G.R. No.

L-48563 May 25, 1979

VICENTE E. TANG, petitioner,

vs.
HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.

Ambrosio D. Go for petitioner.

Ferry, De la Rosa, Deligero Salonga & Associates for private respondent.

ABAD SANTOS, J.:

This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R. No. 55407-R, June
8, 1978) which affirmed the decision of the Court of First Instance of Manila in Civil Case No. 90062 wherein
the petitioner herein was the plaintiff and Philippine American Life Insurance Co. the herein respondent was
the defendant. The action was for the enforcement of two insurance policies that had been issued by the
defendant company under the following circumstances.

On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke only Chinese,
applied for an insurance on her life for P60,000 with the respondent Company. The application consisted of
two parts, both in the English language. The second part of her application dealt with her state of health and
because her answers indicated that she was healthy, the Company issued her Policy No. 0690397, effective
October 23, 1965, with her nephew Vicente E. Tang, herein Petitioner, as her beneficiary,

On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional
insurance on her life for P40,000. Considering that her first application had just been approved, no further
medical examination was made but she was required to accomplish and submit Part I of the application
which reads: "I/WE HEREBY DECLARE AND AGREE that all questions, statements answers contained
herein, as well as those made to or to be made to the Medical Examiner in Part II are full, complete and true
and bind all parties in interest under the policy herein applied for; that there shall be no contract of insurance
unless a policy is issued on this application and the fun first premium thereon, according to the mode of
payment specified in answer to question 4D above, actually paid during the lifetime and good health of the
Proposed Insured." Moreover, her answers in Part II of her previous application were used in appraising her
insurability for the second insurance. On November 28, 1965, Policy No. 695632 was issued to Lee See
Guat with the same Vicente E. Tang as her beneficiary.

On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies, Vicente
E. Tang claimed for their face value in the amount of P100,000 which the insurance company refused to pay
on the ground that the insured was guilty of concealment and misrepresentation at the time she applied for
the two policies. Hence, the filing of Civil Case No. 90062 in the Court of First Instance of Manila which
dismissed the claim because of the concealment practised by the insured in violation of the Insurance Law.

On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals stated, inter alia:
"There is no doubt that she deliberately concealed material facts about her physical condition and history
and/or conspired with whoever assisted her in relaying false information to the medical examiner, assuming
that the examiner could not communicate directly with her."

The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former.

According to the Code Commission: "This rule is especially necessary in the Philippines where unfortunately
there is still a fairly large number of illiterates, and where documents are usually drawn up in English or
Spanish." (Report of the Code Commission, p. 136.) Art. 1332 supplements Art. 24 of the Civil Code which
provides that " In all contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap,
the court must be vigilant for his protection.

It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Chinese, she
could not be held guilty of concealment of her health history because the applications for insurance were in
English and the insurer has not proved that the terms thereof had been fully explained to her.

It should be noted that under Art. 1332 above quoted, the obligation to show that the terms of the contract
had been fully explained to the party who is unable to read or understand the language of the contract, when
fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the insurance company is not
seeking to enforce the contracts; on the contrary, it is seeking to avoid their performance. It is petitioner who
is seeking to enforce them even as fraud or mistake is not alleged. Accordingly, respondent company was
under no obligation to prove that the terms of the insurance contracts were fully explained to the other party.
Even if we were to say that the insurer is the one seeking the performance of the contracts by avoiding
paying the claim, it has to be noted as above stated that there has been no imputation of mistake or fraud by
the illiterate insured whose personality is represented by her beneficiary the petitioner herein. In sum, Art.
1332 is inapplicable to the case at bar. Considering the findings of both the CFI and Court of Appeals that
the insured was guilty of concealment as to her state of health, we have to affirm.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special pronouncement as to
costs.

SO ORDERED.

G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.

QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its
Resolution dated April 22, 1992, denying reconsideration thereof.

We grant the petition.

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.

G.R. No. L-16163 February 28, 1963

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS SATURNINO,
minor,plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

Eleazaro A. Samson for plaintiffs-appellants.

Abello & Macias for defendant-appellee.

MAKALINTAL, J.:

Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover the sum of
P5,000.00, corresponding to the face value of an insurance policy issued by defendant on the life of
Estefania A. Saturnino, and the sum of P1,500.00 as attorney's fees. Defendant, now appellee, set up
special defenses in its answer, with a counterclaim for damages allegedly sustained as a result of the
unwarranted presentation of this case. Both the complaint and the counterclaim were dismissed by the trial
court; but appellants were declared entitled to the return of the premium already paid; plus interest at 6% up
to January 8, 1959, when a check for the corresponding amount — P359.65 — was sent to them by
appellee.

The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses
with the medical examination of the applicant usually required in ordinary life policies. However, detailed
information is called for in the application concerning the applicant's health and medical history. The written
application in this case was submitted by Saturnino to appellee on November 16, 1957, witnessed by
appellee's agent Edward A. Santos. The policy was issued on the same day, upon payment of the first
year's premium of P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza.
Appellants here, who are her surviving husband and minor child, respectively, demanded payment of the
face value of the policy. The claim was rejected and this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was
operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and
the glands found in the right armpit. She stayed in the hospital for a period of eight days, after which she
was discharged, although according to the surgeon who operated on her she could not be considered
definitely cured, her ailment being of the malignant type.

Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in her
application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had,
among other ailments listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding five years; and that she had
never been treated for nor did she ever have any illness or disease peculiar to her sex, particularly of the
breast, ovaries, uterus, and menstrual disorders. The application also recites that the foregoing declarations
constituted "a further basis for the issuance of the policy."

The question at issue is whether or not the insured made such false representations of material facts as to
avoid the policy. There can be no dispute that the information given by her in her application for insurance
was false, namely, that she had never had cancer or tumors, or consulted any physician or undergone any
operation within the preceding period of five years. Are the facts then falsely represented material? The
Insurance Law (Section 30) provides that "materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the proposed contract, or in making his inquiries." It seems to be the contention of appellants
that the facts subject of the representation were not material in view of the "non-medical" nature of the
insurance applied for, which does away with the usual requirement of medical examination before the policy
is issued. The contention is without merit. If anything, the waiver of medical examination renders even more
material the information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not. It is logical to assume that if appellee had been
properly apprised of the insured's medical history she would at least have been made to undergo medical
examination in order to determine her insurability.

Appellants argue that due information concerning the insured's previous illness and operation had been
given to appellees agent Edward A. Santos, who filled the application form after it was signed in blank by
Estefania A. Saturnino. This was denied by Santos in his testimony, and the trial court found such testimony
to be true. This is a finding of fact which is binding upon us, this appeal having been taken upon questions of
law alone. We do not deem it necessary, therefore, to consider appellee's additional argument, which was
upheld by the trial court, that in signing the application form in blank and leaving it to Edward A. Santos to fill
(assuming that to be the truth) the insured in effect made Santos her agent for that purpose and
consequently was responsible for the errors in the entries made by him in that capacity.

In the application for insurance signed by the insured in this case, she agreed to submit to a medical
examination by a duly appointed examiner of appellee if in the latter's opinion such examination was
necessary as further evidence of insurability. In not asking her to submit to a medical examination,
appellants maintain, appellee was guilty of negligence, which precluded it from finding about her actual state
of health. No such negligence can be imputed to appellee. It was precisely because the insured had given
herself a clean bill of health that appellee no longer considered an actual medical checkup necessary.

Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insured herself
did not know, since her doctor never told her, that the disease for which she had been operated on was
cancer. In the first place the concealment of the fact of the operation itself was fraudulent, as there could not
have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it is not
necessary to show actual fraud on the part of the insured. In the case of Kasprzyk v. Metropolitan Insurance
Co., 140 N.Y.S. 211, 214, it was held:

Moreover, if it were the law that an insurance company could not depend a policy on the ground of
misrepresentation, unless it could show actual knowledge on the part of the applicant that the
statements were false, then it is plain that it would be impossible for it to protect itself and its honest
policyholders against fraudulent and improper claims. It would be wholly at the mercy of any one
who wished to apply for insurance, as it would be impossible to show actual fraud except in the
extremest cases. It could not rely on an application as containing information on which it could act.
There would be no incentive to an applicant to tell the truth.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1äwphï1.ñët

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as "negligence to communicate that which a party knows
and ought to communicate" (Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life
Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed., Vol. 3:

"The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives
the insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer,
relying upon the belief that the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby
induced to estimate the risk upon a false basis that it does not exist."

The judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium
already paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.