MRS. HENRY E. HARDING, and her husband, plaintiffs-appellees, vs. COMMERCIAL UNION ASSURANCE COMPANY, defendant-appellant.

This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest, alleged to be due under the terms of a policy of insurance. The trial court gave plaintiffs judgment for the amount demanded, with interest and costs, and from that decision the defendant appeals. The court below stated the issues made by the pleadings in this case, and its finding of fact, as follows: It is alleged by plaintiffs and admitted by defendant that plaintiffs are husband and wife and residents of the city of Manila; that the defendant is a foreign corporation organized and existing under and by virtue of the laws of Great Britain and duly registered in the Philippine Islands, and Smith, Bell & Co. (limited), a corporation organized and existing under the laws of the Philippine Islands, with its principal domicile in the city of Manila, is the agent in the Philippine Islands of said defendant. The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs. Henry E. Harding was the owner of a Studebaker automobile, registered number 2063, in the city of Manila; that on said date; in consideration of the payment to the defendant of the premium of P150, by said plaintiff, Mrs. Henry E. Harding, with the consent of her husband, the defendant by its duly authorized agent, Smith, Bell & Company (limited), made its policy of insurance in writing upon said automobile was set forth in said policy to be P3,000 that the value of said automobile was set forth in said policy (Exhibit A) to be P3,000; that on March 24, 1916, said automobile was totally destroyed by fire; that the loss thereby to plaintiffs was the sum of P3,000; that thereafter, within the period mentioned in the said policy of insurance, the plaintiff, Mrs. Henry E. Harding, furnished the defendant the proofs of her said loss and interest, and otherwise performed all the conditions of said policy on her part, and that the defendant has not paid said loss nor any part thereof, although due demand was made upon defendant therefor. The defendant, by its answer, admitted the allegations of the residence and status of the parties and denied all the other allegation of the said complaint, and for a separate and affirmative defense alleged (1) that on February 17, 1916, at the city of Manila, P.I. the defendant upon request of plaintiff, Mrs. Henry E. Harding, issued to the said plaintiff the policy of insurance on an automobile alleged by the said plaintiff to be her property; that the said request for the issuance of said policy of insurance was made by means of a proposal in writing signed and delivered by said plaintiff to the defendant, guaranteeing the truth of the statements contained therein which said proposal is referred to in the said policy of insurance made a part thereof; (2) that certain of the statements and representations contained in said proposal and warranted by said plaintiff to be true, to wit: ( a) the price paid by the proposer for the said automobile; (b) the value of said automobile at the time of the execution and delivery of the said proposal and (c) the ownership of said automobile, were false and known to be false by the said plaintiff at the time of signing and delivering the said proposal and were made for the purpose of misleading and deceiving the defendant, and inducing the defendant, relying upon the warranties, statements, and representations contained in the said proposal and believing the same to be true, issued the said policy of insurance. The defendant prays that judgment be entered declaring the said policy of insurance to be null and void, and that plaintiffs take nothing by this action; and for such further relief as to the court may seem just and equitable. The evidence in this case shows that some time in the year 1913 Levy Hermanos, the Manila agents for the Studebaker automobile, sold the automobile No. 2063 to John Canson for P3,200 (testimony of Mr. Diehl); that under date of October 14, 1914, John Canson sold the said automobile to Henry Harding for the sum of P1,500 (Exhibit 2); that under date of November 19, 1914, the said Henry Harding sold the said automobile No. 2063 to J. Brannigan, of Los Baos, Province of Laguna, P.I., for the sum of P2,000 (Exhibit 3); that under date of December 20, 1915, J. C. Graham of Los Baos, Province of Laguna, P.I., sold the said automobile No. 2063 to Henry Harding of the city of Manila for the sum of P2,800 (Exhibit 4 and testimony of J. C. Graham); that on or about January 1, 1916, the said Henry Harding gave the said automobile to his wife; Mrs. Henry E. Harding, one of the plaintiffs, as a

present; that said automobile was repaired and repainted at the Luneta Garage at a cost of some P900 (testimony of Mr. Server); that while the said automobile was at the Luneta Garage; the said Luneta Garage, acting as agent for Smith, Bell & Company, (limited), solicited of the plaintiff Mrs. Harding the insurance of said automobile by the defendant Company (testimony of Mrs. Henry Harding and Mr. Server); that a proposal was filled out by the said agent and signed by the plaintiff Mrs. Henry E. Harding, and in said proposal under the heading "Price paid by proposer," is the amount of "3,500" and under another heading "Present value" is the amount of "3,000" (Exhibit 1). The evidence tends to show that after the said proposal was made a representative of the Manila agent of defendant went to the Luneta Garage and examined said automobile No. 2063 and Mr. Server, the General Manager of the Luneta Garage, an experienced automobile mechanic, testified that at the time this automobile was insured it was worth about P3,000, and the defendant, by and through its said agent Smith, Bell & Company (limited), thereafter issued a policy of insurance upon proposal in which policy the said automobile was described as of the "present value" of P3,000 and the said defendant charged the said plaintiff Mrs. Henry E. Harding as premium on said policy the sum of P150, or 5 per cent of the then estimated value of P3,000. (Exhibit A.) The "Schedule" in said policy of insurance describes the automobile here in question, and provides in part of follows: "Now it is hereby agreed as follows: "That during the period above set forth and during any period for which the company may agree to renew this policy the company will subject to the exception and conditions contained herein or endorsed hereon indemnify the insured against loss of or damage to any motor car described in the schedule hereto (including accessories) by whatever cause such loss or damage may be occasioned and will further indemnify the insured up to the value of the car or P3,000 whichever is the greater against any claim at common law made by any person (not being a person in the said motor car nor in the insured's service) for loss of life or for accidental bodily injury or damage to property caused by the said motor car including law costs payable in connection with such claim when incurred with the consent of the company." The evidence further shows that on March 24, 1916, the said automobile was totally destroyed by fire, and that the iron and steel portions of said automobile which did not burn were taken into the possession of the defendant by and through its agent Smith, Bell & Company (limited), and sold by it for a small sum, which had never been tendered to the plaintiff prior to the trial of this case, but in open court during the trial the sum of P10 as the proceeds of such sale was tendered to plaintiff and refused. Upon the facts so found, which we hold are supported by the evidence, the trial judge decided that there was no proof of fraud on the part of plaintiff in her statement of the value of the automobile, or with respect to its ownership; that she had an insurable interest therein; and that defendant, having agreed to the estimated value, P3,000, and having insured the automobile for that amount, upon the basis of which the premium was paid, is bound by it and must pay the loss in accordance with the stipulated insured value. The assignments of error made on behalf of appellant put in issue the correctness of those conclusions of law, and some others of minor importance relating to the exclusion of evidence. Disposing of the minor objections first, as we have reached the conclusion that the trial court was right in holding that the defendant is bound by the estimated value of the automobile upon which policy was issued, and that the plaintiff was not guilty of fraud in regard thereto, the exclusion of the testimony of the witness Diehl is without importance. It merely tended to show the alleged actual value of the automobile, and in the view we take of the case such evidence was irrelevant. Appellant contends that Mrs. Harding was not the owner of the automobile at the time of the issuance of the policy, and, therefore, had no insurable interest in it. The court below found that the automobile was given to plaintiff by her husband shortly after the issuance of the policy here in question. Appellant does not dispute the correctness of this finding, but contends that the gift was void, citing article 1334 of the Civil Code which provides that "All gifts between spouses during the marriage shall

be void. Moderate gifts which the spouses bestow on each other on festive days of the family are not included in this rule." We are of the opinion that this contention is without merit. In the case of Cook vs. McMicking 27 Phil. Rep., 10), this court said: It is claimed by the appellants that the so-called transfer from plaintiff's husband to her was completely void under article 1458 of the Civil Code and that, therefore, the property still remains the property of Edward Cook and subject to levy under execution against him. In our opinion the position taken by appellants is untenable. They are not in a position to challenge the validity of the transfer, if it may be called such. They bore absolutely no relation to the parties to the transfer at the time it occurred and had no rights or interests inchoate, present, remote, or otherwise, in the property in question at the time the transfer occurred. Although certain transfers from husband to wife or from wife to husband are prohibited in the article referred to, such prohibition can be taken advantage of only by persons who bear such a relation to the parties making the transfer or to the property itself that such transfer interferes with their rights or interests. Unless such a relationship appears the transfer cannot be attacked. Even assuming that defendant might have invoked article 1334 as a defense, the burden would be upon it to show that the gift in question does not fall within the exception therein established. We cannot say, as a matter of law, that the gift of an automobile by a husband to his wife is not a moderate one. Whether it is or is not would depend upon the circumstances of the parties, as to which nothing is disclosed by the record. Defendant contends that the statement regarding the cost of the automobile was a warranty, that the statement was false, and that, therefore, the policy never attached to the risk. We are of the opinion that it has not been shown by the evidence that the statement was false on the contrary we believe that it shows that the automobile had in fact cost more than the amount mentioned. The court below found, and the evidence shows, that the automobile was bought by plaintiff's husband a few weeks before the issuance of the policy in question for the sum of P2,800, and that between that time and the issuance of the policy some P900 was spent upon it in repairs and repainting. The witness Server, an expert automobile mechanic, testified that the automobile was practically as good as new at the time the insurance was effected. The form of proposal upon which the policy was issued does not call for a statement regarding the value of the automobile at the time of its acquisition by the applicant for the insurance, but merely a statement of its cost. The amount stated was less than the actual outlay which the automobile represented to Mr. Harding, including repairs, when the insurance policy was issued. It is true that the printed form calls for a statement of the "price paid by the proposer," but we are of the opinion that it would be unfair to hold the policy void simply because the outlay represented by the automobile was made by the plaintiff's husband and not by his wife, to whom he had given the automobile. It cannot be assumed that defendant should not have issued the policy unless it were strictly true that the price representing the cost of the machine had been paid by the insured and by no other person that it would no event insure an automobile acquired by gift, inheritance, exchange, or any other title not requiring the owner to make a specific cash outlay for its acquisition. Furthermore, the court below found and the evidence shows, without dispute, that the proposal upon which the policy in question was issued was made out by defendant's agent by whom the insurance was solicited, and that appellee simply signed the same. It also appears that an examiner employed by the defendant made an inspection of the automobile before the acceptance of the risk, and that the sum after this examination. The trial court found that Mrs. Harding, in fixing the value of the automobile at P3,000, acted upon information given her by her husband and by Mr. Server, the manager of the Luneta Garage. The Luneta Garage, it will be remembered, was the agent of the defendant corporation in the solicitation of the insurance. Mrs. Harding did not state of her own knowledge that the automobile originally cost P3,000, or that its value at the time of the insurance was P3,000. She merely repeated the information which had been given her by her husband, and at the same time disclosed to defendant's agent the source of her information. There is no evidence to sustain the contention that this communication was made in bad faith. It appears that the statements in the proposal as to the price paid for the automobile and as to its value were written by Mr. Quimby who solicited the insurance on behalf of defendant, in his capacity as an employee of the Luneta Garage, and wrote out the proposal for Mrs. Harding to sign. Under these circumstances, we do not

think that the facts stated in the proposal can be held as a warranty of the insured, even if it should have been shown that they were incorrect in the absence of proof of willful misstatement. Under such circumstance, the proposal is to be regarded as the act of the insurer and not of the insured. This question was considered in the case of the Union Insurance Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in which the Supreme Court of the United States said: This question has been decided differently by courts of the highest respectability in cases precisely analogous to the present. It is not to be denied that the application logically considered, is the work of the assured, and if left to himself or to such assistance as he might select, the person so selected would be his agent, and he alone would be responsible. On the other hand, it is well-known, so well that no court would be justified in shutting its eyes to it, that insurance companies organized under the laws of one State, and having in that State their principal business office, send these agents all over the land, with directions to solicit and procure applications for policies furnishing them with printed arguments in favor of the value and necessity of life insurance, and of the special advantages of the corporation which the agent represents. They pay these agents large commissions on the premiums thus obtained, and the policies are delivered at their hands to the assured. The agents are stimulated by letters and instructions to activity in procuring contracts, and the party who is in this manner induced to take out a policy, rarely sees or knows anything about the company or its officers by whom it is issued, but looks to and relies upon the agent who has persuaded him to effect insurance as the full and complete representative of the company, in all that is said or done in making the contract. Has he not a right to so regard him? It is quite true that the reports of judicial decisions are filled with the efforts of these companies, by their counsel, to establish the doctrine for the acts of these agents to the simple receipt of the premium and delivery of the policy, the argument being that, as to all other acts of the agent, he is the agent of the assured. This proposition is not without support in some of the earlier decision on the subject; and, at a time when insurance companies waited for parties to come to them to seek assurance, or to forward applications on their own motion, the doctrine had a reasonable foundation to rest upon. But to apply such a doctrine, in its full force, to the system of selling policies through agents, which we have described, would be a snare and a delusion, leading, as it has done in numerous instances, to the grossest frauds, of which the insurance corporations receive the benefits, and the parties supposing themselves insured are the victims. The tendency of the modern decisions in this country is steadily in the opposite direction. The powers of the agent are, prima facie, co-extensive with the business intrusted to his care, and will not be narrowed by limitations not communicated to the person with whom he deals. (Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins. Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins. Co., 16 Wis., 241; Davenport vs. Ins. Co., 17 Iowa, 276.) An insurance company, establishing a local agency, must be held responsible to the parties with whom they transact business, for the acts and declarations of the agent, within the scope of his employment, as if they proceeded from the principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517; Hortwitz vs. Ins. Co., 40 Mo., 557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins. Co. vs. Bruner, 23 Pa., 50.) In the fifth edition of American Leading Cases, 917, after a full consideration of the authorities, it is said: "By the interested or officious zeal of the agents employed by the insurance companies in the wish to outbid each other and procure customers, they not unfrequently mislead the insured, by a false or erroneous statement of what the application should contain; or, taking the preparation of it into their own hands, procure his signature by an assurance that it is properly drawn, and will meet the requirements of the policy. The better opinion seems to be that, when this course is pursued, the description of the risk should, though nominally proceeding from the insured, be regarded as the act of the insurers." (Rowley vs. Empire Ins. Co., 36 N.Y., 550.) The modern decisions fully sustain this proposition, and they seem to us founded on reason and justice, and meet our entire approval. This principle does not admit oral testimony to vary or contradict that which is in writing, but it goes upon the idea that the writing offered in evidence was not the instrument of the party whose name is signed to it; that it was procured under such circumstances by the other side as estops that side from using it or relying on its contents; not that it may be contradicted by oral testimony, but that it may be shown by such testimony that it cannot be lawfully used against the party whose name is signed to it. ( See also Am. Life Ins. Co. vs. Mahone, 21 Wallace, 152.)

The defendant, upon the information given by plaintiff, and after an inspection of the automobile by its examiner, having agreed that it was worth P3,000, is bound by this valuation in the absence of fraud on the part of the insured. All statements of value are, of necessity, to a large extent matters of opinion, and it would be outrageous to hold that the validity of all valued policies must depend upon the absolute correctness of such estimated value. As was said by the Supreme Court of the United States in the case of the First National Bank vs. Hartford Fire Insurance Co. (5 Otto, 673; 24 L. ed., 563), at. p. 565 of the Lawyers Edition: The ordinary test of the value of property is the price it will commend in the market if offered for sale. But that test cannot, in the very nature of the case, be applied at the time application is made for insurance. Men may honestly differ about the value of property, or as to what it will bring in the market; and such differences are often very marked among those whose special business it is to buy and sell property of all kinds. The assured could do no more than estimate such value; and that, it seems, was all that he was required to do in this case. His duty was to deal fairly with the Company in making such estimate. The special finding shows that he discharged that duty and observed good faith. We shall not presume that the Company, after requiring the assured in his application to give the "estimated value," and then to covenant that he had stated all material facts in regard to such value, so far as known to him, and after carrying that covenant, by express words, into the written contract, intended to abandon the theory upon which it sought the contract, and make the absolute correctness of such estimated value a condition precedent to any insurance whatever. The application, with its covenant and stipulations, having been made a part of the policy, that presumption cannot be indulged without imputing to the Company a purpose, by studied intricacy or an ingenious framing of the policy, to entrap the assured into incurring obligations which, perhaps, he had no thought of assuming. Section 163 of the Insurance Law (Act No. 2427) provides that "the effect of a valuation in a policy of fire insurance is the same as in a policy of marine insurance." By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance is conclusive if the insured had an insurable interest and was not guilty of fraud. We are, therefore, of the opinion and hold that plaintiff was the owner of the automobile in question and had an insurable interest therein; that there was no fraud on her part in procuring the insurance; that the valuation of the automobile, for the purposes of the insurance, is binding upon the defendant corporation, and that the judgment of the court below is, therefore, correct and must be affirmed, with interest, the costs of this appeal to be paid by the appellant. So ordered. SEGUNDINA MUSGI, ET AL., plaintiffs-appellees, vs. WEST COAST LIFE INSURANCE CO., defendant-appellant. Courtney Whitney for appellants. Laurel, Del Rosario and Sabido for appellees. IMPERIAL, J.: The plaintiffs, as beneficiaries, brought suit against the defendant to recover the value of two life insurance policies. The defendant appealed from a judgment sentencing it to pay the plaintiffs the amount of said policies, and the costs. The principal facts of the case are embodied in the following written stipulation entered into by the parties: 1. That Arsenio T. Garcia was insured by the defendant company in the sum of P5,000 as evidenced by Policy No. 129454 effective as of July 25, 1931, hereby attached and marked as Exhibit A; 2. That the said Arsenio T. Garcia was again insured by the defendant company in the sum of P10,000 effective as of October 20, 1931, as evidenced by Policy No. 130381 hereby attached and marked as Exhibit B;

3. That the two policies aforementioned were valid and subsisting at the time of the death of the insured on December 30, 1932; the fact of said death is evidenced by the accompanying death certificate issued by the Civil Register of Pasay, Rizal, which is marked as Exhibit C; 4. That the plaintiffs herein are the beneficiaries in said policies, Segundina Musgi of Policy No. 129454, and Buenaventura Garcia of Policy No. 130381; 5. That demand was made upon the defendant company for the payment of the two policies above referred to, but the defendant company refused to pay on the grounds stated in the answer. The two policies were issued upon applications filed by the insured on July 20, 1931 and October 15, of the same year, respectively. In both applications, the insured had to answer inquiries as to his state of health and that of his family, which he did voluntarily. In each of the said applications the following question was asked: "1. What physician or practitioner or any other person not named above have you consulted or been treated by, and for what illness, or ailment? (If none, so state.)" In the first application, the insured answered "None", and in the second, "No". These answers of the insured as well as his other statements contained in his applications were one of the causes or considerations for the issuance of the policies, and they so positively appear therein. After the death of the insured and as a result of the demand made by the beneficiaries upon the defendant to pay the value of the policies, the latter discovered that the aforementioned answers were false and fraudulent, because the truth was that the insured, before answering and signing the applications and before the issuance of the policies, had been treated in the General Hospital by a lady physician for different ailments. It indisputably appears that between May 13 and 19, 1929, the insured had entered the General Hospital in Manila, and was treated by Doctor Pilar V. Cruz for peptic ulcer and chronic catarrhal nasopharyngitis; on August 5, 1930, he entered the same hospital and was treated by the same physician for chronic pyelocystitis and for incipient pulmonary tuberculosis; on the 13th of the same month he returned to the hospital and was treated by the same physician for chronic suppurative pyelocystitis and for chronic bronchitis; on the 20th of the same month he again entered the hospital and was treated by the same doctor for acute tracheo-bronchitis and chronic suppurative pyelocystitis; on the 27th of the same month he again entered the same hospital and was treated for the same ailments; on December 11, 1930, he again entered the hospital and was treated for the same ailments; on the 18th of the same month, he again entered the hospital and was treated for the same ailments; on the 28th of the same month he again entered the hospital and was treated for the same ailments, and, finally, on January 11, 1931, he again entered the hospital and was treated by the same doctor for the same ailments. The defendant contended at the outset that the two policies did not create any valid obligation because they were fraudulently obtained by the insured. The appealed decision holds that the health of the insured before the acceptance of his applications and the issuance of the policies could neither be discussed nor questioned by the defendant, because the insured was examined by three physicians of the company and all of them unanimously certified that he was in good health and that he could be properly insured. The question here is not whether the physicians' reports or the answers which the insured gave to them relative to his health were correct or not. It is admitted that such information was substantially correct, in the sense that the physicians of the defendant who examined the insured, for failure to make a detailed examination, did not discover the ailments suffered by the insured. However, the question raised for our determination is whether the two answers given by the insured in his applications are false, and if they were the cause, or one of the causes, which induced the defendant to issue the policies. On the first point, the facts above set out leave no room for doubt. The insured knew that he had suffered from a number of ailments, including incipient pulmonary tuberculosis, before subscribing the applications, yet he concealed them and omitted the hospital where he was confined as well as the name of the lady physician who treated him. That this concealment and the false statements constituted fraud, is likewise clear, because the defendant by reason thereof accepted the risk which it would otherwise have flatly refused. When not otherwise specially provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regarding contracts. Article 1261 of the Civil Code provides that there is no contract unless there should be, in addition to consent and a definite object, a consideration for the obligation established. And article 1276 provides that the statement of a false consideration shall render the contract void. The two answers being one of the considerations of the policies, and it appearing that they are false and fraudulent, it is evident that the insurance contracts were null and void and did not give rise to any right to recover their value or amount. A similar case was already decided by this court in Argente vs. West Coast Life Insurance Co. (51 Phil., 725). In that case the

insured concealed from the physician who examined her that she had consulted and had been treated by another physician for cerebral congestion and Bell's Palsy, and that she was addicted to alcohol, so much so that on one occasion she was confined in the San Lazaro Hospital suffering from "alcoholism"; this court held that such concealments and false and fraudulent statements rendered the policy null and void. In discussing the legal phase of the case, this court said: One ground for the rescission of a contract of insurance under the Insurance Act is a "concealment", which in section 25 is defined as "A neglect to communicate that which a party knows and ought to communicate". Appellant argues that the alleged concealment was immaterial and insufficient to avoid the policy. We cannot agree. In an action on a life insurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, the truth or falsity of the answers become the determining factor. If the policy was procured by fraudulent representations, the contract of insurance apparently set forth therein was never legally existent. It can fairly be assumed that had the true facts been disclosed by the assured, the insurance would never have been granted. In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following: "Concealment exists where the assured has knowledge of a fact material to the risk, and honesty, good faith and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. "Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full and fair statement of all is required. "It is also held that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld; so it is held under English law that if no inquiries are made and no fraud or design to conceal enters into the concealment the contract is not avoided. And it is determined that even though silence may constitute misrepresentation or concealment it is not of itself necessarily so as it is a question of fact. Nor is there a concealment justifying a forfeiture where the fact of insanity is not disclosed no questions being asked concerning the same. . . . "But it would seem that if a material fact is actually known to the assured, its concealment must of itself necessarily be a fraud, and if the fact is one which the assured ought to know, or is presumed to know, the presumption of knowledge ought to place the assured in the same position as in the former case with relation to material facts; and if the jury in such cases find the fact material, and one tending to increase the risk, it is difficult to see how the inference of a fraudulent intent or intentional concealment can be avoided. And it is declared that if a material fact is concealed by assured it is equivalent to a false representation that it does not exist and that the essentials are the truth of the representations whether they were intended to mislead and did insurer accept them as true and act upon them to his prejudice. So it is decided that under a stipulation voiding the policy for concealment or misrepresentation of any material fact or if his interest is not truly stated or is other than the sole and unconditional ownership the facts are unimportant that insured did not intend to deceive or withhold information as to encumbrances even though no questions were asked. And if insured while being examined for life insurance, and knowing that she had heart disease, falsely stated that she was in good health, and though she could not read the application, it was explained to her and the questions asked through an interpreter, and the application like the policy contained a provision that no liability should be incurred unless the policy was delivered while the insured was in good health, the court properly directed a verdict for the insurer, though a witness who was present at the examination testified that the insured was not asked whether she had heart disease. xxx xxx xxx

"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 principal question, therefore, must be, Was the assurer misled or deceived into entering a

contract obligation or in fixing the premium of insurance by a withholding of material information or facts within the assured's knowledge or presumed knowledge? "It therefore follows that the assurer in assuming a risk is entitled to know every material fact of which the assured has exclusive or peculiar knowledge, as well as all material facts which directly tend to increase the hazard or risk which are known by the assured, or which ought to be or are presumed to be known by him. And a concealment of such facts vitiates the policy. "It does not seem to be necessary ... that the ... suppression of the truth should have been willful." If it were but an inadvertent omission, yet if it were material to the risk and such as the plaintiff should have known to be so, it would render the policy void. But it is held that if untrue or false answers are given in response to inquiries and they relate to material facts the policy is avoided without regard to the knowledge or fraud of assured, although under the statute statements are representations which must be fraudulent to avoid the policy. So under certain codes the important inquiries are whether the concealment was willful and related to a matter material to the risk. xxx xxx xxx

"If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same, whether he believes them material or not. But notwithstanding this general rule it will not infrequently happen, especially in life risks, that the assured may have a knowledge actual or presumed of material facts, and yet entertain an honest belief that they are not material. ... The determination of the point whether there has or has not been a material concealment must rest largely in all cases upon the form of the questions propounded and the exact terms of the contract. Thus, where in addition to specifically named diseases the insured was asked whether he had had any sickness within ten years, to which he answered "No", and it was proven that within that period he had had a slight attack of pharyngitis, it was held a question properly for the jury whether such an inflammation of the throat was a "sickness" within the intent of the inquiry, and the court remarked on the appealed decision that if it could be held as a matter of law that the policy was thereby avoided, then it was a mere devise on the part of insurance companies to obtain money without rendering themselves liable under the policy. . . . ". . . The question should be left to the jury whether the assured truly represented the state of his health so as not to mislead or deceive the insurer; and if he did not deal in good faith with the insurer in that matter, then the inquiry should be made, Did he know the state of his health so as to be able to furnish a proper answer to such questions as are propounded. A Massachusetts case, if construed as it is frequently cited, would be opposed to the above conclusion; but, on the contrary, it sustains it, for the reason that symptoms of consumption had so far developed themselves within a few months prior to effecting the insurance as to induce a reasonable belief that the applicant had that fatal disease, and we should further construe this case as establishing the rule that such a matter cannot rest alone upon the assured's belief irrespective of what is a reasonable belief, but that it ought to be judged by the criterion whether the belief is one fairly warranted by the circumstances. A case in Indiana, however, holds that if the assured has some affection or ailment of one or more of the organs inquired about so well-defined and marked as to materially derange for a time the functions of such organ, as in the case of Bright's disease, the policy will be avoided by a nondisclosure, irrespective of the fact whether the assured knew of such ailment or not. . . ." In view of the foregoing, we are of the opinion that the appellant's first two assignments of error are well founded, wherefore, the appealed judgment is reversed and the defendant absolved from the complaint, with the costs of both instances to the plaintiffs. So ordered. EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners, vs. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents. O.F. Santos & P.C. Nolasco for petitioners. Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.: This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds from their late father's policy. The facts of the case as found by the Court of Appeals are: Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P 80,000.00. On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P 80,000.00 with respondent company. Said application was approved and Policy No. 1082467 was issued effective November 6,1973, with petitioners the beneficiaries thereof (Exhibit A). On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed with respondent company their claim for the proceeds of the life insurance policy. However, in a letter dated September 11, 1975, respondent company denied petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance (Exhibit 3). The premiums paid on the policy were thereupon refunded . Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and unreasonable, petitioners filed on November 27, 1975, a complaint against the former with the Office of the Insurance Commissioner, docketed as I.C. Case No. 218. After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92) The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit Hence, this petition. The petitioners raise the following issues in their assignment of errors, to wit: A. The conclusion in law of respondent Court that respondent insurer has the right to rescind the policy contract when insured is already dead is not in accordance with existing law and applicable jurisprudence. B. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the policy on grounds of concealment by the deceased assured, is contrary to the provisions of the policy contract itself, as well as, of applicable legal provisions and established jurisprudence. C. The inference of respondent Court that respondent insurer was misled in issuing the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7) The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action. The contention is without merit. The pertinent section in the Insurance Code provides:

Section 48. 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 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 rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added to prevent the insurance company from exercising a right to rescind after the death of the insured. 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 noted by the Court of Appeals, to wit: The policy was issued on November 6,1973 and the insured died on April 26,1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period had lapsed, respondent company is not, therefore, barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid on September 11, 1975, previous to the commencement of this action on November 27,1975. (Rollo, pp. 99-100) xxx xxx xxx The petitioners contend that there could have been no concealment or misrepresentation by their late father because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen to do so. The petitioners state: Here then is a case of an assured whose application was submitted because of repeated visits and solicitations by the insurer's agent. Assured did not knock at the door of the insurer to buy insurance. He was the object of solicitations and visits. Assured was a man of means. He could have obtained a bigger insurance, not just P 80,000.00. If his purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year period, he certainly could have gotten a bigger insurance. He did not. Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It was he who accomplished the application, Part II, medical. Philamlife did not. Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo) xxx xxx xxx This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by agents in selling insurance. At one time or another most of us have been subjected to that pressure, that practice. This court took judicial cognizance of the whirlwind pressure of insurance selling-especially of the agent's practice of 'supplying the information, preparing and answering the application, submitting the application to their companies, concluding the transactions and otherwise smoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page 205: It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressure of modern salesmanship. Insurance companies send detailed instructions to their agents to solicit and procure applications. These agents are to be found all over the length and breadth of the land. They are stimulated to more active efforts by contests and by the keen competition offered by the other rival insurance companies. They supply all the information, prepare and answer the applications, submit the applications to their companies, conclude the transactions, and otherwise smooth out all difficulties. The agents in short do what the company set them out to do. The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship was not overwhelming as it is now; when the population of this country was less than one-fourth of what it is now; when the insurance companies competing with one another could be counted by the fingers. (pp. 140-142, Rollo) xxx xxx xxx In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of insurance salesmanship this Court itself has long denounced, the assured who dies within the two-year period, should stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo) The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second paragraph of Section 48. The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability. The petitioners' interpretation would give rise to the incongruous situation where the beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be allowed to collect on the policy even if the insured fraudulently concealed material facts. The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's language to the insured. They state that the insurer should have presented its two medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends that the medical examination must be conducted before its issuance otherwise the insurer "waives whatever imperfection by ratification." We agree with the Court of Appeals which ruled: On the other hand, petitioners argue that no evidence was presented by respondent company to show that the questions appearing in Part II of the application for insurance were asked, explained to and understood by the deceased so as to prove concealment on his part. The same is not well taken. The deceased, by affixing his signature on the application form, affirmed the correctness of all the entries and answers appearing therein. It is but to be expected that he, a businessman, would not have affixed his signature on the application form unless he clearly understood its significance. For, the presumption is that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the deceased was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December 14, 1973 for consolation and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased of his consultations and treatments for hypertension, diabetes and liver disorders, respondent company was thus misled into accepting the risk and approving his application as medically standard (Exhibit 5- C) and dispensing with further medical investigation and examination (Exhibit 5-A). For as long as no adverse medical history is revealed in the application form, an applicant for insurance is presumed to be healthy and physically fit and no further medical investigation or examination is conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98) There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite: It is a matter of common knowledge that large amounts of money are collected from ignorant persons by companies and associations which adopt high sounding titles and print the amount of benefits they agree to pay in large black-faced type, following such undertakings by fine print conditions which destroy the substance of the promise. All provisions, conditions, or exceptions which in any way tend to work a forfeiture of the policy should be construed most strongly against those for whose benefit they are inserted, and most favorably toward those against whom they are meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184) There is no showing that the questions in the application form for insurance regarding the insured's medical history are in smaller print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the Surgeon General of the United States is necessary, that is for Congress or the Insurance Commission to provide as protection against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to show that the factual findings of the respondent court are not based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge that burden. WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is AFFIRMED. SO ORDERED. 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, 1 this Court affirmed the judgment of the Court 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.

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 Xray 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. Moran, Paras and Bocobo, JJ., concur.