Where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage of copra and hemp in which the appelle deals with exclusively. The warehouses together with the contents were insured with Law Union since 1937 and the loss made payable to PNB as mortgagee of the hemp and copra. A fire of undetermined cause broke out on July 21, 1940 and lasted for almost 1 whole week.
Qua Chee informed the insurer of the unfortunate event and submitted the corresponding fire claims. Insurer refused to pay claiming violations of the warranties and conditions – (a) fire hydrant warranty: the appellee should have 11 fire hydrants in the compound, and that he actually had only two 2 (b) filing of fraudulent claims and that the fire had been deliberately caused by the insured. Insured filed an action before CFI which rendered a decision in favor of the insured.