Tan Chay Heng v. West Coast Life - Fraud

51 Phil 80

Facts:

>  In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his “uncle”, Tan Caeng who died in 1925.  He was the sole beneficiary thereof.

>  West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.

>  West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and not a drug user, when in fact he was married, a laborer, suffering form tuberculosis and addicted to drugs.

>  West Coast now denies liability based on these misrepresentations.

>  Tan Chay contends that West Coast may not rescind the contract because an action for performance has already been filed.

>  Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been procured by fraud unless he brings an action to rescind it before he is sued thereon.

Issue:

Whether or not West Coast’s action for rescission is therefore barred by the collection suit filed by Tan Chay.

Held:

NO.

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case, it will be noted that even in its prayer, the defendant does not seek to have the alleged insurance contract rescinded.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an action to rescind a contract is founded upon and presupposes the existence of the contract which is sought to be rescinded.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.