Complaint was that the policy was obtained by
fraud, concealment and/or misrepresentation under the
Insurance Code,12 which thus renders it voidable under
Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that
petitioner’s cause of action was barred by prescription
or pursuant to Section 48 of the Insurance Code, which
provides as follows:
Whenever a right to rescind a contract of insurance is
given to the insurer by any provision of this chapter,
such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the
death of the insured shall have been in force during the
for
lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss,
others that the insurance underwriter who solicited the
insurance is a cousin of respondent’s husband, Dindo
Aban,15 and that it was the respondent who paid the
annual premiums on the policy.16
6
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an
Order17 granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s
Motion to Dismiss is hereby granted. Civil Case No. 97-
867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero,
and not respondent, was the one who procured the
insurance; thus, Sotero could legally take out insurance
on her own life and validly designate – as she did –
respondent as the beneficiary. It held further that under
Section 48, petitioner had only two years from the
policy had been in force for more than two years,
petitioner is now barred from contesting the same or
seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another
Order19 dated October 20, 1998, the trial court stood its
ground.
Petitioner interposed an appeal with the CA, docketed as
CA-G.R. CV No. 62286. Petitioner questioned the
dismissal of Civil Case No. 97-867, arguing that the trial
court erred in applying Section 48 and declaring that
prescription has set in. It contended that since it was
respondent – and not Sotero – who obtained the further proceedings, petitioner argues in its Petition and
insurance, the policy issued was rendered void ab initio Reply24 that Section 48 cannot apply to a case where the
for want of insurable interest. beneficiary under the insurance contract posed as the
insured and obtained the policy under fraudulent
Ruling of the Court of Appeals circumstances. It adds that respondent, who was merely
Sotero’s niece, had no insurable interest in the life of her
On September 28, 2005, the CA issued the assailed
aunt.
Decision, which contained the following decretal
portion: Relying on the results of the investigation that it
conducted after the claim for the insurance proceeds was
WHEREFORE, in the light of all the foregoing, the
filed, petitioner insists that respondent’s claim was
instant appeal is DISMISSED for lack of merit.
spurious, as it appeared that Sotero did not actually apply
SO ORDERED.20 for insurance coverage, was unlettered, sickly, and had
no visible source of income to pay for the insurance
The CA thus sustained the trial court. Applying Section premiums; and that respondent was an impostor, posing
48 to petitioner’s case, the CA held that petitioner may as Sotero and fraudulently obtaining insurance in the
no longer prove that the subject policy was void ab initio latter’s name without her knowledge and consent.
or rescindible by reason of fraudulent concealment or
misrepresentation after the lapse of more than two years Petitioner adds that Insurance Policy No. 747411 was
from its issuance. It ratiocinated that petitioner was void ab initio and could not have given rise to rights and
equipped with ample means to determine, within the obligations; as such, the action for the declaration of its
first two years of the policy, whether fraud, concealment nullity or inexistence does not prescribe.25
or misrepresentation was present when the insurance
Respondent’s Arguments
coverage was obtained. If it failed to do so within the
statutory two-year period, then the insured must be Respondent, on the other hand, essentially argues in her
protected and allowed to claim upon the policy. Comment26 that the CA is correct in applying Section 48.
She adds that petitioner’s new allegation in its Petition
Petitioner moved for reconsideration,21 but the CA
that the policy is void ab initio merits no attention,
denied the same in its November 9, 2006
having failed to raise the same below, as it had claimed
Resolution.22 Hence, the present Petition.
originally that the policy was merely voidable.
Issues
On the issue of insurable interest, respondent echoes the
Petitioner raises the following issues for resolution: CA’s pronouncement that since it was Sotero who
obtained the insurance, insurable interest was present.
I Under Section 10 of the Insurance Code, Sotero had
insurable interest in her own life, and could validly
WHETHER THE COURT OF APPEALS ERRED IN designate anyone as her beneficiary. Respondent submits
SUSTAINING THE ORDER OF THE TRIAL COURT
that the CA’s findings of fact leading to such conclusion
DISMISSING THE COMPLAINT ON THE GROUND OF should be respected.
PRESCRIPTION IN CONTRAVENTION (OF)
PERTINENT LAWS AND APPLICABLE Our Ruling
JURISPRUDENCE.
The Court denies the Petition.
II
The Court will not depart from the trial and appellate
WHETHER THE COURT OF APPEALS ERRED IN courts’ finding that it was Sotero who obtained the
SUSTAINING THE APPLICATION OF THE insurance for herself, designating respondent as her
INCONTESTABILITY PROVISION IN THE beneficiary. Both courts are in accord in this respect, and
INSURANCE CODE BY THE TRIAL COURT. the Court is loath to disturb this. While petitioner insists
that its independent investigation on the claim reveals
III
that it was respondent, posing as Sotero, who obtained
the insurance, this claim is no longer feasible in the wake
WHETHER THE COURT OF APPEALS ERRED IN
of the courts’ finding that it was Sotero who obtained the
DENYING PETITIONER’S MOTION FOR
insurance for herself. This finding of fact binds the
RECONSIDERATION.23
Court.
Petitioner’s Arguments
With the above crucial finding of fact – that it was
In praying that the CA Decision be reversed and that the Sotero who obtained the insurance for herself –
case be remanded to the trial court for the conduct of petitioner’s case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on
respondent’s alleged posing as Sotero and forgery of her
signature in the insurance application, are at once belied
by the trial and appellate courts’ finding that Sotero
herself took out the insurance for herself. "Fraudulent
intent on the part of the insured must be established to
entitle the insurer to rescind the contract."27 In the
absence of proof of such fraudulent intent, no right to
rescind arises.
Moreover, the results and conclusions arrived at during
the investigation conducted unilaterally by petitioner
after the claim was filed may simply be dismissed as self-
serving and may not form the basis of a cause of action
given the existence and application of Section 48, as will
be discussed at length below.
Section 48 serves a noble purpose, as it regulates the
actions of both the insurer and the insured. Under the
provision, an insurer is given two years – from the
effectivity of a life insurance contract and while the
insured is alive – to discover or prove that the policy is
void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the
insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer
must make good on the policy, even though the policy
was obtained by fraud, concealment,
misrepresentation. This is not to say that insurance fraud
must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack
discrimination ultimately work to the detriment of bona
fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and
prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained
by fraud, concealment, or misrepresentation; on the
other hand, it forewarns scheming individuals that their
attempts at insurance fraud would be timely uncovered –
thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders
are absolutely protected from unwarranted denial of
their claims or delay in the collection of insurance
proceeds occasioned by allegations of fraud,
concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period
expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the
fact that both the insurer and the insured are given the
assurance that any dishonest scheme to obtain life
insurance would be exposed, and attempts at unduly
denying a claim would be struck down. Life insurance
policies that pass the statutory two-year period are
essentially treated as legitimate and beyond question, and
the individuals who wield them are made secure by the
thought that they will be paid promptly upon claim. In
this manner, Section 48 contributes to the stability of the
insurance industry.
Section 48 prevents a situation where the insurer
knowingly continues to accept annual premium
payments on life insurance, only to later on deny a claim
on the policy on specious claims of fraudulent
concealment and misrepresentation, such as what obtains
in the instant case. Thus, instead of conducting at the
first instance an investigation into the circumstances
surrounding the issuance of Insurance Policy No. 747411
which would have timely exposed the supposed flaws
and irregularities attending it as it now professes,
petitioner appears to have turned a blind eye and opted
instead to continue collecting the premiums on the
policy. For nearly three years, petitioner collected the
premiums and devoted the same to its own profit. It
cannot now deny the claim when it is called to account.
Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate
court’s pronouncement that –
the "incontestability clause" is a provision in law that
after a policy of life insurance made payable on the death
of the insured shall have been in force during the
lifetime of the insured for a period of two (2) years from
or the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is
rescindible by reason of fraudulent concealment or
misrepresentation of the insured or his agent.
of
The purpose of the law is to give protection to the
insured or his beneficiary by limiting the rescinding of
the contract of insurance on the ground of fraudulent
concealment or misrepresentation to a period of only
two (2) years from the issuance of the policy or its last
reinstatement.
The insurer is deemed to have the necessary facilities to
discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is
not fair for the insurer to collect the premiums as long as
the insured is still alive, only to raise the issue of
fraudulent concealment or misrepresentation when the
insured dies in order to defeat the right of the
beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or
its last reinstatement, the beneficiary is given the
stability to recover under the policy when the insured
dies. The provision also makes clear when the two-year
period should commence in case the policy should lapse
and is reinstated, that is, from the date of the last
reinstatement.
After two years, the defenses of concealment or
misrepresentation, no matter how patent or well-
founded, will no longer lie.
Congress felt this was a sufficient answer to the various
tactics employed by insurance companies to avoid
liability.
The so-called "incontestability clause" precludes the
insurer from raising the defenses of false representations
or concealment of material facts insofar as health and
previous diseases are concerned if the insurance has been
in force for at least two years during the insured’s
lifetime. The phrase "during the lifetime" found in
Section 48 simply means that the policy is no longer
considered in force after the insured has died. The key
phrase in the second paragraph of Section 48 is "for a
period of two years."
As borne by the records, the policy was issued on August
30, 1993, the insured died on April 10, 1996, and the
claim was denied on April 16, 1997. The insurance policy
was thus in force for a period of 3 years, 7 months, and
24 days. Considering that the insured died after the two-
year period, the plaintiff-appellant is, therefore, barred
from proving that the policy is void ab initio by reason of
the insured’s fraudulent concealment
misrepresentation or want of insurable interest on the
part of the beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s
burden to show that the factual findings of the trial court
are not based on substantial evidence or that its
conclusions are contrary to applicable law
jurisprudence. The plaintiff-appellant failed to discharge
that burden. 28
Petitioner claims that its insurance agent, who solicited
the Sotero account, happens to be the cousin of
respondent’s husband, and thus insinuates that both
connived to commit insurance fraud. If this were truly
the case, then petitioner would have discovered the
scheme earlier if it had in earnest conducted an
investigation into the circumstances surrounding the
Sotero policy. But because it did not and it investigated
the Sotero account only after a claim was filed thereon
more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the
Court cannot sympathize with its plight. Instead, its case
precisely provides the strong argument for requiring
insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated
under Section 48, and not after claims for insurance
proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and
honesty of their insurance agents/salesmen and the
insurance policies they issue, then they should cease
doing business. If they could not properly screen their
agents or salesmen before taking them in to market their
products, or if they do not thoroughly investigate the
insurance contracts they enter into with their clients,
then they have only themselves to blame. Otherwise
said, insurers cannot be allowed to collect premiums on
insurance policies, use these amounts collected and
invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter
conveniently deny insurance claims by questioning the
authority or integrity of their own agents or the
insurance policies they issued to their premium-paying
clients. This is exactly one of the schemes which Section
48 aims to prevent.
Insurers may not be allowed to delay the payment of
claims by filing frivolous cases in court, hoping that the
inevitable may be put off for years – or even decades – by
the pendency of these unnecessary court cases. In the
meantime, they benefit from collecting the interest
and/or returns on both the premiums previously paid by
the insured and the insurance proceeds which should
otherwise go to their beneficiaries. The business of
insurance is a highly regulated commercial activity in the
country,29 and is imbued with public interest.30 "An
insurance contract is a contract of adhesion which must
be construed liberally in favor of the insured and strictly
or against the insurer in order to safeguard the former’s
interest."31
WHEREFORE, the Petition is DENIED. The assailed
September 28, 2005 Decision and the November 9, 2006
Resolution of the Court of Appeals in CA-G.R. CV No.
62286 are AFFIRMED.
and
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 "non-medical".
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.
WHEREFORE, the petition is GRANTED and the
Decision of the Court of Appeals is REVERSED and SET
ASIDE.
SO ORDERED.
.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo
B. Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following fro
him: Trazepam, a tranquilizer; and Aptin, a beta-blocker
drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute
bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a
"non-medical" insurance policy with respondent Great
Pacific Life Assurance Company ("Great Pacific") naming
his wife, Thelma Canilang, as his beneficiary.1 Jaime
Canilang was issued ordinary life insurance Policy No.
345163, with the face value of P19,700, effective as of 9
August 1982.
On 5 August 1983, Jaime Canilang died of "congestive
heart failure," "anemia," and "chronic
anemia."2 Petitioner, widow and beneficiary of the
insured, filed a claim with Great Pacific which the
insurer denied on 5 December 1983 upon the ground
that the insured had concealed material information
from it.
Petitioner then filed a complaint against Great Pacific
with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the
Insurance Commissioner, petitioner testified that she was
not aware of any serious illness suffered by her late
husband3 and that, as far as she knew, her husband had
died because of a kidney disorder.4 A deposition given by
Dr. Wilfredo Claudio was presented by petitioner. There
Dr. Claudio stated that he was the family physician of
the deceased Jaime Canilang5 and that he had previously
treated him for "sinus tachycardia" and "acute
bronchitis."6 Great Pacific for its part presented Dr.
Esperanza Quismorio, a physician
and a medical underwriter working for Great
Pacific.7 She testified that the deceased's insurance
application had been approved on the basis of his
medical declaration.8 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.9
In a decision dated 5 November 1985, Insurance
Commissioner Armando Ansaldo ordered Great Pacific
to pay P19,700 plus legal interest and P2,000.00 as
attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that,
even if it had been disclosed, it would not have affected
Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the
health condition of the applicant by the issuance of the
policy despite the lack of answers to "some of the
pertinent questions" in the insurance application;
3. there was no intentional concealment on the part of
the insured Jaime Canilang as he had thought that he was
merely suffering from a minor ailment and simple
cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance
contract, whether or not concealment was intentionally
made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals
reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's
complaint and Great Pacific's counterclaim. The Court of
Appealed found that the use of the word "intentionally"
by the Insurance Commissioner in defining and resolving
the issue agreed upon by the parties at pre-trial before
the Insurance Commissioner was not supported by the
evidence; that the issue agreed upon by the parties had
been whether the deceased insured, Jaime Canilang,
made a material concealment as the state of his health at
the time of the filing of insurance application, justifying
respondent's denial of the claim. The Court of Appeals
also found that the failure of Jaime Canilang to disclose
previous medical consultation and treatment constituted
material information which should have been
communicated to Great Pacific to enable the latter to
make proper inquiries. The Court of Appeals finally held
that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect
of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a
Petition for Review on Certiorari alleging that:
1. . . . the Honorable Court of Appeals, speaking with due
respect, erred in not holding that the issue in the case
agreed upon between the parties before the Insurance
Commission is whether or not Jaime Canilang
"intentionally" made material concealment in stating his
state of health;
2. . . . at any rate, the non-disclosure of certain facts
about his previous health conditions does not amount to
fraud and private respondent is deemed to have waived
inquiry thereto. 11
The medical declaration which was set out in the
application for insurance executed by Jaime Canilang
read as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium
or infirmary, nor receive any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician
for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney, stomach disorder, or any other
physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
________________________________________________
________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I hereby agree
that if there be any fraud or misrepresentation in the
above statements material to the risk, the INSURANCE
COMPANY upon discovery within two (2) years from
the effective date of insurance shall have the right to
declare such insurance null and void. That the liabilities
of the Company under the said Policy/TA/Certificate
shall accrue and begin only from the date of
commencement of risk stated in the
Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and
accepted by me in person, when I am in actual good
health.
Signed at Manila his 4th day of August, 1992.
Illegible
——————————
Signature of Applicant. 12
We note that in addition to the negative statements
made by Mr. Canilang in paragraph 1 and 2 of the
medical declaration, he failed to disclose in the
appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had
found him to be suffering from "sinus tachycardia" and
"acute bronchitis."
The relevant statutory provisions as they stood at the
time Great Pacific issued the contract of insurance and at
the time Jaime Canilang died, are set out in P.D. No.
1460, also known as the Insurance Code of 1978, which
went into effect on 11 June 1978. These provisions read
as follows:
Sec. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a
concealment.
xxx xxx xxx
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.
(Emphasis supplied)
Under the foregoing provisions, the information
concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that
is to say, information which was "material to the
contract." The test of materiality is contained in Section
31 of the Insurance Code of 1978 which reads:
Sec. 31. Materially 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. (Emphasis
supplied)
"Sinus tachycardia" is considered present "when the
heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the
chest and sometimes faintness and weakness of the
person affected. The following elaboration was offered
by Great Pacific and set out by the Court of Appeals in
its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate
faster than 100 beats per minute. (Harrison' s Principles
of Internal Medicine, 8th ed. [1978], p. 1193.) It is,
among others, a common reaction to heart disease,
including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiography, 6th ed.,
[1977], p. 127.) The medication prescribed by Dr.
Claudio for treatment of Canilang's ailment on June 18,
1982, indicates the condition that said physician was
trying to manage. Thus, he prescribed Trazepam,
(Philippine Index of Medical Specialties (PIMS), Vol. 14,
No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-
convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a
cardiac drug, for palpitations and nervous heart. Such
treatment could have been a very material information
to the insurer in determining the action to be take on
Canilang's application for life insurance coverage. 14
We agree with the Court of Appeals that the information
which Jaime Canilang failed to disclose was material to
the ability of Great Pacific to estimate the probable risk
he presented as a subject of life insurance. 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. 15 The materiality of the
information withheld by Great Pacific did not depend
upon the state of mind of Jaime Canilang. A man's 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 ensue.
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 Great Pacific applied for was a "non-
medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, 16 this Court held
that:
. . . if anything, the waiver of 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 . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the
failure of Great Pacific to convey certain information to
the insurer was not "intentional" in nature, for the reason
that Jaime Canilang believed that he was suffering from
minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to
1985, that is, throughout the time range material for
present purposes, provided that:
Sec. 27. A concealment entitles the injured party to
rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from
1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or
unintentional, entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of
1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section
27 of the Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner
appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of
1978 (prior to its amendment by B.P. Blg. 874) intended
to limit the kinds of concealment which generate a right
to rescind on the part of the injured party to "intentional
concealments." This argument is not persuasive. As a
simple matter of grammar, it may be noted that
"intentional" and "unintentional" cancel each other out.
The net result therefore of the phrase "whether
intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of
the Insurance Code of 1978 is properly read as referring
to "any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the
effect of imposing an affirmative requirement that a
concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that concealment
must be "intentional" in order to authorize rescission by
the injured party.
In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
communicate must have been intentional rather than
merely inadvertent. For Jaime Canilang could not have
been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a
doctor twice in the two (2) months before applying for
non-medical insurance. 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
discomfort and concern brought about by his
experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that
Great Pacific had waived inquiry into the concealment
by issuing the insurance policy notwithstanding
Canilang's failure to set out answers to some of the
questions in the insurance application. Such failure
precisely constituted concealment on the part of
Canilang. Petitioner's argument, if accepted, would
obviously erase Section 27 from the Insurance Code of
1978.
It remains only to note that the Court of Appeals finding
that the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was
whether or not Jaime Canilang
had intentionally concealed material information from
the insurer, was supported by the evidence of record, i.e.,
the Pre-trial Order itself dated 17 October 1984 and the
Minutes of the Pre-trial Conference dated 15 October
1984, which "readily shows that the word "intentional"
does not appear in the statement or definition of the
issue in the said Order and Minutes." 18
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.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband,
MARCIAL EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION
and the COURT OF FIRST INSTANCE OF RIZAL,
BRANCH V, QUEZON CITY, respondents-appellees.
K.V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a
direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken
directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance
corporation of the premium and the issuance of the
corresponding certificate of insurance should be deemed
a waiver of the exclusionary condition of overage stated
in the said certificate of insurance.
The material facts are not in dispute. Sometime in April
1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application
form given to her and filed the same with the respondent
insurance corporation. In the said application form
which was dated April 15, 1969, she gave the date of her
birth as July 11, 1904. On the same date, she paid the
sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an
authorized agent of the respondent insurance
corporation. (Rollo, p. 27.) Upon the filing of said
application and the payment of the premium on the
policy applied for, the respondent insurance corporation
issued to Carmen O. Lapuz its Certificate of Insurance
No. 128866. (Rollo, p. 28.) The policy was to be effective
for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate
of Insurance No. 12886, Carmen O. Lapuz died in a
vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of
the insured and who was the named beneficiary in the
policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites
with the private respondent. Her claim having been
denied, Regina L. Edillon instituted this action in the
Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent
insurance corporation relies on a provision contained in
the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are
under the age of sixteen (16) years of age or over the age
of sixty (60) years ..." It is pointed out that the insured
being over sixty (60) years of age when she applied for
the insurance coverage, the policy was null and void, and
no risk on the part of the respondent insurance
corporation had arisen therefrom.
The trial court sustained the contention of the private
respondent and dismissed the complaint; ordered the
petitioner to pay attorney's fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private
respondent; and ordered the private respondent to return
the sum of TWENTY (P20.00) PESOS received by way of
premium on the insurancy policy. It was reasoned out
that a policy of insurance being a contract of adhesion, it
was the duty of the insured to know the terms of the
contract he or she is entering into; the insured in this
case, upon learning from its terms that she could not
have been qualified under the conditions stated in said
contract, what she should have done is simply to ask for
a refund of the premium that she paid. It was further
argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of
the insured and strictly against the insurer may not be
applied in the present case in view of the peculiar facts
and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of
the insured Carmen 0. Lapuz was not concealed to the
insurance company. Her application for insurance
coverage which was on a printed form furnished by
private respondent and which contained very few items
of information clearly indicated her age of the time of
filing the same to be almost 65 years of age. Despite such
information which could hardly be overlooked in the
application form, considering its prominence thereon
and its materiality to the coverage applied for, the
respondent insurance corporation received her payment
of premium and issued the corresponding certificate of
insurance without question. The accident which resulted
in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS
after the insurance coverage was applied for. There was
sufficient time for the private respondent to process the
application and to notice that the applicant was over 60
years of age and thereby cancel the policy on that ground
if it was minded to do so. If the private respondent failed
to act, it is either because it was willing to waive such
disqualification; or, through the negligence or
incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already
deemed in estoppel. It inaction to revoke the policy
despite a departure from the exclusionary condition
contained in the said policy constituted a waiver of such
condition, as was held in the case of "Que Chee Gan vs.
Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case
involved a claim on an insurance policy which contained
a provision as to the installation of fire hydrants the
number of which depended on the height of the external
wan perimeter of the bodega that was insured. When it
was determined that the bodega should have eleven (11)
fire hydrants in the compound as required by the terms
of the policy, instead of only two (2) that it had, the
claim under the policy was resisted on that ground. In
ruling that the said deviation from the terms of the
policy did not prevent the claim under the same, this
Court stated the following:
We are in agreement with the trial Court that the
appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants warranty,
for the reason that knowing fully an that the number of
hydrants demanded therein never existed from the very
beginning, the appellant nevertheless issued the policies
in question subject to such warranty, and received the
corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to
claim now as void ab initio the policies that it had issued
to the plaintiff without warning of their fatal defect, of
which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the
policies were issued, that in the premises insured there
were only two fire hydrants installed by Que Chee Gan
and two others nearby, owned by the municipality of
Tabaco, contrary to the requirements of the warranty in
question. Such fact appears from positive testimony for
the insured that appellant's agents inspected the
premises; and the simple denials of appellant's
representative (Jamiczon) can not overcome that proof.
That such inspection was made it moreover rendered
probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was
entitled, since the discount depended on the number of
hydrants, and the fire fighting equipment available
(See"'Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long
line of cases, is expressed by American Jurisprudence
(Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of
the issuance of a policy of insurance, has knowledge of
existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract
inconsistent with the known facts, and the insurer is
stopped thereafter from asserting the breach of such
conditions. The law is charitable enough to assume, in
the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract in
return for the premium received; and when the policy
contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will
be presumed to have intended to waive the conditions
and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in
fact he is not, and to have taken is money without
consideration.' (29 Am. Jur., Insurance, section 807, at
pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly
apparent. To allow a company to accept one's money for
a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured
believes it to be valid and binding, is so contrary to the
dictates of honesty and fair dealing, and so closely related
to positive fraud, as to be abhorent to fairminded men. It
would be to allow the company to treat the policy as
valid long enough to get the premium on it, and leave it
at liberty to repudiate it the next moment. This cannot
be deemed to be the real intention of the parties. To hold
that a literal construction of the policy expressed the true
intention of the company would be to indict it, for
fraudulent purposes and designs which we cannot
believe it to be guilty of (Wilson vs. Commercial Union
Assurance Co., 96 Atl. 540, 543544).
A similar view was upheld in the case of Capital
Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65
SCRA 134, which involved a violation of the provision of
the policy requiring the payment of premiums before the
insurance shall become effective. The company issued
the policy upon the execution of a promissory note for
the payment of the premium. A check given subsequent
by the insured as partial payment of the premium was
dishonored for lack of funds. Despite such deviation from
the terms of the policy, the insurer was held liable.
Significantly, in the case before Us the Capital Insurance
accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date
of policy. By so doing, it has impliedly agreed to modify
the tenor of the insurance policy and in effect, waived
the provision therein that it would only pay for the loss
or damage in case the same occurs after the payment of
the premium. Considering that the insurance policy is
silent as to the mode of payment, Capital Insurance is
deemed to have accepted the promissory note in
payment of the premium. This rendered the policy
immediately operative on the date it was delivered. The
view taken in most cases in the United States:
... is that although one of conditions of an insurance
policy is that "it shall not be valid or binding until the
first premium is paid", if it is silent as to the mode of
payment, promissory notes received by the company
must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment
of the first or initial premium in advance or actual cash
may be waived by acceptance of a promissory note...
WHEREFORE, the judgment appealed from is hereby
REVERSED and SET ASIDE. In lieu thereof, the private
respondent insurance corporation is hereby ordered to
pay to the petitioner the sum of TEN THOUSAND
(P10,000.00) PESOS as proceeds of Insurance Certificate
No. 128866 with interest at the legal rate from May 31,
1969 until fully paid, the further sum of TWO
THOUSAND (P2,000.00) PESOS as and for attorney's
fees, and the costs of suit.
SO ORDERED.
G.R. No. 186983 February 22, 2012
MA. LOURDES S. FLORENDO, Petitioner,
vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE
ABCEDE, Respondents.
DECISION
ABAD, J.:
This case is about an insured’s alleged concealment in his
pension plan application of his true state of health and its
effect on the life insurance portion of that plan in case of
death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an
application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some
convincing by respondent Perla Abcede. The plan had a
pre-need price of ₱997,050.00, payable in 10 years, and
had a maturity value of ₱2,890,000.00 after 20
years.1 Manuel signed the application and left to Perla
the task of supplying the information needed in the
application. Respondent Ma. Celeste Abcede, Perla’s
2
daughter, signed the application as sales counselor.3
Aside from pension benefits, the comprehensive pension
plan also provided life insurance coverage
Florendo.4 This was covered by a Group Master Policy
that Philippine American Life Insurance Company
(Philam Life) issued to Philam Plans.5 Under the master
policy, Philam Life was to automatically provide life
insurance coverage, including accidental death, to all
who signed up for Philam Plans’ comprehensive pension
plan.6 If the plan holder died before the maturity of the
plan, his beneficiary was to instead receive the proceeds
of the life insurance, equivalent to the pre-need price.
Further, the life insurance was to take care of any unpaid
premium until the pension plan matured, entitling the
beneficiary to the maturity value of the pension plan.
On October 30, 1997 Philam Plans issued Pension Plan
Agreement PP430055848 to Manuel, with petitioner Ma.
Lourdes S. Florendo, his wife, as beneficiary. In time,
Manuel paid his quarterly premiums.9
Eleven months later or on September 15, 1998, Manuel
died of blood poisoning. Subsequently, Lourdes filed a
claim with Philam Plans for the payment of the benefits
under her husband’s plan. Because Manuel died before
10
his pension plan matured and his wife was to get only
the benefits of his life insurance, Philam Plans forwarded
her claim to Philam Life.11
On May 3, 1999 Philam Plans wrote Lourdes a
letter,12 declining her claim. Philam Life found that
Manuel was on maintenance medicine for his heart and
had an implanted pacemaker. Further, he suffered from
diabetes mellitus and was taking insulin. Lourdes
renewed her demand for payment under the plan13 but
Philam Plans rejected it,14 prompting her to file the
present action against the pension plan company before
the Regional Trial Court (RTC) of Quezon City. 15
On March 30, 2006 the RTC rendered
judgment,16 ordering Philam Plans, Perla and Ma.
Celeste, solidarily, to pay Lourdes all the benefits from
her husband’s pension plan, namely: ₱997,050.00, the
proceeds of his term insurance, and ₱2,890,000.00 lump
sum pension benefit upon maturity of his plan;
₱100,000.00 as moral damages; and to pay the costs of the
suit. The RTC ruled that Manuel was not guilty of
concealing the state of his health from his pension plan
application.
On December 18, 2007 the Court of Appeals (CA)
reversed the RTC decision,17 holding that insurance
policies are traditionally contracts uberrimae fidae or
contracts of utmost good faith. As such, it required
Manuel to disclose to Philam Plans conditions affecting
the risk of which he was aware or material facts that he
knew or ought to know.18
Issues Presented
The issues presented in this case are:
to
1. Whether or not the CA erred in finding Manuel guilty
of concealing his illness when he kept blank and did not
answer questions in his pension plan application
regarding the ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel
was bound by the failure of respondents Perla and Ma.
Celeste to declare the condition of Manuel’s health in the
pension plan application; and
3. Whether or not the CA erred in finding that Philam
Plans’ approval of Manuel’s pension plan application and
7 acceptance of his premium payments precluded it from
denying Lourdes’ claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces
in Manuel’s pension plan application relating to his
medical history, Philam Plans should have returned it to
him for completion. Since Philam Plans chose to approve
the application just as it was, it cannot cry concealment
on Manuel’s part. Further, Lourdes adds that Philam
Plans never queried Manuel directly regarding the state
of his health. Consequently, it could not blame him for
not mentioning it.19
But Lourdes is shifting to Philam Plans the burden of
putting on the pension plan application the true state of
Manuel’s health. She forgets that since Philam Plans
waived medical examination for Manuel, it had to rely
largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone
that he had been under treatment for heart condition
and diabetes for more than five years preceding his
submission of that application. But he kept those crucial
facts from Philam Plans.
Besides, when Manuel signed the pension plan
application, he adopted as his own the written
representations and declarations embodied in it. It is
clear from these representations that he concealed his
chronic heart ailment and diabetes from Philam Plans.
The pertinent portion of his representations and
declarations read as follows:
I hereby represent and declare to the best of my
knowledge that:
xxxx
(c) I have never been treated for heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach
disorder or any other physical impairment in the last five
years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal
otherwise, please give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic
____________________________
Name of Attending Physician
____________________________
Findings : ____________________________
Others: (Please specify)
____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in
the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has
never been treated for the said illnesses in the last five
years preceding his application. This is implicit from the
phrase "If your answer to any of the statements above
(specifically, the statement: I have never been treated for
heart condition or diabetes) reveal otherwise, please give
details in the space provided for." But this is untrue since
he had been on "Coumadin," a treatment for venous
thrombosis, and insulin, a drug used in the treatment of
21
diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since
Perla, the soliciting agent, knew that Manuel had a
pacemaker implanted on his chest in the 70s or about 20
years before he signed up for the pension plan.23 But by
its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone
else may provide the information that Philam Plans
needed. Manuel cannot sign the application and disown
the responsibility for having it filled up. If he furnished
Perla the needed information and delegated to her the
filling up of the application, then she acted on his
instruction, not on Philam Plans’ instruction.
Lourdes next points out that it made no difference if
Manuel failed to reveal the fact that he had a pacemaker
implant in the early 70s since this did not fall within the
five-year timeframe that the disclosure
contemplated.24 But a pacemaker is an electronic device
implanted into the body and connected to the wall of the
heart, designed to provide regular, mild, electric shock
that stimulates the contraction of the heart muscles and
restores normalcy to the heartbeat.25 That Manuel still
had his pacemaker when he applied for a pension plan in
October 1997 is an admission that he remained under
treatment for irregular heartbeat within five years
preceding that application.
Besides, as already stated, Manuel had been taking
medicine for his heart condition and diabetes when he
submitted his pension plan application. These clearly fell
within the five-year period. More, even if Perla’s
knowledge of Manuel’s pacemaker may be applied to
Philam Plans under the theory of imputed
knowledge, it is not claimed that Perla was aware of his
26
:
two other afflictions that needed medical treatments.
Pursuant to Section 2727 of the Insurance Code, Manuel’s
: concealment entitles Philam Plans to rescind its contract
of insurance with him.
Two. Lourdes contends that the mere fact that Manuel
signed the application in blank and let Perla fill in the
: required details did not make her his agent and bind him
to her concealment of his true state of health. Since there
is no evidence of collusion between them, Perla’s fault
must be considered solely her own and cannot prejudice
Manuel.28
But Manuel forgot that in signing the pension plan
application, he certified that he wrote all the information
stated in it or had someone do it under his direction.
Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a
Pension Plan Program described herein in accordance
with the General Provisions set forth in this application
and hereby certify that the date and other information
stated herein are written by me or under my direction. x
x x.29 (Emphasis supplied)
Assuming that it was Perla who filled up the application
form, Manuel is still bound by what it contains since he
certified that he authorized her action. Philam Plans had
every right to act on the faith of that certification.
Lourdes could not seek comfort from her claim that Perla
had assured Manuel that the state of his health would
not hinder the approval of his application and that what
is written on his application made no difference to the
insurance company. But, indubitably, Manuel was made
aware when he signed the pension plan application that,
in granting the same, Philam Plans and Philam Life were
acting on the truth of the representations contained in
that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is
based on the truth of the foregoing representations and is
subject to the provisions of the Group Life Insurance
Policy issued by THE PHILIPPINE AMERICAN LIFE
INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis
supplied)
As the Court said in New Life Enterprises v. Court of
Appeals:31
It may be true that x x x insured persons may accept
policies without reading them, and that this is not
negligence per se. But, this is not without any exception.
It is and was incumbent upon petitioner Sy to read the
insurance contracts, and this can be reasonably expected
of him considering that he has been a businessman since
1965 and the contract concerns indemnity in case of loss
in his money-making trade of which important
consideration he could not have been unaware as it was
precisely the reason for his procuring the same.32
The same may be said of Manuel, a civil engineer and
manager of a construction company.33 He could be
expected to know that one must read every document,
especially if it creates rights and obligations affecting
him, before signing the same. Manuel is not unschooled
that the Court must come to his succor. It could
reasonably be expected that he would not trifle with
something that would provide additional financial
security to him and to his wife in his twilight years.
Three. In a final attempt to defend her claim for benefits
under Manuel’s pension plan, Lourdes points out that
any defect or insufficiency in the information provided
by his pension plan application should be deemed waived
after the same has been approved, the policy has been
issued, and the premiums have been collected. 34
The Court cannot agree. The comprehensive pension
plan that Philam Plans issued contains a one-year
incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1)
year, we can no longer contest for health reasons any
claim for insurance under this Agreement, except for the
reason that installment has not been paid (lapsed), or
that you are not insurable at the time you bought this
pension program by reason of age. If this Agreement
lapses but is reinstated afterwards, the one (1) year
contestability period shall start again on the date of
approval of your request for reinstatement.35 1âwphi1
The above incontestability clause precludes the insurer
from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding
the health of the insured after a year of its issuance.
Since Manuel died on the eleventh month following the
issuance of his plan,36 the one year incontestability period
has not yet set in. Consequently, Philam Plans was not
barred from questioning Lourdes’ entitlement to the
benefits of her husband’s pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the
decision of the Court of Appeals in CA-G.R. CV 87085
dated December 18, 2007.
SO ORDERED.
G.R. No. 119176 March 19, 2002
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY,
INC. (now JARDINE-CMA LIFE INSURANCE
COMPANY, INC.) and THE COURT OF
APPEALS, respondents.
KAPUNAN, J.:
This is a petition for review on certiorari filed by the
Commission on Internal Revenue of the decision of the
Court of Appeals dated November 18, 1994 in C.A. G.R.
SP No. 31224 which reversed in part the decision of the
Court of Tax Appeals in C.T.A. Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance
Co., Inc., (now Jardine-CMA Life Insurance Company,
Inc.) is a domestic corporation registered with the
Securities and Exchange Commission and engaged in life
insurance business. In the years prior to 1984, private
respondent issued a special kind of life insurance policy
known as the "Junior Estate Builder Policy," the
distinguishing feature of which is a clause providing for
an automatic increase in the amount of life insurance
coverage upon attainment of a certain age by the insured
without the need of issuing a new policy. The clause was
to take effect in the year 1984. Documentary stamp taxes
due on the policy were paid by petitioner only on the Petitioner appealed the CTA’s decision to the Court of
initial sum assured. Appeals. On November 18, 1994, the Court of Appeals
promulgated a decision affirming the CTA’s decision
In 1984, private respondent also issued 50,000 shares of insofar as it nullified the deficiency assessment on the
stock dividends with a par value of P100.00 per share or insurance policy, but reversing the same with regard to
a total par value of P5,000,000.00. The actual value of the deficiency assessment on the stock dividends. The
said shares, represented by its book value, CTA ruled that the correct basis of the documentary
was P19,307,500.00. Documentary stamp taxes were paid stamp tax due on the stock dividends is the actual value
based only on the par value of P5,000,000.00 and not on or book value represented by the shares. The dispositive
the book value.1âwphi1.nêt portion of the Court of Appeals’ decision states:

Subsequently, petitioner issued deficiency documentary IN VIEW OF ALL THE FOREGOING, the decision
stamps tax assessment for the year 1984 in the amounts appealed from is hereby REVERSED with respect to the
of (a) P464,898.75, corresponding to the amount of deficiency tax assessment on the stock dividends,
automatic increase of the sum assured on the policy but AFFIRMED with regards to the assessment on the
issued by respondent, and (b) P78,991.25 corresponding Insurance Policies. Consequently, private respondent is
to the book value in excess of the par value of the stock ordered to pay the petitioner herein the sum
dividends. The computation of the deficiency of P78,991.25, representing documentary stamp tax on
documentary stamp taxes is as follows: the stock dividends it issued. No costs pronouncement.

On Policies Issued: SO ORDERED.2

Total policy issued during the year A motion for reconsideration of the decision having been
P1,360,054,000.00
denied,3 both the Commissioner of Internal Revenue and
private respondent appealed to this Court, docketed as
Documentary stamp tax due thereon
G.R. No. 118043 and G.R. No. 119176, respectively. In
(P1,360,054,000.00 divided by P200.00 multiplied
G.R. No. 118043, private respondent appealed the
by P0.35) P 2,380,094.50
decision of the Court of Appeals insofar as it upheld the
validity of the deficiency tax assessment on the stock
Less: Payment dividends. The Commissioner of Internal Revenue, on
P 1,915,495.75
his part, filed the present petition questioning that
portion of the Court of Appeals’ decision which
Deficiency P 464,598.75
invalidated the deficiency assessment on the insurance
policy, attributing the following errors:
Add: Compromise Penalty 300.00
THE HONORABLE COURT OF APPEALS ERRED
WHEN IT RULED THAT THERE IS A SINGLE
-----------------------
AGREEMENT EMBODIED IN THE POLICY AND
THAT THE AUTOMATIC INCREASE CLAUSE IS NOT
TOTAL AMOUNT DUE & COLLECTIBLE P 464,898.75
A SEPARATE AGREEMENT, CONTRARY TO
SECTION 49 OF THE INSURANCE CODE AND
Private respondent questioned the deficiency SECTION 183 OF THE REVENUE CODE THAT A
assessments and sought their cancellation in a petition RIDER, A CLAUSE IS PART OF THE POLICY.
filed in the Court of Tax Appeals, docketed as CTA Case
No. 4583. THE HONORABLE COURT OF APPEALS ERRED IN
NOT COMPUTING THE AMOUNT OF TAX ON THE
On March 30, 1993, the Court of Tax Appeals found no TOTAL VALUE OF THE INSURANCE ASSURED IN
valid basis for the deficiency tax assessment on the stock THE POLICY INCLUDING THE ADDITIONAL
dividends, as well as on the insurance policy. The INCREASE ASSURED BY THE AUTOMATIC
dispositive portion of the CTA’s decision reads: INCREASE CLAUSE DESPITE ITS RULING THAT THE
ORIGINAL POLICY AND THE AUTOMATIC CLAUSE
WHEREFORE, the deficiency documentary stamp tax
CONSTITUTED ONLY A SINGULAR TRANSACTION.4
assessments in the amount of P464,898.76
and P78,991.25 or a total of P543,890.01 are hereby Section 173 of the National Internal Revenue Code on
cancelled for lack of merit. Respondent Commissioner of documentary stamp taxes provides:
Internal Revenue is ordered to desist from collecting said
deficiency documentary stamp taxes for the same are Sec. 173. Stamp taxes upon documents, instruments and
considered withdrawn. papers. - Upon documents, instruments, loan agreements,
and papers, and upon acceptances, assignments, sales,
SO ORDERED.1 and transfers of the obligation, right or property incident
thereto, there shall be levied, collected and paid for, and
in respect of the transaction so had or accomplished, the
corresponding documentary stamp taxes prescribed in
the following section of this Title, by the person making,
signing, issuing, accepting, or transferring the same
wherever the document is made, signed, issued,
accepted, or transferred when the obligation or right
arises from Philippine sources or the property is situated
in the Philippines, and at the same time such act is done
or transaction had: Provided, That whenever one party to
the taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax. (As
amended by PD No. 1994) The basis for the value of
documentary stamp taxes to be paid on the insurance
policy is Section 183 of the National Internal Revenue
Code which states in part:
The basis for the value of documentary stamp taxes to be
paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:
Sec. 183. Stamp tax on life insurance policies. - On all
policies of insurance or other instruments by whatever
name the same may be called, whereby any insurance
shall be made or renewed upon any life or lives, there
shall be collected a documentary stamp tax of thirty
(now 50c) centavos on each Two hundred pesos per
fractional part thereof, of the amount insured by any
such policy.
Petitioner claims that the "automatic increase clause" in
the subject insurance policy is separate and distinct from
the main agreement and involves another transaction;
and that, while no new policy was issued, the original
policy was essentially re-issued when the additional
obligation was assumed upon the effectivity of this
"automatic increase clause" in 1984; hence, a deficiency
assessment based on the additional insurance not covered
in the main policy is in order.
The Court of Appeals sustained the CTA’s ruling that
there was only one transaction involved in the issuance
of the insurance policy and that the "automatic increase
clause" is an integral part of that policy.
The petition is impressed with merit.
Section 49, Title VI of the Insurance Code defines an
insurance policy as the written instrument in which a
contract of insurance is set forth.5 Section 50 of the same
Code provides that the policy, which is required to be in
printed form, may contain any word, phrase, clause,
mark, sign, symbol, signature, number, or
word necessary to complete the contract of insurance.6 It
is thus clear that any rider, clause, warranty or
endorsement pasted or attached to the policy is
considered part of such policy or contract of insurance.
The subject insurance policy at the time it was issued
contained an "automatic increase clause." Although the
clause was to take effect only in 1984, it was written into
the policy at the time of its issuance. The distinctive
feature of the "junior estate builder policy" called the
"automatic increase clause" already formed part and
parcel of the insurance contract, hence, there was no
need for an execution of a separate agreement for the
increase in the coverage that took effect in 1984 when
the assured reached a certain age.
It is clear from Section 173 that the payment of
documentary stamp taxes is done at the time the act is
done or transaction had and the tax base for the
computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount fixed
in policy, unless the interest of a person insured is
susceptible of exact pecuniary measurement.7 What then
is the amount fixed in the policy? Logically, we believe
that the amount fixed in the policy is the figure written
on its face and whatever increases will take effect in the
future by reason of the "automatic increase clause"
embodied in the policy without the need of another
contract.
Here, although the automatic increase in the amount of
life insurance coverage was to take effect later on, the
date of its effectivity, as well as the amount of the
increase, was already definite at the time of the issuance
of the policy. Thus, the amount insured by the policy at
the time of its issuance necessarily included the
additional sum covered by the automatic increase clause
because it was already determinable at the time the
transaction was entered into and formed part of the
policy.
The "automatic increase clause" in the policy is in the
nature of a conditional obligation under Article 1181,8 by
which the increase of the insurance coverage shall
depend upon the happening of the event which
constitutes the obligation. In the instant case, the
additional insurance that took effect in 1984 was an
obligation subject to a suspensive obligation,9 but still a
part of the insurance sold to which private respondent
was liable for the payment of the documentary stamp
tax.
The deficiency of documentary stamp tax imposed on
private respondent is definitely not on the amount of the
original insurance coverage, but on the increase of the
amount insured upon the effectivity of the "Junior Estate
Builder Policy."
Finally, it should be emphasized that while tax avoidance
schemes and arrangements are not prohibited,10 tax laws
cannot be circumvented in order to evade the payment
of just taxes. In the case at bar, to claim that the increase
in the amount insured (by virtue of the automatic
increase clause incorporated into the policy at the time
of issuance) should not be included in the computation
of the documentary stamp taxes due on the policy would
be a clear evasion of the law requiring that the tax be
computed on the basis of the amount insured by the
policy.

WHEREFORE, the petition is hereby given DUE

COURSE. The decision of the Court of Appeals is SET
ASIDE insofar as it affirmed the decision of the Court of
Tax Appeals nullifying the deficiency stamp tax
assessment petitioner imposed on private respondent in
the amount of P464,898.75 corresponding to the increase
in 1984 of the sum under the policy issued by
respondent.1âwphi1.nêt

SO ORDERED.