Case Summary (G.R. No. 207526)
Key Individuals and Context
- Deceased Mortgagor: Jose H. Alvarez
- Claimants: Alvarez’s heirs (Alma V., Gil V., Josefina V., Rufino V., Jim V., Dahlia V., Leni V., Lily V., Frank V., Joey V., Donato V., and Adelina V. Alvarez)
- Insurer: The Insular Life Assurance Co., Ltd.
- Mortgagee/Bank: Union Bank of the Philippines
Petitioner and Respondent
- Petitioners: The Insular Life Assurance Co., Ltd. and Union Bank of the Philippines
- Respondents: Heirs of Jose H. Alvarez
Key Dates
- June 18, 1997: Housing loan granted to Alvarez (P648,000) secured by mortgage and group mortgage redemption insurance.
- April 17, 1998: Alvarez’s death.
- May 1998: Death claim filed with Insular Life.
- October 4, 1999: Extrajudicial foreclosure of mortgaged lot.
- February 14, 2001: Heirs file complaint (later amended for specific performance).
- January 29, 2007: RTC decision in favor of heirs.
- May 21, 2013 and November 6, 2013: Court of Appeals decision and resolution denying reconsideration.
- October 3, 2018: Supreme Court decision.
Applicable Law
- 1987 Philippine Constitution
- Insurance Code of the Philippines (Sections 26–48 on concealment and representations)
- Civil Code provisions on fraud and rescission
- Rules of Court on extrajudicial foreclosure and evidence
Underlying Mortgage Redemption Insurance Arrangement
Alvarez obtained a housing loan from UnionBank, secured by a real estate mortgage on his Caloocan City property and covered under a Group Mortgage Redemption Insurance policy issued by Insular Life, with UnionBank as beneficiary.
Claim Denial and Foreclosure Proceedings
Insular Life denied the death claim, alleging that Alvarez misrepresented his age (over 60 at loan approval) and was therefore ineligible. UnionBank then pursued foreclosure after unpaid amortizations, acquired the property at auction, and obtained title.
Complaint for Specific Performance
The heirs, denying knowledge of any loan, filed for nullity of contract and damages, later amending for specific performance against both UnionBank and Insular Life to enforce the insurance undertaking, annul the foreclosure, and reconvey title.
RTC Findings on Fraud and Policy Rescission
The Regional Trial Court found no evidence of fraudulent intent by Alvarez regarding his age, emphasized UnionBank’s duty to verify eligibility, and held that Insular Life improperly refused payment. It ordered payment of insurance proceeds to the bank, annulled the foreclosure, and mandated reconveyance.
Court of Appeals Rationale
On appeal, the Court of Appeals affirmed that fraud requires clear and convincing proof and that Insular Life failed to establish intent based on a lone health statement. It held that rescission for misrepresentation (Section 45) demands proof of fraud and compliance with notice requirements, none of which were met.
Issues for Supreme Court Review
- Whether Insular Life is obliged to pay the insurance proceeds despite alleged age misrepresentation.
- Whether UnionBank properly foreclosed despite the insurer’s refusal to pay.
Fraud and Concealment under the Insurance Code
Section 27 of the Insurance Code allows rescission for concealment—intentional or not—because concealment of material facts equates to fraud per established jurisprudence (Argente, Saturnino).
Distinction Between Concealment and Misrepresentation
The Court distinguished concealment (Section 27) from false representations (Section 45). Alvarez made affirmative statements about his age, invoking remedial rules for misrepresentation that require proof of fraudulent intent.
Burden of Proof and Evidence Assessment
Fraud must be proven by clear and convincing evidence. Insular Life relied solely on
Case Syllabus (G.R. No. 207526)
Facts of the Case
- Jose H. Alvarez and his wife owned a residential lot covered by TCT No. C-315023 in Caloocan City.
- On June 18, 1997, Alvarez obtained a P648,000 housing loan from Union Bank secured by promissory note, real estate mortgage over the lot, and Group Mortgage Redemption Insurance with Insular Life as insurer and Union Bank as beneficiary.
- Alvarez died on April 17, 1998. Union Bank filed a death claim under the group insurance policy in May 1998, submitting birth, marriage, and death certificates; physician’s statement; claimant’s statement; and Alvarez’s account statement.
- Insular Life denied the claim, alleging Alvarez was over 60 at loan approval and thus ineligible for coverage.
- Union Bank’s unpaid amortizations led to a demand on Alvarez’s heirs to vacate; the lot was foreclosed extrajudicially on October 4, 1999, with Union Bank as highest bidder.
Procedural History
- February 14, 2001: The Heirs of Alvarez filed a complaint for nullity of contract and damages, later amended to include specific performance against both Union Bank and Insular Life.
- January 29, 2007: RTC Branch 148, Makati City, ruled for the heirs, ordering compliance with the insurance policy, annulment of the foreclosure, reconveyance of title, and payment of attorney’s fees and costs.
- May 21, 2013: Court of Appeals affirmed the RTC decision.
- November 6, 2013: Court of Appeals denied Union Bank’s motion for reconsideration.
- G.R. Nos. 207526 and 210156: Insular Life and Union Bank separately petitioned for certiorari via Rule 45.
- March 12, 2014: Supreme Court consolidated both petitions for joint resolution.
Issues Presented
- Whether Insular Life must pay the balance of Alvarez’s loan under Mortgage Redemption Insurance despite alleged misrepresentation of his age.
- Whether Union Bank properly foreclosed on the mortgaged pro