1
NG vs. ASIAN CRUSADER
[G.R. No. L-30685] (May 30, 1983)
FACTS:
In May 1962, Kwong Nam applied for a 20-
year endowment policy with Asian Crusader Life
Assurance Corporation. Asian Crusader asked the
following question:
Has any life insurance company ever refused your
application for insurance or for reinstatement of a
lapsed policy or offered you a policy different from
that applied for? If, so, name company and date.
Kwong Nam answered “No” to the above question.
Kwong Nam was also examined by Asian
Crusader’s medical examiner to whom he disclosed
that he was once operated and a tumor was
removed from his stomach and such was
“associated with ulcer of the stomach.”
Kwong Nam’s application was approved. In May
1963, he died. His widow, Ng Gan Zee, filed an
insurance claim but Asian Crusader refused her
claim as it insisted that Kwong Nam concealed
material facts from them when he was applying for
the insurance; that he misrepresented the fact that
he was actually denied application by Insular Life
when he was renewing his application with them;
that Kwong Nam was actually operated for peptic
ulcer.
CFI ordered Asian Crusader Life to pay the face
value of an insurance policy. Hence, this Appeal.
ISSUE:
Whether or not Ng Gan Zee can collect the
insurance claim.
RULING:
YES. Judgement affirmed.
Thus, “concealment exists where the assured had
knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that
he should communicate it to the assurer, but he
designedly and intentionally withholds the same.” It
has also been held “that the concealment must, in
the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally
withheld.”
Sec. 27 of the Insurance Law, abovequoted,
nevertheless requires that fraudulent intent on the
part of the insured be established to entitle the
insurer to rescind the contract. And as correctly
observed by the lower court, “misrepresentation as
a defense of the insurer to avoid liability is an
‘affirmative’ defense. The duty to establish such a
defense by satisfactory and convincing evidence
rests upon the defendant. The evidence before the
Court does not clearly and satisfactorily establish
that defense.”
It bears emphasis that Kwong Nam had informed
the appellant’s medical examiner that the tumor for
which he was operated on was “associated with
ulcer of the stomach.” In the absence of evidence
that the insured had sufficient medical knowledge
as to enable him to distinguish between “peptic
ulcer” and “a tumor”, his statement that said tumor
was “associated with ulcer of the stomach,” should
be construed as an expression made in good faith
of his belief as to the nature of his ailment and
operation. Indeed, such statement must be
presumed to have been made by him without
knowledge of its incorrectness and without any
deliberate intent on his part to mislead the
appellant.
Where, “upon the face of the application, a question
appears to be not answered at all or to be
imperfectly answered, and the insurers issue a
policy without any further inquiry, they waive the
imperfection of the answer and render the omission
to answer more fully immaterial. As aptly noted by
the lower court, “if the ailment and operation of
Kwong Nam had such an important bearing on the
question of whether the defendant would undertake
the insurance or not, the court cannot understand
why the defendant or its medical examiner did not
make any further inquiries on such matters from the
Chinese General Hospital or require copies of the
hospital records from the appellant before acting on
the application for insurance. The fact of the matter
is that the defendant was too eager to accept the
application and receive the insured’s premium. It
would be inequitable now to allow the defendant to
avoid liability under the circumstances.
CANILANG vs. CA
[G.R. No. 92492] (June 17, 1993)
FACTS:
Canilang consulted Dr. Claudio and was diagnosed
as suffering from "sinus tachycardia." Mr. Canilang

consulted the same doctor again on 3 August 1982
and this time was found to have "acute bronchitis."
On the next day, 4 August 1982, Canilang applied
for a "non-medical" insurance policy with Grepalife
naming his wife, as his beneficiary. Canilang was
issued ordinary life insurance with the face value of
P19,700.
On 5 August 1983, Canilang died of "congestive
heart failure," "anemia," and "chronic anemia." The
wife as beneficiary, filed a claim with Grepalife
which the insurer denied on the ground that the
insured had concealed material information from it.
Vda Canilang filed a complaint with the Insurance
Commissioner against Grepalife contending that as
far as she knows her husband was not suffering
from any disorder and that he died of kidney
disorder.
Grepalife was ordered to pay the widow by the
Insurance Commissioner holding that there was no
intentional concealment on the Part of Canilang
and that Grepalife had waived its right to inquire
into the health condition of the applicant by the
issuance of the policy despite the lack of answers
to "some of the pertinent questions" in the
insurance application. CA reversed.
Issue:
Whether or not Grepalife is liable.
RULING:
The petition is denied.
We agree with the Court of Appeals that the
information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to
estimate the probable risk he presented as a
subject of life insurance. Had Canilang disclosed
his visits to his doctor, the diagnosis made and the
medicines prescribed by such doctor, in the
insurance application, it may be reasonably
assumed that Great Pacific would have made
further inquiries and would have probably refused
to issue a non-medical insurance policy or, at the
very least, required a higher premium for the same
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coverage. The materiality of the information
withheld by Great Pacific did not depend upon the
state of mind of Jaime Canilang. A man’s state of
mind or subjective belief is not capable of proof in
our judicial process, except through proof of
external acts or failure to act from which inferences
as to his subjective belief may be reasonably
drawn. Neither does materiality depend upon the
actual or physical events which ensue. Materiality
relates rather to the “probable and reasonable
influence of the facts” upon the party to whom the
communication should have been made, in
assessing the risk involved in making or omitting to
make further inquiries and in accepting the
application for insurance; that “probable and
reasonable influence of the facts” concealed must,
of course, be determined objectively, by the judge
ultimately.
YU vs. CA
[G.R. No. L-12465] (May 29, 1959)
FACTS:
Yu Pang Eng obtained a life insurance policy
naming his brother Yu Pang Cheng as beneficiary.
Eng subsequently died of medullary carcinoma,
Grade 4, advanced and lesser curvature.
Cheng claims the proceeds of the policy.
Insurance co. refused payment on the ground that
the policy was void due to the concealment.
Issue:
Whether or not the policy is void.
RULING:
YES. "CONCEALMENT."—"A neglect to
communicate that which a party knows and ought
to communicate is called concealment." (Section
25, Act No. 2427.)
Whether intentional or unintentional the
concealment entitles the insurer to rescind the
contract of insurance. (Section 26 of Act No. 2427.)

The insurance law requires the insured to
communicate to the insurer all facts within his
knowledge which are material to the contract and
which the other party has not the means of
ascertaining (Section 27), and the materiality is to
be determined not by the event but solely by the
probable and reasonable influence of the facts
upon the party to whom the communication is due
(Section 30 of Act 2427.)
GREAT PACIFIC LIFE vs. CA 1979
PACIFIC BANKING vs. CA
[G.R. No. L-41014] (Nov 28, 1988)
Facts:
An open fire insurance policy, was issued to
Paramount Shirt Manufacturing by Oriental
Assurance Corporation to indemnify P61,000.00,
caused by fire to the factory’s stocks, materials and
supplies.
The insured was a debtor of Pacific Banking in the
amount of (P800,000.00) and the goods described
in the policy were held in trust by the insured for
Pacific Banking under trust receipts.
The policy was endorsed to Pacific Banking as
mortgagee/ trustor of the properties insured, with
the knowledge and consent of private respondent
to the effect that "loss if any under this policy is
payable to the Pacific Banking Corporation".
A fire broke out on the premises destroying the
goods contained in the building.
The bank sent a letter of demand to Oriental for
indemnity.
The company wasn’t ready to give since it was
awaiting the adjuster’s report.
The company then made an excuse that the
insured had not filed any claim with it, nor
submitted proof of loss which is a clear violation of
Policy Condition No.11, as a result, determination
of the liability of private respondent could not be
made.
Pacific Banking filed in the trial court an action for a
sum of money for P61,000.00 against Oriental
Assurance.
At the trial, petitioner presented communications of
the insurance adjuster to Asian Surety revealing
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undeclared co-insurances with the following:
P30,000 with Wellington Insurance; P25,000 with
Empire Surety and P250,000 with Asian Surety
undertaken by insured Paramount on the same
property covered by its policy with Oriental whereas
the only co-insurances declared in the subject
policy are those of P30,000.00 with Malayan
P50,000.00 with South Sea and P25.000.00 with
Victory.
The defense of fraud, in the form of non-declaration
of co-insurances which was not pleaded in the
answer, was also not pleaded in the Motion to
Dismiss.
The trial court denied the respondent’s motion.
Oriental filed another motion to include additional
evidence of the co-insurance which could amount
to fraud.
The trial court still made Oriental liable for P
61,000. The CA reversed the trial court decision.
Pacific Banking filed a motion for reconsideration of
the said decision of the respondent Court of
Appeals, but this was denied for lack of merit.
Issues:
1. WON unrevealed co-insurances Violated policy
conditions No. 3
2. WON the insured failed to file the required proof
of loss prior to court action.
Held: Yes. Petition dismissed.
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of
any insurance already effected, or which may
subsequently be effected, covering any of the
property hereby insured, and unless such notice be
given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy
by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under
this policy shall be forfeited.
The insured failed to reveal before the loss three
other insurances. Had the insurer known that there
were many co-insurances, it could have hesitated
or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by
the insured was furnished by the petitioner itself
when the facts alleged in the policy under clauses
"Co-Insurances Declared" and "Other Insurance
Clause" are materially different from the actual
number of co-insurances taken over the subject
property.

As the insurance policy against fire expressly
required that notice should be given by the insured
of other insurance upon the same property, the
total absence of such notice nullifies the policy.
Petitioner points out that Condition No. 3 in the
policy in relation to the "other insurance clause"
supposedly to have been violated, cannot certainly
defeat the right of the petitioner to recover the
insurance as mortgagee/assignee. Hence, they
claimed that the purpose for which the
endorsement or assignment was made was to
protect the mortgagee/assignee against any
untoward act or omission of the insured. It would be
absurd to hold that petitioner is barred from
recovering the insurance on account of
the alleged violation committed by the insured.
It is obvious that petitioner has missed all together
the import of subject mortgage clause which
specifically provides:
“Loss, if any, under this policy, shall be payable to
the PACIFIC BANKING CORPORATION Manila
mortgagee/trustor as its interest may appear, it
being hereby understood and agreed that this
insurance as to the interest of the
mortgagee/trustor only herein, shall not be
invalidated by any act or neglect—except fraud or
misrepresentation, or arson—of the mortgagor or
owner/trustee of the property insured; provided,
that in case the mortgagor or owner/ trustee
neglects or refuses to pay any premium, the
mortgagee/ trustor shall, on demand pay the
same.”
The paragraph clearly states the exceptions to the
general rule that insurance as to the interest of the
mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. Concealment of the
aforecited co-insurances can easily be fraud, or in
the very least, misrepresentation.
Undoubtedly, it is but fair and just that where the
insured who is primarily entitled to receive the
proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right.
Petitioner further stressed that fraud which was not
pleaded as a defense in private respondent's
answer or motion to dismiss, should be deemed to
have been waived. It will be noted that the fact of
fraud was tried by express or at least implied
consent of the parties. Petitioner did not only object
to the introduction of evidence but on the contrary,
presented the very evidence that proved its
existence.
2. Generally, the cause of action on the
policy accrues when the loss occurs, But when the
policy provides that no action shall be brought
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unless the claim is first presented extrajudicially in
the manner provided in the policy, the cause of
action will accrue from the time the insurer finally
rejects the claim for payment
In the case at bar, policy condition No. 11
specifically provides that the insured shall on the
happening of any loss or damage give notice to the
company and shall within fifteen (15) days after
such loss or damage deliver to the private
respondent (a) a claim in writing giving
particular account as to the articles or goods
destroyed and the amount of the loss or damage
and (b) particulars of all other insurances, if any.
Twenty-four days after the fire did petitioner merely
wrote letters to private respondent to serve as a
notice of loss. It didn’t even furnish other
documents. Instead, petitioner shifted upon private
respondent the burden of fishing out the necessary
information to ascertain the particular account of
the articles destroyed by fire as well as the amount
of loss. Since the required claim by insured,
together with the preliminary submittal of relevant
documents had not been complied with, it follows
that private respondent could not be deemed to
have finally rejected petitioner's claim and therefore
there was no cause of action.
It appearing that insured has violated or failed to
perform the conditions under No. 3 and 11 of the
contract, and such violation or want of performance
has not been waived by the insurer, the insured
cannot recover, much less the herein petitioner.
ESCRA RULING:
It is not disputed that the insured failed to reveal
before the loss three other insurances. As found by
the Court of Appeals, by reason of said unrevealed
insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital
one because where the insured had been asked to
reveal but did not, that was deception. Otherwise
stated, had the insurer known that there were many
co-insurances, it could have hesitated or plainly
desisted from entering into such contract. Hence,
the insured was guilty of clear fraud (Rollo, p. 25).
Petitioner’s contention that the allegation of
fraud is but a mere inference or suspicion is
untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by
the petitioner itself when the facts alleged in the
policy under clauses “Co-Insurances Declared” and
“Other Insurance Clause” are materially different

from the actual number of co-insurances taken over
the subject property. Consequently, “the whole
foundation of the contract fails, the risk does not
attach and the policy never becomes a contract
between the parties. Representations of facts are
the foundation of the contract and if the foundation
does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to
vary or add to the contract, or to terminate a
contract which has once been made, but to show
that no contract has ever existed (Tolentino,
Commercial Laws of the Philippines, p. 991, Vol. II,
8th Ed.). A void or inexistent contract is one which
has no force and effect from the very beginning, as
if it had never been entered into, and which cannot
be validated either by time or by ratification
(Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A.
145 SCRA [1986]).
As the insurance policy against fire expressly
required that notice should be given by the insured
of other insurance upon the same property, the
total absence of such notice nullifies the policy.
The paragraph clearly states the exceptions to the
general rule that insurance as to the interest of the
mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. As correctly found by
the Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very
least, misrepresentation (Rollo, p. 27).
Undoubtedly, it is but fair and just that where the
insured who is primarily entitled to receive the
proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right, with more
reason, petitioner which is merely claiming as
indorsee of said insured, cannot be entitled to such
proceeds.
Generally, the cause of action on the policy accrues
when the loss occurs. But when the policy provides
that no action shall be brought unless the claim is
first presented extrajudicially in the manner
provided in the policy, the cause of action will
accrue from the time the insurer finally rejects the
claim for payment.
While it is a cardinal principle of insurance law that
a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly as
against the insurer company yet, contracts of
insurance, like other contracts, are to be construed
5
according to the sense and meaning of the terms
which the parties themselves have used. If such
terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and
popular sense.
Contracts of insurance are contracts of indemnity
upon the terms and conditions specified in the
policy. The parties have a right to impose such
reasonable conditions at the time of the making of
the contract as they may deem wise and
necessary. The agreement has the force of law
between the parties. The terms of the policy
constitute the measure of the insurer’s liability, and
in order to recover, the insured must show himself
within those terms. The compliance of the insured
with the terms of the policy is a condition precedent
to the right of recovery.
PETITION IS DISMISSED.
SUNLIFE vs. CA
[G.R. No. 105135] (June 22, 1995)
On April 15, 1986, Bacani procured a life insurance
contract for himself from Sun Life. He was issued a
life insurance policy with double indemnity in case
of accidental death. The designated beneficiary
was his mother, Bernarda.
On June 26, 1987, the insured died in a plane
crash. Bernarda Bacani filed a claim with Sun Life,
seeking the benefits of the insurance. Sun Life
conducted an investigation and its findings
prompted it to reject the claim.
Sun Life discovered that 2 weeks prior to his
application, Bacani was examined and confined at
the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement,
the deceased was subjected to urinalysis, ultra-
sonography and hematology tests. He did not
reveal such fact in his application.
In its letter, Sun Life informed Berarda, that the
insured did not disclosed material facts relevant to

the issuance of the policy, thus rendering the
contract of insurance voidable. A check
representing the total premiums paid in the amount
of P10,172.00 was attached to said letter.
Bernarda and her husband, filed an action for
specific performance against Sun Life. RTC ruled
for Bernarda holding that the facts concealed by the
insured were made in good faith and under the
belief that they need not be disclosed. Moreover, it
held that the health history of the insured was
immaterial since the insurance policy was "non-
medical." CA affirmed.
Issue:
Whether or not the beneficiary can claim despite
the concealment.
Held:
NO. Petition is granted.
In weighing the evidence presented, the trial court
concluded that indeed there was concealment and
misrepresenta-tion, however, the same was made
in “good faith” and the facts concealed or
misrepresented were irrelevant since the policy was
“non-medical.” We disagree. Section 26 of The
Insurance Code is explicit in requiring a party to a
contract of insurance to communicate to the other,
in good faith, all facts within his knowledge which
are material to the contract and as to which he
makes no warranty, and which the other has no
means of ascertaining. Said Section provides: “A
neglect to communicate that which a party knows
and ought to communicate, is called concealment.”
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer
matters relating to his health. The information which
the insured failed to disclose were material and
relevant to the approval and issuance of the
insurance policy. The matters concealed would
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have definitely affected petitioner’s action on his
application, either by approving it with the
corresponding adjustment for a higher premium or
rejecting the same. Moreover, a disclosure may
have warranted a medical examination of the
insured by petitioner in order for it to reasonably
assess the risk involved in accepting the
application.
Thus, “good faith” is no defense in concealment.
The insured’s failure to disclose the fact that he
was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about
his bona fides. It appears that such concealment
was deliberate on his part.
The argument, that petitioner’s waiver of the
medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We
reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316
(1963), that “x x x the waiver of a medical
examination [in a non-medical insurance contract]
renders even more material the information
required of the applicant concerning previous
condition of health and diseases suffered, for such
information necessarily constitutes an important
factor which the insurer takes into consideration in
deciding whether to issue the policy or not x x x.”
Anent the finding that the facts concealed had no
bearing to the cause of death of the insured, it is
well settled that the insured need not die of the
disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer
in forming his estimates of the risks of the proposed
insurance policy or in making inquiries (Henson v.
The Philippine American Life Insurance Co., 56.
O.G. No. 48 [1960]).
EGUARAS vs. GREAT EASTERN
[G.R. No. L-10436] (January 24, 1916)
FACTS:
Dominador Albay, petitioner’s son-in-law applied to
the defendant insurance company for his life to be
insured for
P5,000 and naming petitioner as the beneficiary.
The company accepted the application but while
the policy was in

force, Dominador died. When Francisca tried to
claim benefits as beneficiary, the company refused
to release the
funds so Francisca filed a complaint in court. The
TC ruled in favor of Francisca and sentenced the
company to pay
P5,000.
Upon appeal, the company argued that it refused to
pay the claimant because they found out that the
policy had been
fraudulently applied for. It found that their agent,
Ponciano Remigio who sold the policy to
Dominador knew that the
latter had a serious medical condition before
application. In the application, Dominador had
answered that he had a
“good constitution” health wise. Remigio then
engaged the services of one Dr. Jose Vidal
supposedly to examine
Dominador but because of his knowledge of the
latter’s less than normal medical standing, he
presented a different
person for physical examination. This person,
Castor Garcia was examined in his place and was
found to be in good
health. On this basis, the doctor recommended that
the “Dominador Albay” that he had examined was
an insurable
risk and it was because of this that the company
had issued the policy.
It must be noted that Ponciano had full knowledge
of the fact that Dominador was not in good health
and had later
died of intestinal occlusion after 3 days of illness
and medical attendance. Despite a previous offer
for P600 from
Remigio to testify otherwise, Dr. Vidal confirmed
the identity of the person purporting to be
Dominador during trial.
Several witnesses also testified regarding the
seriousness of Dominador’s health prior to his
death such as Dr.
Gertrudo Reyes and one Jose Valencia.
ISSUE:
W/N the insurance company should pay Francisca
the benefits she was entitled to
RULING:
NO. JUDGMENT IS REVERSED.
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To further prove that fraud had been resorted to,
the SC compared the signatures of the real
Dominador from previous documents and that of
Castor Garcia on the medical form. Dominador had
a firm and solid handwriting, culled from years of
education in American schools.
They further examined Dominador’s signature on
his electoral oath, which was signed before the
board of election inspectors and duly identified by
the chairman of said board. It found that it matched
the signature on the provisional receipt issued by
the company upon his application for the policy. In
comparison, the signature on the medical forms
and other subsequent documents were found to be
radically different so it can be concluded that it was
done by a different person. Also, his age on the
application and insurance policy was 40 years old
in 1912 while in his personal cedulas later on, he
was only 32 in 1911.
Article 1269, CC: There is deceit when by words or
insidious machinations on the part of one of the
contracting parties the other is induced to execute a
contract which without them he would not have
made.
It is essential that deceit be made prior to or
contemporaneous with the consent necessary to
perfect a contract. The company in this case was
induced by the result of the medical examination
and the recommendation of Remigio. The contract
therefore, is void and ineffective in accordance with
the provisions of the civil code. Had Dominador not
been substituted, the physician would not have
been able to identify Castor Garcia as the person
he examined on trial.
Remigio had resorted to fraudulent means in order
to secure the payment for the policy and although it
does not constitute a crime, the contract is still void.
As a result, the company is not obliged to pay
Francisca the proceeds from the policy.
NOTE: Although Remigio and Eguaras were
previously tried and acquitted for the crime of
estafa, the acquittal does
not produce the effect of res judicata. The contract
was still void for the vitiation of the company’s
consent through
fraud.
QUA vs. LAW UNION ROCK

[G.R. No. L-4611] (December 17, 1955)
FACTS:
Qua Chee Gan owns four warehouses in Albay. He
was using these warehouses to house crops like
copra and hemp. All warehouses were insured by
Law Union and Rock Insurance for the amount of
P370,000.00. The insurance states that Qua Chee
Gan should install 11 hydrants in the warehouses’
premises. Qua Chee Gan installed only two, but
Law Union nevertheless went on with the insurance
policy and collected premiums from Qua Chee
Gan. The insurance contract also provides that “oil”
should not be stored within the premises of the
warehouses.
In 1940, three of the warehouses were destroyed
by fire. The damage caused amounted to P398k.
Qua Chee Gan demanded insurance pay from Law
Union but the latter refused as it alleged that after
investigation from their part, they found out that
Qua Chee Gan caused the fire. Law Union in fact
sued Qua Chee Gan for Arson.
Qua Chee Gan was acquitted in the arson case. He
then demanded that Law Union pay up. This time,
Law Union averred that the insurance contract is
void because Qua Chee Gan failed to install 11
hydrants; and that gasoline was found in one of the
warehouses.
ISSUE: Whether or not the insurance contract is
void.
RULING:
NO.
In the present case, gasoline is not specifically
mentioned among the prohibited articles listed in
the so-called “hemp warranty.” The clause relied
upon by the insurer speaks of “oils” and is
decidedly ambiguous and uncertain; for in ordinary
parlance, “oils” mean “lubricants” and not gasoline
or kerosene. Besides, the gasoline kept by the
insured was only incidental to his business, being
no more than a customary 2 days supply for the
five or six motor vehicles used for transporting of
the stored merchandise, and it is well settled rule
that the keeping of inflammable oils on the
premises, though prohibited by the policy, does not
void it if such keeping is incidental to the business.
(Bachrach vs. British American Ass. Co., 17 Phil.
555, 660.)
8
The rule is that to avoid a policy, the claim filed by
the insured must contain false and fraudulent
statements with intent to defraud the insurer.
GREAT PACIFIC LIFE vs. CA 1999
EDILLIO vs. MANILA BANKERS
[G.R. No. 113899] (Sept 30, 1982)
FACTS:
In April 1969, Carmen Lapuz filled out an
application form for insurance under Manila Banker
Life Assurance Corporation. She stated that her
date of birth was July 11, 1904. Upon payment of
the Php 20.00 premium, she was issued the
insurance policy in April 1969. In May 1969,
Carmen Lapuz died in a vehicular accident. Regina
Edillon, who was named a beneficiary in the
insurance policy sought to collect the insurance
proceeds but Manila Banker denied the claim.
Apparently, it is a rule of the insurance company
that they were not to issue insurance policies to
“persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years …”
Note, that Lapuz was already 65 years old when
she was applying for the insurance policy.
ISSUE: Whether or not Edillon is entitled to the
insurance claim as a beneficiary.
RULING:
YES. Judgment reversed.
Carmen Lapuz did not conceal her true age.
Despite this, the insurance company still received
premium from Lapuz and issued the corresponding
insurance policy to her. When the accident
happened, the insurance policy has been in force
for 45 days already and such time was already
sufficient for Manila Banker to notice the fact that
Lapuz is already over 60 years old and thereby
cancel the insurance policy. If Manila Banker failed
to act, it is either because it was willing to waive
such disqualification; or, through the negligence or
incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact.
Under the circumstances, Manila Banker is already
deemed in estoppel.
ESCRA RULING:
The age of the insured Carmen O. Lapuz was not
concealed to the insurance company. Her
application for insurance coverage which was on a

printed form furnished by private respondent and
which contained very few items of information
clearly indicated her age at the time of filing the
same to be almost 65 years of age. Despite such
information which could hardly be overlooked in the
application form, considering its prominence
thereon and its materiality to the coverage applied
for, the respondent insurance corporation received
her payment of premium and issued the
corresponding certificate of insurance without
question. The accident which resulted in the death
of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45)
DAYS after the insurance coverage was applied
for. There was sufficient time for the private
respondent to process the application and to notice
that the application was over 60 years of age and
thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to
act, it is either because it was willing to waive such
disqualification; or, through the negligence or
incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact.
Under the circumstances, the insurance corporation
is already deemed in estoppel. Its inaction to
revoke the policy despite a departure from the
exclusionary condition contained in the said policy
constituted a waiver of such condition.
TAN vs. CA
[G.R. No. 48049] (Jun 29, 1989)
FACTS:
Tan Lee Siong, father of herein petitioners, applied
for life insurance in the amount of P80,000.00 with
respondent company Philippine American Life
Insurance Company. Said application was
approved and a corresponding policy was issued
effective November 5, 1973, with petitioners as the
beneficiaries. On April 26, 1975, Tan Lee Siong
died of hepatoma. Hence, petitioners filed with
respondent company their claim for the proceeds of
the life insurance policy. However, the insurance
company denied the said 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. The premiums paid on the policy were
thereupon refunded. 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.
9
ISSUE:
Whether or not the insurance company has the
right to rescind the contract of insurance despite
the presence of an incontestability clause
RULING:
YES.
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 of
the Insurance Law 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”. 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 has 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
November 11, 1975, previous to the
commencement of this action on November 27,
1975.
WHEREFORE, the petition is hereby DENIED for
lack of merit. The questioned decision of the Court
of Appeals is AFFIRMED.
ESCRA RULING:
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.”
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.
TAN CHAY vs. WEST COAST LIFE
[G.R. No. L-27541] (Nov 21, 1927)
FACTS:
In April 1925, West Coast Life Insurance Company
(West Coast) accepted and issued a temporary life
insurance policy (pending further review) to Tan
Ceang. The life insurance was for P10,000.00 and
the premium paid therefor was P936.00. The
beneficiary listed in the policy was Tan Chay Heng.
In May 1925, Tan Ceang died. Tan Chay Heng filed
an insurance claim which was denied by West
Coast. Tan Chay Heng sued West Coast. West
Coast averred, in its ANSWER that Tan Chay
Heng, in connivance with others made Tan Ceang
to enter into an insurance policy and name Tan
Chay Heng as the beneficiary; that Tan Ceang was
induced to lie on the application form about his
health and life conditions (he was made to account
that he was not addicted to opium, morphine, and
cocaine when in fact he was); that Tan Chay Heng
was a gang leader involved in the racket of
10
fraudulent insurance schemes; that by reason of
these fraud and machinations, the insurance policy
West Coast issued is void; that West Coast seeks
to avoid the insurance policy. Tan Chay Heng filed
a demurrer as it claimed that West Coast’s
ANSWER is a cross-complaint and the facts
contained therein was not sufficient as a defense.
The lower court directed West Coast to amend its
ANSWER which West Coast duly excepted from
and so the lower court ruled in favor of Tan Chay
Heng. The lower court further ruled that under
Section 47 of [the old] Insurance Law, if an insurer
(West Coast) has the right to rescind a contract of
insurance, it must do so before a suit is brought
against the insurer on the said contract.
ISSUE:
Whether or not Section 47 is applicable in the case
at bar.
RULING:
No. West Coast was not seeking for the rescission
of the insurance contract. In fact, West Coast avers
that there was no insurance contract at all because
the temporary insurance issued in favor of Tan
Ceang was null and void. For West Coast, it was
void ab initio because of the fraudulent
circumstances attending to it. Therefore, it cannot
be subject to rescission. The Supreme Court
however remanded the case to the lower court to
determine the material allegations made by West
Coast against Tan Chay Heng.
Precisely, the defense of West Cast was that
through fraud in its execution, the policy is void ab
initio, and therefore, no valid contract was ever
made. Its action then cannot be fore rescission
because an action to rescind is founded upon and
presupposes the existence of the contract. Hence,
West Coast’s defense is not barred by Sec. 47.
In the instant case, it will be noted that even in its
prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that
it ever made any contract of insurance on the life of
Tan Caeng, or that any such a contract ever
existed, and that is the question which it seeks to
have litigated by its special defense. In the very
nature of things, if the defendant never made or
entered into the contract in question, there is no

contract to rescind, and, hence, section 47 upon
which the lower court based its decision in
sustaining the demurrer does not apply.
As stated, an action to rescind a contract is
founded upon and presupposes the existence of
the contract which is sought to be rescinded. If all
of the material matters set forth and alleged in the
defendant's special plea are true, there was no
valid contract of insurance, for the simple reason
that the minds of the parties never met and never
agreed upon the terms and conditions of the
contract. We are clearly of the opinion that, if such
matters are known to exist by a preponderance of
the evidence, they would constitute a valid defense
to plaintiff's cause of action. Upon the question as
to whether or not they are or are not true, we do not
at this time have or express any opinion, but we are
clear that section 47 does not apply to the
allegations made in the answer, and that the trial
court erred in sustaining the demurrer.
PIONEER vs. YAP
[G.R. No. L-36232] (Dec 19, 1974)
Facts:
Respondent Oliva Yap was the owner of a store in
a two-storey building where she sold shopping
bags and footwear. Chua Soon Poon, her son-in-
law, was in charge of the store.
Yap took out a Fire Insurance Policy No. 4216 from
Pioneer Insurance with a value of P25,000.00
covering her stocks, office furniture, fixtures and
fittings.
Among the conditions in the policy executed by the
parties are the following:
unless such notice be given and the particulars of
such insurance or insurances be stated in, or
endorsed on this Policy by or on behalf of the
Company before the occurrence of any loss or
damage, all benefits under this Policy shall be
forfeited… Any false declaration or breach or this
condition will render this policy null and void.
Another insurance policy for P20,000.00 issued by
Great American covering the same properties. The
endorsement recognized co-insurance by
Northwest for the same value.
Oliva Yap took out another fire insurance policy for
P20,000.00 covering the same properties from the
Federal Insurance Company, Inc., which was
procured without notice to and the written consent
of Pioneer.
11
A fire broke out in the building, and the store was
burned. Yap filed an insurance claim, but the same
was denied for a breach.
Oliva Yap filed a case for payment of the face value
of her fire insurance policy. The insurance company
refused to pay because she never informed
Pioneer of another insurer. The trial court decided
in favor of Yap. The CA affirmed.
Issue:
Whether or not petitioner should be absolved from
liability on the Pioneeer policy on account of any
violation of the co-insurance clause
Held: No. Petition dismissed.
Ratio:
There was a violation. The insurance policy for
P20,000.00 issued by the Great American, ceased
to be recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the
parties to recognize on the date the endorsement
was made, the existence of only one co-insurance,
the Northwest one. The finding of the Court of
Appeals that the Great American Insurance policy
was substituted by the Federal Insurance policy is
indeed contrary to said stipulation.
Other insurance without the consent of Pioneer
would avoid the contract. It required no affirmative
act of election on the part of the company to make
operative the clause avoiding the contract,
wherever the specified conditions should occur. Its
obligations ceased, unless, being informed of the
fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to
the effect that the procurement of additional
insurance without the consent of the insurer
renders the policy void is in American
jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson-
"The rule in this state and practically all of the
states is to the effect that a clause in a policy to the
effect that the procurement of additional insurance
without the consent of the insurer renders the policy
void is a valid provision.”
In this jurisdiction, General Insurance & Surety
Corporation vs. Ng Hua- “The annotation then,
must be deemed to be a warranty that the property
was not insured by any other policy. Violation
thereof entitled the insurer to rescind. Furthermore,
even if the annotations were overlooked the
defendant insurer would still be free from liability
because there is no question that the policy issued
by General Indemnity has not been stated in nor

endorsed on Policy No. 471 of defendant. The
obvious purpose of the aforesaid requirement in the
policy is to prevent over-insurance and thus avert
the perpetration of fraud where a fire would be
profitable to the insured.“
ESCRA RULING:
By the plain terms of the policy, other
insurance without the consent of petitioner
would ipso facto avoid the contract. It required
no affirmative act of election on the part of the
company to make operative the clause avoiding
the contract, wherever the specified conditions
should occur. Its obligations ceased, unless, being
informed of the fact, it consented to the
additional insurance.
The obvious purpose of the aforesaid
requirement in the policy is to prevent over-
insurance and thus avert the perpetration of
fraud. The public, as well as the insurer, is
interested in preventing the situation in which a
fire would be profitable to the insured. A waiver
must be express. If it is to be implied from
conduct mainly, said conduct must be clearly
indicative of a clear intent to waive such right.
Especially in these cases where a person is
assumed to have waived a valuable right,
nothing less than a clear, positive waiver, made
with full knowledge of the circumstances, must
be required.
NEW LIFE ENTERPRISES vs. CA
[G.R. No. 94071] (1992)
FACTS:
May 15, 1981: Western Guaranty Corporation
issued Fire Insurance Policy to New Life
Enterprises foar P350,000
renewed on May, 13, 1982
July 30,1981: Reliance Surety and Insurance Co.,
Inc. issued Fire Insurance Policy to New Life
Enterprises for P300,000
November 12, 1981; Additional P700,000
February 8, 1982: Equitable Insurance Corporation
issued Fire Insurance Policy to New Life
Enterprises for P200,000
October 19, 1982 2 am: fire electrical in nature
destroyed the stock in trade worth P1,550,000
12
Julian Sy went to Reliance to claim but he was
refused. Same thing happened with the others who
were sister companies.
Sy violated the "Other Insurance Clause"
RTC: favored New Life and against the three
insurance companies
CA: reversed -failure to state or endorse the other
insurance coverage
ISSUE:
W/N Sy can claim against the three insurance
companies for violating the "Other Insurance
Clause"
HELD:
NO.
The terms of the contract are clear and
unambiguous.
The insured is specifically required to disclose to
the insurer any other insurance and its particulars
which he may have effected on the same subject
matter.
The knowledge of such insurance by the insurer's
agents, even assuming the acquisition thereof by
the former, is not the "notice" that would estop the
insurers from denying the claim.
conclusion of the trial court that Reliance and
Equitable are "sister companies" is an unfounded
conjecture drawn from the mere fact that Yap Kam
Chuan was an agent for both companies which also
had the same insurance claims adjuster
Availmentof the services of the same agents and
adjusters by different companies is a common
practice in the insurancebusiness and such facts do
not warrant the speculative conclusion of the trial
court.
The conformity of the insured to the terms of the
policy isimplied from his failure to express any
disagreement with what is provided for.
a clear misrepresentation and a vital one because
where the insured had been asked to reveal but did
not, that was deception - guilty of clear fraud
total absence of such notice nullifies the policy
assuming arguendo that petitioners felt the
legitimate need to be clarified as to the policy
condition violated, there was a considerable lapse
of time from their receipt of the insurer's
clarificatory letter dated March 30, 1983, up to the
time the complaint was filed in court on January 31,
1984. The one-year prescriptive period was yet
toexpire on November 29, 1983, or about eight (8)

months from the receipt of the clarificatory letter,
but petitioners let the period lapse without bringing
their action in court
ESCRA RULING:
The terms of the contract are clear and
unambiguous. The insured is specifically
required to disclose to the insurer any other
insurance and its particulars which he may have
effected on the same subject matter. The
knowledge of such insurance by the insurer’s
agents, even assuming the acquisition thereof by
the former, is not the “notice” that would estop
the insurers from denying the claim. Besides, the
so-called theory of imputed knowledge, that is,
knowledge of the agent is knowledge of the
principal, aside from being of dubious
applicability here has likewise been roundly
refuted by respondent court whose factual
findings we find acceptable.
While it is a cardinal principle of insurance law
that a policy or contract of insurance is to be
construed liberally in favor of the insured and
strictly against the insurer company, yet
contracts of insurance, like other contracts, are
to be construed according to the sense and
meaning of the terms which the parties
themselves have used. If such terms are clear
and unambiguous, they must be taken and
understood in their plain, ordinary and popular
sense. Moreover, obligations arising from
contracts have the force of law between the
contracting parties and should be complied with
in good faith.
Petitioners should be aware of the fact that a
party is not relieved of the duty to exercise the
ordinary care and prudence that would be
exacted in relation to other contracts. The
conformity of the insured to the terms of the
policy is implied from his failure to express any
disagreement with what is provided for.
PACIFIC BANKING vs. CA (1988)
QUA CHEE GAN vs. LAW UNION (1955)
TAN vs. CA
AREOLA vs. CA
[G.R. No. 95641] (Sept 22, 1994)
13
Facts:
Prudential Guarantee cancelled Areola’s personal
accident insurance on the grounds that the latter
failed to pay his premiums 7 months after issuing
the policy. Areola was supposed to pay the total
amount of P1,609.65 which included the premium
of P1,470.00, documentary stamp of P110.25 and
2% premium tax of P29.40. The statement of
account had a stipulation not considering it a
receipt. It also reminded the customer to ask for a
receipt after payment. There was also a stipulation
calling for a demand for a provisional receipt after
payment to an agent. A provisional receipt was sent
to petitioner telling him that the provisional receipt
would be confirmed by an official one. The
company then cancelled the policy for non-payment
of premiums. After being surprised, Areola
confronted a company agent and demanded an
official receipt. The latter told him that it was a
mistake, but never gave him an official receipt.
Areola sent a letter demanding that he be
reinstated or he would file for damages if his
demand was not met. The company then told him
that his payments weren’t in full yet. The company
replied to Areola by telling him that there was
reason to believe that no payment has been made
since no official receipt was issued. The company
then told him that they would still hold him under
the policy. The company then confirmed that he
paid the premium and that they would extend the
policy by one year.
Thereby, the company offered to reinstate same
policy it had previously cancelled and even
proposed to extend its lifetime on finding that the
cancellation was erroneous and that the premiums
were paid in full by petitioner-insured but were not
remitted by the company's branch manager, Mr.
Malapit.
However, they were too late for Areola already filed
an action for breach of contract in the trial court.
The company’s defense lay in rectifying its
omission; hence, there was no breach of contract.
The court ruled in favor of Areola and asked
Prudential to pay 250,000 pesos in moral and
exemplary damages. The court held that the
company was in bad faith in cancelling the policy.
Had the insured met an accident at that time, he
wouldn’t be covered by the policy.
This ruling was challenged on appeal by
respondent insurance company, denying bad faith

in unilaterally cancelling the policy. The AC
absolved Prudential on the grounds that it was not
motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the cancellation of
the insurance policy was based on what the
existing records showed. The court even added
that the errant manager who didn’t remit the profits
was forced to resign. Areola then filed for a petition
in the Supreme Court.
Issue:
1. Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to
payment of damages?
2. Did the subsequent act of reinstating the
wrongfully cancelled insurance policy by
respondent insurance company, in an effort to
rectify such error, obliterate whatever liability for
damages it may have to bear, thus absolving it?
Held: Yes. No. Petition granted.
Ratio:
1. Petitioner alleged that the manager’s
misappropriation of his premium payments is the
proximate cause of the cancellation of the
insurance policy. Subsequent reinstatement could
not possibly absolve respondent insurance
company from liability, due to the breach of
contract. He contended that damage had already
been done.
Prudential averred that the equitable relief sought
by petitioner-insured was granted to the filing of the
complaint, petitioner-insured is left without a cause
of action. Reinstatement effectively restored
petitioner-insured to all his rights under the policy.
The court held that Malapit's fraudulent act of
misappropriating the premiums paid by petitioner-
insured is directly imputable to respondent
insurance company. A corporation, such as
respondent insurance company, acts solely thru its
employees. The latters' acts are considered as its
own. Malapit represented its interest and acted in
its behalf. His act of receiving the premiums
collected is well within the province of his authority.
Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by
provision of law is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.
14
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received
cannot constitute a defense for private respondent
insurance company; no exoneration from liability
could result therefrom. The fact that private
respondent insurance company was itself
defrauded due to the anomalies that took place
does not free the same from its obligation to
petitioner Areola. As held in Prudential Bank v.
Court of Appeals
“A bank is liable for wrongful acts of its officers
done in the interests of the bank or in the course of
dealings of the officers in their representative
capacity but not for acts outside the scope of their
authority. Accordingly, a banking corporation is
liable to innocent third persons where the
representation is made in the course of its business
by an agent acting within the general scope of his
authority even though the agent is secretly abusing
his authority and attempting to perpetrate a fraud
upon his principal or some other person.”
Prudential is liable for damages for the fraudulent
acts committed by Malapit. Reinstating the
insurance policy can not obliterate the injury
inflicted. A contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal
obligations are those which arise from the same
cause and in which each party is both a debtor and
a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other.
2. Due to the agreement to enter into a contract of
insurance where Prudential promised to extend
protection to petitioner-insured against the risk
insured, there was a debtor creditor relation ship
between the two parties. Under Article 1191, the
injured party is given a choice between fulfillment or
rescission of the obligation in case one of the
obligors fails to comply with what is incumbent
upon him. However, said article entitles the injured
party to payment of damages, regardless of
whether he demands fulfillment or rescission of the
obligation.
The damages would be nominal because the
insurance company took steps to rectify the
contract . There was also no actual or substantial
damage inflicted. Nominal damages are
"recoverable where a legal right is technically
violated and must be vindicated against an invasion
that has produced no actual present loss of any
kind, or where there has been a breach of contract
and no substantial injury or actual damages
whatsoever have been or can be shown.”
 15

ESCRA RULING: upon his principal or some other person, for his
We uphold petitioner-insured’s submission. own ultimate benefit.”
Malapit’s fraudulent act of misappropriating the
premiums paid by petitioner-insured is beyond Consequently, respondent insurance company is
doubt directly imputable to respondent insurance liable by way of damages for the fraudulent acts
company. A corporation, such as respondent committed by Malapit that gave occasion to the
insurance company, acts solely thru its erroneous cancellation of subject insurance
employees. The latters’ acts are considered as its policy. Its earlier act of reinstating the insurance
own for which it can be held to account. The facts policy can not obliterate the injury inflicted on
are clear as to the relationship between private petitioner-insured. Respondent company should
respondent insurance company and Malapit. As be reminded that a contract of insurance creates
admitted by private respondent insurance reciprocal obligations for both insurer and
company in its answer, Malapit was the manager insured. Reciprocal obligations are those which
of its Baguio branch. It is beyond doubt that he arise from the same cause and in which each
represented its interests and acted in its behalf. party is both a debtor and a creditor of the other,
such that the obligation of one is dependent upon
His act of receiving the premiums collected is the obligation of the other.
well within the province of his authority. Thus,
his receipt of said premiums is receipt by private TAN CHAY vs. WEST COAST LIFE (1927)
respondent insurance company who, by provision
of law, particularly under Article 1910 of the
Civil Code, is bound by the acts of its agent. x x x
Malapit’s failure to remit the premiums he
received cannot constitute a defense for private
respondent insurance company; no exoneration
from liability could result therefrom. The fact
that private respondent insurance company was
itself defrauded due to the anomalies that took
place in its Baguio branch office, such as the non-
accrual of said premiums to its account, does not
free the same from its obligation to petitioner
Areola. As held in Prudential Bank v. Court of
Appeals citing the ruling in McIntosh v. Dakota
Trust Co.: “A bank is liable for wrongful acts of
its officers done in the interests of the bank or in
the course of dealings of the officers in their
representative capacity but not for acts outside
the scope of their authority. A bank holding out
its officers and agent as worthy of confidence will
not be permitted to profit by the frauds they may
thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be
permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the
bank therefrom. Accordingly, a banking
corporation is liable to innocent third persons
where the representation is made in the course of
its business by an agent acting within the
general scope of his authority even though, in the
particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud