Tan Chay v West Coast G.R. No. L-27541 November 21, 1927

J. Johns

Facts:

Tan Chay applied for a life insurance policy of for the sum of P10,000 where he was the sole beneficiary. The company approved this.  The policy was issued upon the payment by Tan Ceang of the first year's premium worth P936. The company agreed to pay the beneficiay the amount of the policy upon the receipt of the proofs of the death of the insured while the policy was in force. Without any premium due or unpaid, Ceang died. Tan Chay plaintiff submitted the proofs of the death of Tan Ceang with a claim for the payment. The company refused to pay.

The company alleged that Tan Ceang obtained the policy by means of deceit to the effect that the medical certificate had false statements about his health. They also claimed that he didn’t pay the premium. The court ruled for Tan Chay and commanded the company to pay 10,000 pesos.

Issue: WON Section 47 of the Insurance Code applies to this case.

Held: No. Petition dismissed.

Ratio:

The plaintiff contends that section 47 of the Insurance Act should be applied, and that when so applied, the company is barred and estopped to plead the matters alleged in its special defense. That section states:

Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.

The defendant contends that section 47 does not apply to this special defense. If in legal effect defendant's special defense is in the nature of an act to rescind "a contract of insurance," then such right must be exercised prior to an action enforce the contract.

Defendant denied that if ever issued the policy in question.

The word "rescind" has a well defined legal meaning, and as applied to contracts, it presupposes the existence of a contract to rescind. The rescission relates only to the unfulfilled part, and not to the entire agreement, making the party rescinding liable on notes executed pursuant to the contract which matured before the rescission. The rescission is the unmaking of a contract, requiring the same concurrence of wills as that which made it, and nothing short of this will suffice.

After a contract has been broken, whether by an inability to perform it, or by rescinding against right or otherwise, the party not in fault may sue the other for the damages suffered, or, if the parties can be placed in status quo, he may, should he prefer, return what he has received and recover in a suit value of what he has paid or done. The latter remedy is termed "rescission."

In the instant case, the defendant does not seek to have the alleged insurance contract rescinded. It only denies that it ever made any contract of insurance on the life of Tan Ceang or that any such a contract ever existed. If the defendant never made or entered into the contract in question, there is no contract to rescind, and, hence, section 47 doesn’t 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. 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 or are not true, the court couldn’t say, but they were sure that section 47 does not apply to the allegations made in the answer.