Page11Insurance Part V CasesAtty. ReyesFIRST DIVISION

[G.R. No. L-38613. February 25, 1982.]

PACIFIC TIMBER EXPORT CORPORATION,Petitioner, v. THE HONORABLE COURT OF APPEALS and WORKMENS INSURANCE COMPANY, INC.,Respondents.

Jose J. Ferrer, Jr. & Augusto Z. Fajardo forPetitioner.

Augustin J. Guillermo for respondent Workmens Ins. Co., Inc.

SYNOPSISAfter respondent insurance company issued to petitioner a Cover Note for the temporary insurance of 1,250,000 board feet of logs for exportation to Okinawa and Japan, which included loss during loading operations, but before the issuance of the regular marine cargo policies which covered only loss during transit, thirty pieces of said logs were lost while being loaded in petitioners vessel. Petitioner sought to recover the loss but private respondent refused on the ground that although said loss was covered under the Cover Note, nevertheless, the same became null and void upon the issuance of the marine policies which did not cover said loss. The Court of First Instance of Manila rendered a decision in favor of petitioner but on appeal, said decision was reversed by the Court of Appeals.chanroblesvirtual|awlibrary

On review, the Supreme Court held that a Cover Note is not a mere application for insurance but in a real sense a contract to be integrated to the regular policies subsequently issued and the fact that no separate premium was paid on the Cover Note before the loss occurred does not militate against recovery thereunder.

Appealed decision, set aside.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; COVER NOTE; NO SEPARATE PREMIUMS ARE REQUIRED TO BE PAID THEREON. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of petitioners contention that the Cover Note is not without a consideration, for no such premium could have been paid, since by the nature of the Cover Note it did not contain, as all Cover Notes do not contain, particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note.

2. ID.; ID.; ID.; A CONTRACT AND NOT A MERE APPLICATION FOR INSURANCE; DEEMED INTEGRATED TO THE REGULAR POLICIES SUBSEQUENTLY ISSUED. Where the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer.

3. ID.; ID.; ID.; RISK INSURED AGAINST NOT INCLUDED IN THE REGULAR MARINE INSURANCE POLICIES; IMMATERIAL AS LOSS CAN BE DETERMINED INDEPENDENTLY; CASE AT BAR. While it may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations, this had to be so because the risk insured against is not for loss during loading operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined independently, as in fact it had been so ascertained as the instance of private respondent itself when it sent its own adjuster to investigate and assess the lost, after the issuance of the marine insurance policies.

4. ID.; ID.; ID.; FUNCTIONS AS A "BINDER" ; SUPPORTED BY PRESUMPTION OF VALIDITY OF POLICY DELIVERED WITHOUT REQUIRING PAYMENT OF THE PREMIUM. Now payment of premium on the Cover Note is no cause for the petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid (Miller v. Brooklyn L. Inc., Co. (U.S.) 12 Wall, 285, 20 Led. 39 Am. Jur. New Insurance Sec. 1845, p. 907, note 2; Sec. 1079, p. 246, note 20.).

5. ID.; ID.; CLAIM ON THE INSURANCE AGREEMENT; DEFENSE OF DELAY MUST BE PROMPTLY AND SPECIFICALLY ASSERTED; CASE AT BAR. Section 84 of the Insurance Act requires that the ground of delay must be promptly and specifically asserted when a claim on the insurance agreement is made. The nature of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground upon which to object to a claim against it. In the case at bar, where the undisputed facts show that instead of invoking the ground of delay in objecting to petitioners claim of recovery on the cover note, respondent company took steps clearly indicative that this particular ground for objection to the claim was never in its mind, the Supreme Court is satisfied and convinced, even on the assumption that there was delay, that waiver can successfully be raised against privateRespondent.

D E C I S I O N

DE CASTRO,J.:

This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of First Instance of Manila in favor of petitioner and against private respondent which ordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of notice of loss on April 15, 1963 up to the complete payment, the sum of P3,000.00 as attorneys fees and the costs 1 thereby dismissing petitioners complaint with costs. 2chanroblesvirtual|awlibrary

The findings of fact of the Court of Appeals, which are generally binding upon this Court, except as shall be indicated in the discussion of the opinion of this Court the substantial correctness of such particular finding having been disputed, thereby raising a question of law reviewable by this Court 3 are as follows:jgc:chanrobles.com.ph

"On March 19, 1963, the plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMENS INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner" (Exhibit A).

"The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2, 1963. The two marine policies bore the numbers of 53 HO 1032 and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 HO 1032 (Exhibit B) was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 HO 1033 was for 853 pieces of logs equivalent to 695, 548 board feet (Exhibit C). The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft.

"After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the SS Woodlock which Docked about 500 meters from the shortline of the Diapitan Bay. The logs were taken from the log pond of the plaintiff and from which they were towed in rafts to the vessel. At about 10:00 oclock a.m. on March 29, 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident.

"In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of approximately 32 pieces of logs during loading of the SS Woodlock. The said letter (Exhibit F) reads as follows:chanrob1es virtual 1aw library

April 4, 1963

Workmens Insurance Company, Inc.

Manila, Philippines

Gentlemen:chanrob1es virtual 1aw library

This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft., Philippine Lauan and Apitong Logs. We would like to inform you that we have received advance preliminary report from our Office in Diapitan, Quezon that we have lost approximately 32 pieces of logs during loading of the S.S. Woodlock.

We will send you an accurate report all the details including values as soon as same will be reported to us.

Thank you for your attention, we wish to remain.

Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION(Sgd). EMMANUEL S.ATILANO

Asst. General Manager

Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963, as shown by the stamp impression appearing on the left bottom corner of said letter. The plaintiff subsequently submitted a Claim Statement demanding payment of the loss under Policies Nos. 53 HO 1033, and 53 HO 1033, in the total amount of P19,286.79 (Exhibit G).

"On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted its Report on August 23, 1963 (Exhibit H). In said report, the adjuster found that the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note No. 1010 insured for $70,000.00.

"On September 14, 1963, the adjustment company submitted a computation of the defendants probable liability on the loss sustained by the shipment, in the total amount of P11,042.04 (Exhibit 4).

"On January 13, 1964, the defendant wrote the plaintiff denying the latters claim, on the ground that defendants investigation revealed that the entire shipment of logs covered by the two marine policies No. 53 HO 1032 and 53 HO 1033 were received in good order at their point of destination. It was further stated that the said loss may not be considered as covered under Cover Note No. 1010 because the said Note had become null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033 (Exhibit J-1). The denial of the claim by the defendant was brought by the plaintiff to the attention of the Insurance Commissioner by means of a letter dated March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair and equitable to indemnify the insured under Cover Note No. 1010, and advised early settlement of the said marine loss and salvage claim (Exhibit L).

"On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of their attorneys, the claim of the plaintiff is being denied on the ground that the cover note is null and void for lack of valuable consideration (Exhibit M)." 4

Petitioner assigned as errors of the Court of Appeals, the following:chanrob1es virtual 1aw libraryI

"THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.II

"THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT." 5

1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the cover note is made subject to the terms and conditions of the marine policies, and the payment of premiums is one of the terms of the policies. From this undisputed fact, We uphold petitioners submission that the Cover Note was not without consideration for which the respondent court held the Cover Note as null and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of petitioners contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the respondent company (p. 33, tsn, September 24, 1965).

At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by private respondent after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. 6

It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. This had to be so because the risk insured against is not for loss during loading operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined independently, as in fact it had been so ascertained at the instance of private respondent itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The adjuster went as far as submitting his report to respondent, as well as its computation of respondents liability on the insurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due the petitioner on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 7

2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law requires this ground of delay to be promptly and specifically asserted when a claim on the insurance agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting to petitioners claim of recovery on the cover note, it took steps clearly indicative that this particular ground for objection to the claim was never in its mind. The nature of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground upon which to object to a claim against it.

As already stated earlier, private respondents reaction upon receipt of the notice of loss, which was on April 15, 1963, was to set in motion from July 1963 what would be necessary to determine the cause and extent of the loss, with a view to the payment thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report on August 23, 1963 and his computation of respondents liability on September 14, 1963. From April 15,1963 to July 1963, enough time was available for private respondent to determine if petitioner was guilty of delay in communicating the loss to respondent company. In the proceedings that took place later in the Office of the Insurance Commissioner, private respondent should then have raised this ground of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this Court fails to find a real and substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law, waiver can successfully be raised against privateRespondent. Thus Section 84 of the Insurance Act provides:chanrobles.com.ph : virtual law library

"Section 84. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or if he omits to take objection promptly and specifically upon that ground."cralaw virtua1aw library

From what has been said, We find duly substantiated petitioners assignments of error.

ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.

SO ORDERED.

Teehankee, Makasiar, Fernandez, Guerrero, Melencio-Herrera and Plana,JJ., concur.

[G.R. No. L-31845. April 30, 1979.]

GREAT PACIFIC LIFE ASSURANCE COMPANY,Petitioner, v. HONORABLE COURT OF APPEALS,Respondents.

[G.R. No. L-31878. April 30, 1979.]

LAPULAPU D. MONDRAGON,Petitioner, v. COURT OF APPEALS and NGO HING,Respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

SYNOPSISPrivate respondent, a duly authorized agent of Pacific Life, applied for a 20-year endowment policy on the life of his one-year old daughter, a mongoloid. He did not divulge each physical defect of his daughter. He paid the premium and was issued a binding deposit receipt. However, despite the branch managers favorable recommendation, the Company disapproved the application, because a 20-year endowment plan is not available for minors. Instead, it offered the Juvenile Triple Action Plan. The manager wrote back and again strongly recommended the approval of the application. At this point, the child died of influenza with complication of broncho-pneumonia.

In a suit filed by private respondent to recover the proceeds of the insurance, the trial court rendered judgment adverse to both petitioners. The Court of Appeals in its amended decision affirmed the trial courts decision in toto.

The decisive issues in these cases are: (1) whether the binding deposit receipt constituted a temporary contract of the life insurance in question; and (2) whether private respondent concealed the state of health and physical condition of his child.

The Supreme Court held that a "binding receipt" does not insure by itself; that no insurance contract was perfected between the parties with the non-compliance of the conditions provided in the binding receipt and concealment having been committed by privateRespondent.

SYLLABUS

1. INSURANCE CONTRACT; "BINDING DEPOSIT RECEIPT." Where the binding deposit receipt is intended to be merely a provisional or temporary insurance contract, and that the receipt merely acknowledged, on behalf of the insurance company, that the latters branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company, such binding deposit receipt does not become in force until the application is approved.

2. ID.; PERFECTION OF CONTRACT. A binding deposit receipt which is merely conditional does not insure outright. Thus, where an agreement is made between the applicant and the agent, no liability will attack until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application.

3. ID.; ID.; MEETING OF THE MIND. A contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. The contract, to be binding from the date of the application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement.

4. ID.; ID.; FAILURE OF AGENT TO COMMUNICATE THE REJECTION TO APPLICANT. The failure of the insurance companys agent to communicate to the applicant the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary contract. In the first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, being an authorized agent is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute he was therefore only taking a chance that the company will approve the recommendation of the agent for the acceptance and approval of the application in question. Secondly, having an insurable interest on the life of his daughter, aside from being an insurance agent and office associate of the branch, the applicant must have known and followed the progress on the processing of such application and could not pretend ignorance of the Companys rejection of the 20-year endowment life insurance application.

5. ID.; CONCEALMENT OF MATERIAL FACT. The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and perfect candor or openness and honestly; the absence of any concealment or deception, however slight [Blacks Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer. Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 25, Act 2427). Whether intentional or unintentional, the concealment entities the insurer to rescind the contract of insurance.

6. ID.; ID.; CASE AT BAR. The failure of the father who applied for a life insurance policy on the life of his daughter to divulge the fact that his daughter is a mongoloid, a congenital physical defect that could never be disguised, constitutes such concealment as to render the policy void. And where the applicant himself is an insurance agent, he ought to know, as he surely must have known, his duty and responsibility to supply such a material fact, and his failure to divulge such significant fact is deemed to have been done in bad faith.

D E C I S I O N

DE CASTRO,J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these petitions forcertiorariby way of appeal, from the amended decision of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Life Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P10,000.00 as attorneys fees plus costs of suits."cralaw virtua1aw library

In its original decision, the respondent Court of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved the petitioners from liability on the insurance policy, but ordered the reimbursement to appellee (herein private respondent) the amount of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by private respondent Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment life insurance on the ground that Pacific Life is the only insurance company not selling the 20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier referred to against both petitioners.

The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state that:jgc:chanrobles.com.ph

"A. If the Company or its agent, shall have received the premium deposit . . . and the insurance application, ON or PRIOR to the date of medical examination . . . said insurance shall be in force and in effect from the date of such medical examination, for such period as is covered by the deposit . . ., PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates under its rule for the amount of insurance and the kind of policy requested in the application.

D. If the Company does not accept the application on standard rate for the amount of insurance and/or the kind of policy requested in the application but issue, or offers to issue a policy for a different plan and/or amount . . ., the insurance shall not be in force and in effect until the applicant shall have accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If the applicant does not accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the surrender of this receipt." (Emphasis ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latters branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this Court, where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim v. Sun Life Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latters one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.chanrobles law library

As held in De Lim v. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. . . . The contract, to be binding from the date of the application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement."cralaw virtua1aw library

We are not impressed with private respondents contention that failure of petitioner Mondragon to communicate to him the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondents Brief, pp. 13-14). In the first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life bad rejected the proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an office associate of petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could not pretend ignorance of the Companys rejection of the 20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the original decision, the following:chanrob1es virtual 1aw library

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire for applicants father to have the application considered as one for a 20-year endowment plan was ever duly communicated to Ngo Hing, father of the minor applicant. I am not quite convinced that this was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of the application was not brought home to his knowledge. He must have been duly apprised of the rejection of the application for a 20-year endowment plan otherwise Mondragon would not have asserted that it was Ngo Hing himself who insisted on the application as originally filed thereby implicitly declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies are available in the company for minors below 7 years old. What he and Mondragon were apparently trying to do in the premises was merely to prod the company into going into the business of issuing endowment policies for minors just as other insurance companies allegedly do. Until such a definite policy is, however, adopted by the company, it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that it could not have, by then, issued at all." (Amended Decision, Rollo, pp. 52-53).

2. Relative to the second issue of alleged concealment, this Court is of the firm belief that private respondent had deliberately concealed the state of health and physical condition of his daughter Helen Go. When private respondent supplied the required essential data for the insurance application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he ought to know, as he surely must have known, his duty and responsibility to supply such a material fact. Had he divulged said significant fact in the insurance application form, Pacific Life would have verified the same and would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight [Blacks Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer (Field mans Insurance Co., Inc. v. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, id.: Yu Pang Cheng v. Court of Appeals, Et Al., 105 Phil. 930; Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.chanrobles.com : virtual law library

We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined, having been committed by herein privateRespondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against privateRespondent.

SO ORDERED.

[G.R. No. 139776. August 1, 2002.]

PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY,Petitioner, v. JUDGE LORE R. VALENCIA-BAGALACSA, Regional Trial Court of Libmanan, Camarines Sur, Branch 56, and EDUARDO Z. LUMANIOG, CELSO Z. LUMANIOG and RUBEN Z. LUMANIOG,Respondents.

D E C I S I O N

AUSTRIA-MARTINEZ,J.:

Before us is a petition for review oncertiorariunder Rule 45 of the Rules of Court. Petitioner Philippine American Life and General Insurance Company prays that the decision of the Court of Appeals promulgated on April 30, 1999 be reversed and set aside and that the Complaint filed against it by private respondents Eduardo Z. Lumaniog, Celso Z. Lumaniog and Ruben Z. Lumaniog before the Regional Trial Court of Libmanan, Camarines Sur, docketed as Civil Case No. L-787 be ordered dismissed on ground of prescription of action.chanrob1es virtua1 1aw 1ibrary

The facts of the case:chanrob1es virtual 1aw library

On June 20, 1995, private respondents, as legitimate children and forced heirs of their late father, Faustino Lumaniog, filed with the aforesaid RTC, a complaint for recovery of sum of money against petitioner alleging that: their father was insured by petitioner under Life Insurance Policy No. 1305486 with a face value of P50,000.00; their father died of "coronary thrombosis" on November 25, 1980; on June 22, 1981, they claimed and continuously claimed for all the proceeds and interests under the life insurance policy in the amount of P641,000.00, despite repeated demands for payment and/or settlement of the claim due from petitioner, the last of which is on December 1, 1994, petitioner finally refused or disallowed said claim on February 14, 1995; 1 and so, they filed their complaint on June 20, 1995.

Petitioner filed an Answer with Counterclaim and Motion to Dismiss, contending that: the cause of action of private respondents had prescribed and they are guilty of laches; it had denied private respondents claim in a letter dated March 12, 1982, signed by its then Assistant Vice President, Amado Dimalanta, on ground of concealment on the part of the deceased insured Faustino when he asserted in his application for insurance coverage that he had not been treated for indication of "chest pain, palpitation, high blood pressure, rheumatic fever, heart murmur, heart attack or other disorder of the heart or blood vessel" when in fact he was a known hypertensive since 1974; private respondents sent a letter dated May 25, 1983 2 requesting for reconsideration of the denial; in a letter dated July 11, 1983, it reiterated its decision to deny the claim for payment of the proceeds; 3 more than ten (10) years later, or on December 1, 1994, it received a letter from Jose C. Claro, a provincial board member of the province of Camarines Sur, reiterating the early request for reconsideration which it denied in a letter dated February 14, 1995. 4

Private respondents opposed the motion to dismiss. 5

On June 7, 1996, the RTC issued an Order which reads:jgc:chanrobles.com.ph

"After a perusal of the motion to dismiss filed by defendants counsel and the objection submitted by plaintiffs counsel, the Court finds that the matters treated in their respective pleadings are evidentiary in nature, hence, the necessity of a trial on the merits.

"Set therefore the hearing in this case on August 1, 1996 at 8:30 a.m., considering that the calendar of the Court is already filled up until the end of July. Notify parties and counsels.chanrob1es virtua1 1aw 1ibrary

"SO ORDERED." 6

Petitioners motion for reconsideration was denied by the RTC in its Order dated December 12, 1997 upholding however in the same Order the claim of private respondents counsel that the running of the 10-year period was "stopped" on May 25, 1983 when private respondents requested for a reconsideration of the denial and it was only on February 14, 1995 when petitioner finally decided to deny their claim that the 10-year period began to run. 7

Petitioner filed a petition forcertiorari(docketed as CA-G.R. SP No. 47885) under Rule 65 of the Rules of Court in the Court of Appeals and after the comment of the private respondents and reply of petitioner, the appellate court rendered its Decision, dated April 30, 1999, portions of which read as follows:jgc:chanrobles.com.ph

"Thus, this Court of the opinion and so holds that the prescriptive period to bring the present action commences to run only on February 14, 1995 (Rollo, pp. 25-26), the date when the petitioner finally rejected the claim of private respondents and not in 1983. The ten year period should instead be counted from the date of rejection by the insurer in this case February 14, 1995 since this is the time when the cause of action accrues.

"This fact was supported further by the letter of the petitioner to Atty. Claro dated December 20, 1994, stating that they were reviewing the claim and shall advise Atty. Claro of their action regarding his request for reconsideration (Id., p. 53).

"In the case of Summit Guaranty and Insurance Co., Inc. Vs. De Guzman (151 SCRA 389, 397-398), citing the case of Eagle Star Insurance Co., Ltd., Et. Al. v. Chia Yu, the Supreme Court held that:chanrob1es virtual 1aw library

The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit.

"In the same case, the case of ACCFA v. Alpha Insurance and Surety Co., was likewise cited where the Supreme Court ruled in this wise:chanrob1es virtual 1aw library

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative of the defendant but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty.cralaw : red

"Hence, We find no grave abuse of discretion committed by the court a quo when it issued the Orders dated June 7, 1996 and dated December 12, 1997.

"WHEREFORE, the instant petition forcertiorariwith prayer for issuance of temporary restraining order and/or preliminary injunction is DENIED DUE COURSE and is accordingly DISMISSED by this Court for lack of merit.

"Costs against the petitioner.

"SO ORDERED." 8

Hence, the present petition for review. Petitioner posits the following issues:jgc:chanrobles.com.ph

"A. Whether or not the complaint filed by private respondents for payment of life insurance proceeds is already barred by prescription of action.

"B. Whether or not an extrajudicial demand made after an action has prescribed shall cause the revival of the action." 9

Private respondents filed their Comment and petitioners, their Reply.

Before we determine whether the Court of Appeals had committed any reversible error, we must necessarily first ascertain whether or not the RTC committed grave abuse of discretion in issuing the Orders dated June 7, 1996 and December 12, 1997.

Notably, the RTC was initially correct in issuing the Order dated June 7, 1996 when it set the case below for hearing as there are matters in the respective pleadings of the parties "that are evidentiary in nature, hence the necessity of a trial on the merits "10 , in effect, denying the motion to dismiss, pursuant to the then prevailing Section 3, Rule 16, of the Rules of Court, to wit:jgc:chanrobles.com.ph

"Sec. 3. Hearing and order. After hearing the court may deny or grant the motion or allow amendment of pleading, or may defer the hearing and determination of the motion until the trial if the ground alleged therein does not appear to be indubitable."cralaw virtua1aw library

before it was amended by the 1997 Rules of Civil Procedure, effective July 1, 1997. 11

It must be emphasized that petitioner had specifically alleged in the Answer that it had denied private respondents claim per its letter dated July 11, 1983. 12 Hence, due process demands that it be given the opportunity to prove that private respondents had received said letter, dated July 11, 1983. Said letter is crucial to petitioners defense that the filing of the complaint for recovery of sum of money in June, 1995 is beyond the 10-year prescriptive period. 13

It is for the above reason that the RTC committed a grave abuse of discretion when, in resolving the motion for reconsideration of petitioner, it arbitrarily ruled in its Order dated December 12, 1997, that the period of ten (10) years had not yet lapsed. It based its finding on a mere explanation of the private respondents counsel and not on evidence presented by the parties as to the date when to reckon the prescriptive period. Portions of the Order dated December 12, 1997 read:jgc:chanrobles.com.ph

"A perusal of the record will likewise reveal that plaintiffs counsel explained that the running of the ten (10) year period was stopped on May 25, 1983, upon demand of Celso Lomaniog for the compliance of the contract and reconsideration of the decision. Counsel also wrote the President of the Company on December 1, 1994, asking for reconsideration. The letter was answered by the Assistant Vice President of the Claims Department of Philamlife, with the advise that the company is reviewing the claim. On February 14, 1995, Atty. Abis sent a letter to counsel, finally deciding the plaintiffs claim. Thus, the period of prescription should commence to run only from February 14, 1995, when Atty. Abis finally decided plaintiffs claim.chanrob1es virtua1 1aw 1ibrary

"It is evident from the foregoing that the ten (10) year period for plaintiffs to claim the insurance proceeds has not yet prescribed. The final determination denying the claim was made only on February 14, 1995. Hence, when the instant case was filed on June 20, 1995, the ten year period has not yet lapsed. Moreover, defendants counsel failed to comply with the requirements of the Rules in filing his motion for reconsideration." 14 (Emphasis supplied)

The ruling of the RTC that the cause of action of private respondents had not prescribed, is arbitrary and patently erroneous for not being founded on evidence on record, and therefore, the same is void. 15

Consequently, while the Court of Appeals did not err in upholding the June 7, 1986 Order of the RTC, it committed a reversible error when it declared that the RTC did not commit any grave abuse of discretion in issuing the Order dated December 12, 1997.

The appellate court should have granted the petition forcertiorariassailing said Order of December 12, 1997.Certiorariis an appropriate remedy to assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief. 16 Said Order was issued with grave abuse of discretion for being patently erroneous and arbitrary, thus, depriving petitioner of due process, as discussed earlier.

WHEREFORE, the petition is partly GRANTED. The assailed decision of the Court of Appeals dated April 30, 1999 insofar only as it upheld the Order dated December 12, 1997 is REVERSED and SET ASIDE. A new judgment is entered reversing and setting aside the Order dated December 12, 1997 of the Regional Trial Court of Libmanan, Camarines Sur (Branch 56) and affirming its Order dated June 20, 1995. Said RTC is directed to proceed with dispatch with Civil Case No. L-787.chanrob1es virtua1 1aw 1ibrary

No costs.

SO ORDERED.