G.R. No. L-15774 November 29, 1920 [SEAL.] (Sgd.) T. B.

MACAULAY,
President.
PILAR C. DE LIM, plaintiff-appellant, (Sgd.) A. F. Peters, Agent.
vs.
SUN LIFE ASSURANCE COMPANY OF Our duty in this case is to ascertain the correct meaning
CANADA, defendant-appellee. of the document above quoted. A perusal of the same
many times by the writer and by other members of the
Sanz and Luzuriaga for appellant. court leaves a decided impression of vagueness in the
Cohn and Fisher for appellee. mind. Apparently it is to be a provisional policy "for four
months only from the date of this application." We use
the term "apparently" advisedly, because immediately
following the words fixing the four months period comes
the word "provided" which has the meaning of "if."
Otherwise stated, the policy for four months is expressly
MALCOLM, J.: made subjected to the affirmative condition that "the
company shall confirm this agreement by issuing a policy
This is an appeal by plaintiff from an order of the Court of on said application when the same shall be submitted to
First Instance of Zamboanga sustaining a demurrer to the head office in Montreal." To reenforce the same there
plaintiff's complaint upon the ground that it fails to state a follows the negative condition —
cause of action.
Should the company not issue such a policy, then this
As the demurrer had the effect of admitting the material agreement shall be null and void ab initio, and the
facts set forth in the complaint, the facts are those company shall be held not to have been on the risk."
alleged by the plaintiff. On July 6, 1917, Luis Lim y Certainly, language could hardly be used which would
Garcia of Zamboanga made application to the Sun Life more clearly stipulate that the agreement should not go
Assurance Company of Canada for a policy of insurance into effect until the home office of the company should
on his life in the sum of P5,000. In his application Lim confirm it by issuing a policy. As we read and understand
designated his wife, Pilar C. de Lim, the plaintiff herein, the so-called provisional policy it amounts to nothing but
as the beneficiary. The first premium of P433 was paid an acknowledgment on behalf of the company, that it has
by Lim, and upon such payment the company issued received from the person named therein the sum of
what was called a "provisional policy." Luis Lim y Garcia money agreed upon as the first year's premium upon a
died on August 23, 1917, after the issuance of the policy to be issued upon the application, if the application
provisional policy but before approval of the application is accepted by the company.
by the home office of the insurance company. The
instant action is brought by the beneficiary, Pilar C. de It is of course a primary rule that a contract of insurance,
Lim, to recover from the Sun Life Assurance Company of like other contracts, must be assented to by both parties
Canada the sum of P5,000, the amount named in the either in person or by their agents. So long as an
provisional policy. application for insurance has not been either accepted or
rejected, it is merely an offer or proposal to make a
The "provisional policy" upon which this action rests contract. The contract, to be binding from the date of the
reads as follows: application, must have been a completed contract, one
that leaves nothing to be done, nothing to be completed,
Received (subject to the following nothing to be passed upon, or determined, before it shall
stipulations and agreements) the sum of take effect. There can be no contract of insurance unless
four hundred and thirty-three pesos, the minds of the parties have met in agreement. Our
being the amount of the first year's view is, that a contract of insurance was not here
premium for a Life Assurance Policy on consummated by the parties. lawph![Link]

the life of Mr. Luis D. Lim y Garcia of

Zamboanga for P5,000, for which an Appellant relies on Joyce on Insurance. Beginning at
application dated the 6th day of July, page 253, of Volume I, Joyce states the general rule
1917, has been made to the Sun Life concerning the agent's receipt pending approval or
Assurance Company of Canada. issuance of policy. The first rule which Joyce lays down
is this: If the act of acceptance of the risk by the agent
The above-mentioned life is to be and the giving by him of a receipt, is within the scope of
assured in accordance with the terms and the agent's authority, and nothing remains but to issue a
conditions contained or inserted by the policy, then the receipt will bind the company. This rule
Company in the policy which may be does not apply, for while here nothing remained but to
granted by it in this particular case issue the policy, this was made an express condition to
for four months only from the date of the the contract. The second rule laid down by Joyce is this:
application, provided that the Company Where an agreement is made between the applicant and
shall confirm this agreement by issuing a the agent whether by signing an application containing
policy on said application when the same such condition, or otherwise, that no liability shall attach
shall be submitted to the Head Office in until the principal approves the risk and a receipt is given
Montreal. Should the Company not issue buy the agent, such acceptance is merely conditional,
such a policy, then this agreement shall and it subordinated to the act of the company in
be null and void ab initio, and the approving or rejecting; so in life insurance a "binding slip"
Company shall be held not to have been or "binding receipt" does not insure of itself. This is the
on the risk at all, but in such case the rule which we believe applies to the instant case. The
amount herein acknowledged shall be third rule announced by Joyce is this: Where the
returned. acceptance by the agent is within the scope of his
authority a receipt containing a contract for insurance for
a specific time which is not absolute but conditional,
upon acceptance or rejection by the principal, covers the
specified period unless the risk is declined within that The order appealed from, in the nature of a final
period. The case cited by Joyce to substantiate the last judgment is affirmed, without special finding as to costs
principle is that a Goodfellow vs. Times & Beacon in this instance. So ordered.
Assurance Com. (17 U. C. Q. B., 411), not available.

The two cases most nearly in point come from the

federal courts and the Supreme Court of Arkansas. G.R. No. L-38613 February 25, 1982

In the case of Steinle vs. New York Life Insurance Co. PACIFIC TIMBER EXPORT
([1897], 81 Fed., 489} the facts were that the amount of CORPORATION, petitioner,
the first premium had been paid to an insurance agent vs.
and a receipt given therefor. The receipt, however, THE HONORABLE COURT OF APPEALS and
expressly declared that if the application was accepted WORKMEN'S INSURANCE COMPANY,
by the company, the insurance shall take effect from the INC., respondents.
date of the application but that if the application was not
accepted, the money shall be returned. The trite decision
of the circuit court of appeal was, "On the conceded facts
of this case, there was no contract to life insurance
DE CASTRO, ** J.:
perfected and the judgment of the circuit court must be
affirmed."
This petition seeks the review of the decision of the Court
of Appeals reversing the decision of the Court of First
In the case of Cooksey vs. Mutual Life Insurance Co.
Instance of Manila in favor of petitioner and against
([1904], 73 Ark., 117) the person applying for the life
private respondent which ordered the latter to pay the
insurance paid and amount equal to the first premium,
sum of Pll,042.04 with interest at the rate of 12% interest
but the application and the receipt for the money paid,
from receipt of notice of loss on April 15, 1963 up to the
stipulated that the insurance was to become effective
complete payment, the sum of P3,000.00 as attorney's
only when the application was approved and the policy
fees and the costs 1 thereby dismissing petitioner s
issued. The court held that the transaction did not
complaint with costs. 2
amount to an agreement for preliminary or temporary
insurance. It was said:
The findings of the of fact of the Court of Appeals, which are
generally binding upon this Court, Except as shall be
It is not an unfamiliar custom among life insurance indicated in the discussion of the opinion of this Court the
companies in the operation of the business, upon receipt substantial correctness of still particular finding having been
of an application for insurance, to enter into a contract disputed, thereby raising a question of law reviewable by
with the applicant in the shape of a so-called "binding this Court 3 are as follows:
receipt" for temporary insurance pending the
consideration of the application, to last until the policy be March 19, l963, the plaintiff secured
issued or the application rejected, and such contracts are temporary insurance from the defendant
upheld and enforced when the applicant dies before the for its exportation of 1,250,000 board feet
issuance of a policy or final rejection of the application. It of Philippine Lauan and Apitong logs to
is held, too, that such contracts may rest in parol. be shipped from the Diapitan. Bay,
Counsel for appellant insists that such a preliminary Quezon Province to Okinawa and Tokyo,
contract for temporary insurance was entered into in this Japan. The defendant issued on said
instance, but we do not think so. On the contrary, the date Cover Note No. 1010, insuring the
clause in the application and the receipt given by the said cargo of the plaintiff "Subject to the
solicitor, which are to be read together, stipulate Terms and Conditions of the
expressly that the insurance shall become effective only WORKMEN'S INSURANCE COMPANY,
when the "application shall be approved and the policy INC. printed Marine Policy form as filed
duly signed by the secretary at the head office of the with and approved by the Office of the
company and issued." It constituted no agreement at all Insurance Commissioner (Exhibit A).
for preliminary or temporary insurance; Mohrstadt vs.
Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675;
The regular marine cargo policies were
Steinle vs. New York Life Ins. Co., 81 Fed., 489, 26 C. C.
issued by the defendant in favor of the
A., 491." (See further Weinfeld vs. Mutual Reserve Fund
plaintiff on April 2, 1963. The two marine
Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs. Mutual Life
policies bore the numbers 53 HO 1032
Insurance Co. [1902], 115 Fed., 81; Insurance co. vs.
and 53 HO 1033 (Exhibits B and C,
Young's Administrator [1875], 90 U. S., 85; Chamberlain
respectively). Policy No. 53 H0 1033
vs. Prudential Insurance Company of America [1901],
(Exhibit B) was for 542 pieces of logs
109 Wis., 4; Shawnee Mut. Fire Ins. Co. vs. McClure
equivalent to 499,950 board feet. Policy
[1913], 39 Okla., 509; Dorman vs. Connecticut Fire Ins.
No. 53 H0 1033 was for 853 pieces of
Co. [1914], 51 contra, Starr vs. Mutual Life Ins. Co.
logs equivalent to 695,548 board feet
[1905], 41 Wash., 228.)
(Exhibit C). The total cargo insured under
the two marine policies accordingly
We are of the opinion that the trial court committed no consisted of 1,395 logs, or the equivalent
error in sustaining the demurrer and dismissing the case. of 1,195.498 bd. ft.
It is to be noted, however, that counsel for appellee
admits the liability of the company for the return of the
After the issuance of Cover Note No.
first premium to the estate of the deceased. It is not to be
1010 (Exhibit A), but before the issuance
doubted but that the Sun Life Assurance Company of
of the two marine policies Nos. 53 HO
Canada will immediately, on the promulgation of this
1032 and 53 HO 1033, some of the logs
decision, pay to the estate of the late Luis Lim y Garcia
intended to be exported were lost during
the of P433.
loading operations in the Diapitan Bay.
The logs were to be loaded on the 'SS
 Woodlock' which docked about 500 However, the loss of 30 pieces of logs is
meters from the shoreline of the Diapitan within the 1,250,000 bd. ft. covered by
Bay. The logs were taken from the log Cover Note 1010 insured for $70,000.00.
pond of the plaintiff and from which they
were towed in rafts to the vessel. At On September 14, 1963, the adjustment
about 10:00 o'clock a. m. on March 29, company submitted a computation of the
1963, while the logs were alongside the defendant's probable liability on the loss
vessel, bad weather developed resulting sustained by the shipment, in the total
in 75 pieces of logs which were rafted amount of Pl1,042.04 (Exhibit 4).
together co break loose from each other.
45 pieces of logs were salvaged, but 30 On January 13, 1964, the defendant
pieces were verified to have been lost or wrote the plaintiff denying the latter's
washed away as a result of the accident. claim, on the ground they defendant's
investigation revealed that the entire
In a letter dated April 4, 1963, the plaintiff informed the shipment of logs covered by the two
defendant about the loss of 'appropriately 32 pieces of marines policies No. 53 110 1032 and
log's during loading of the 'SS Woodlock'. The said letter 713 HO 1033 were received in good
(Exhibit F) reads as follows: order at their point of destination. It was
further stated that the said loss may be
April 4, 1963 considered as covered under Cover Note
No. 1010 because the said Note had
Workmen's Insurance Company, Inc. become 'null and void by virtue of the
Manila, Philippines issuance of Marine Policy Nos. 53 HO
1032 and 1033'(Exhibit J-1). The denial
Gentlemen: of the claim by the defendant was
brought by the plaintiff to the attention of
the Insurance Commissioner by means of
This has reference to Insurance Cover
a letter dated March 21, 1964 (Exhibit K).
Note No. 1010 for shipment of 1,250,000
In a reply letter dated March 30, 1964,
bd. ft. Philippine Lauan and Apitong Logs.
Insurance Commissioner Francisco Y.
We would like to inform you that we have
Mandanas observed that 'it is only fair
received advance preliminary report from
and equitable to indemnify the insured
our Office in Diapitan, Quezon that we
under Cover Note No. 1010', and advised
have lost approximately 32 pieces of logs
early settlement of the said marine loss
during loading of the SS Woodlock.
and salvage claim (Exhibit L).
We will send you an accurate report all
On June 26, 1964, the defendant
the details including values as soon as
informed the Insurance Commissioner
same will be reported to us.
that, on advice of their attorneys, the
claim of the plaintiff is being denied on
Thank you for your attention, we wish to the ground that the cover note is null and
remain. void for lack of valuable consideration
(Exhibit M). 4
Very respectfully yours,
Petitioner assigned as errors of the Court of Appeals, the
PACIFIC TIMBER EXPORT following:
CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst.

General Manager. THE COURT OF APPEALS ERRED IN
HOLDING THAT THE COVER NOTE
Although dated April 4, 1963, the letter WAS NULL AND VOID FOR LACK OF
was received in the office of the VALUABLE CONSIDERATION
defendant only on April 15, 1963, as BECAUSE THE COURT DISREGARDED
shown by the stamp impression THE PROVEN FACTS THAT
appearing on the left bottom corner of PREMIUMS FOR THE
said letter. The plaintiff subsequently COMPREHENSIVE INSURANCE
submitted a 'Claim Statement demanding COVERAGE THAT INCLUDED THE
payment of the loss under Policies Nos. COVER NOTE WAS PAID BY
53 HO 1032 and 53 HO 1033, in the total PETITIONER AND THAT INCLUDED
amount of P19,286.79 (Exhibit G). THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO
On July 17, 1963, the defendant SEPARATE PREMIUMS ARE
requested the First Philippine Adjustment COLLECTED BY PRIVATE
Corporation to inspect the loss and RESPONDENT ON ALL ITS COVER
assess the damage. The adjustment NOTES.
company submitted its 'Report on August
23, 1963 (Exhibit H). In said report, the
adjuster found that 'the loss of 30 pieces
of logs is not covered by Policies Nos. 53
HO 1032 and 1033 inasmuch as said THE COURT OF APPEALS ERRED IN HOLDING THAT
policies covered the actual number of PRIVATE RESPONDENT WAS RELEASED FROM
logs loaded on board the 'SS Woodlock' LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF operate otherwise, it would serve no practical purpose in
LOSS BECAUSE THE COURT DISREGARDED THE the realm of commerce, and is supported by the doctrine
PROVEN FACT THAT PRIVATE RESPONDENT DID that where a policy is delivered without requiring
NOT PROMPTLY AND SPECIFICALLY OBJECT TO payment of the premium, the presumption is that a credit
THE CLAIM ON THE GROUND OF DELAY IN GIVING was intended and policy is valid. 7
NOTICE OF LOSS AND, CONSEQUENTLY,
OBJECTIONS ON THAT GROUND ARE WAIVED 2. The defense of delay as raised by private respondent in
UNDER SECTION 84 OF THE INSURANCE ACT. 5 resisting the claim cannot be sustained. The law requires
this ground of delay to be promptly and specifically asserted
1. Petitioner contends that the Cover Note was issued with when a claim on the insurance agreement is made. The
a consideration when, by express stipulation, the cover note undisputed facts show that instead of invoking the ground of
is made subject to the terms and conditions of the marine delay in objecting to petitioner's claim of recovery on the
policies, and the payment of premiums is one of the terms cover note, it took steps clearly indicative that this particular
of the policies. From this undisputed fact, We uphold ground for objection to the claim was never in its mind. The
petitioner's submission that the Cover Note was not without nature of this specific ground for resisting a claim places the
consideration for which the respondent court held the Cover insurer on duty to inquire when the loss took place, so that it
Note as null and void, and denied recovery therefrom. The could determine whether delay would be a valid ground
fact that no separate premium was paid on the Cover Note upon which to object to a claim against it.
before the loss insured against occurred, does not militate
against the validity of petitioner's contention, for no such As already stated earlier, private respondent's reaction
premium could have been paid, since by the nature of the upon receipt of the notice of loss, which was on April 15,
Cover Note, it did not contain, as all Cover Notes do not 1963, was to set in motion from July 1963 what would be
contain particulars of the shipment that would serve as necessary to determine the cause and extent of the loss,
basis for the computation of the premiums. As a logical with a view to the payment thereof on the insurance
consequence, no separate premiums are intended or agreement. Thus it sent its adjuster to investigate and
required to be paid on a Cover Note. This is a fact admitted assess the loss in July, 1963. The adjuster submitted his
by an official of respondent company, Juan Jose Camacho,
report on August 23, 1963 and its computation of
in charge of issuing cover notes of the respondent company
respondent's liability on September 14, 1963. From April
(p. 33, tsn, September 24, 1965).
1963 to July, 1963, enough time was available for private
respondent to determine if petitioner was guilty of delay
At any rate, it is not disputed that petitioner paid in full all in communicating the loss to respondent company. In the
the premiums as called for by the statement issued by proceedings that took place later in the Office of the
private respondent after the issuance of the two regular Insurance Commissioner, private respondent should then
marine insurance policies, thereby leaving no account have raised this ground of delay to avoid liability. It did
unpaid by petitioner due on the insurance coverage, not do so. It must be because it did not find any delay, as
which must be deemed to include the Cover Note. If the this Court fails to find a real and substantial sign thereof.
Note is to be treated as a separate policy instead of But even on the assumption that there was delay, this
integrating it to the regular policies subsequently issued, Court is satisfied and convinced that as expressly
the purpose and function of the Cover Note would be set provided by law, waiver can successfully be raised
at naught or rendered meaningless, for it is in a real against private respondent. Thus Section 84 of the
sense a contract, not a mere application for insurance Insurance Act provides:
which is a mere offer. 6
Section 84.—Delay in the presentation to
It may be true that the marine insurance policies issued an insurer of notice or proof of loss is
were for logs no longer including those which had been lost
waived if caused by any act of his or if he
during loading operations. This had to be so because the
omits to take objection promptly and
risk insured against is not for loss during operations
anymore, but for loss during transit, the logs having already specifically upon that ground.
been safely placed aboard. This would make no difference,
however, insofar as the liability on the cover note is From what has been said, We find duly substantiated
concerned, for the number or volume of logs lost can be petitioner's assignments of error.
determined independently as in fact it had been so
ascertained at the instance of private respondent itself when ACCORDINGLY, the appealed decision is set aside and
it sent its own adjuster to investigate and assess the loss, the decision of the Court of First Instance is reinstated in
after the issuance of the marine insurance policies. toto with the affirmance of this Court. No special
pronouncement as to costs.
The adjuster went as far as submitting his report to
respondent, as well as its computation of respondent's SO ORDERED.
liability on the insurance coverage. This coverage could
not have been no other than what was stipulated in the
Cover Note, for no loss or damage had to be assessed Grepalife v. CA
on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to
ask petitioner to pay premium on the Cover Note, for the
89 SCRA 543
loss insured against having already occurred, the more
practical procedure is simply to deduct the premium from Facts:
the amount due the petitioner on the Cover Note. The
non-payment of premium on the Cover Note is, therefore, > On March 14, 1957, respondent Ngo Hing filed
no cause for the petitioner to lose what is due it as if an application with Grepalife for a 20-yr
there had been payment of premium, for non-payment by
it was not chargeable against its fault. Had all the logs endowment policy for 50T on the life of his one
been lost during the loading operations, but after the year old daughter Helen Go.
issuance of the Cover Note, liability on the note would
have already arisen even before payment of premium.
This is how the cover note as a "binder" should legally
> All the essential data regarding Helen was the insurance company, and that the latter will
supplied by Ngo to Lapu-Lapu Mondragon, the either approve or reject the same on the basis of
branch manager of Grepalife-Cebu. Mondragon whether or not the applicant is insurable on
then typed the data on the application form which standard rates.
was later signed by Ngo.

> Ngo then paid the insurance premium and a

Since Grepalife disapproved the insurance
binding deposit receipt was issued to him. The
application of Ngo, the binding deposit receipt had
binding receipt contained the following
never became on force at any time, pursuant to
provision: “If the applicant shall not have been
par. E of the said receipt. A binding receipt is
insurable xxx and the Company declines to
manifestly merely conditional and does NOT
approve the application, the insurance applied for
insure outright. Where an agreement is made
shall not have been in force at any time and the
between the applicant and the agent, NO liability
sum paid shall be returned to the applicant upon
shall attach until the principal approves the risk
the surrender of this receipt.”
and a receipt is given by the agent.
> Mondragon wrote on the bottom of the
application form his strong recommendation for
the approval of the insurance application. The acceptance is merely conditional, and is
subordinated to the act of the company in
> On Apr 30, 1957, Mondragon received a letter
approving or rejecting the application. Thus in life
from Grepalife Main office disapproving the
insurance, a binding slip or binding receipt does
insurance application of Ngo for the simple
NOT insure by itself.
reason that the 20yr endowment plan is not
available for minors below 7 yrs old.
G.R. No. 95546 November 6, 1992
> Mondragon wrote back the main office again
strongly recommending the approval of the MAKATI TUSCANY CONDOMINIUM
CORPORATION, petitioner,
endowment plan on the life of Helen, adding that vs.
Grepalife was the only insurance company NOT THE COURT OF APPEALS, AMERICAN HOME
ASSURANCE CO., represented by American
selling endowment plans to children. International Underwriters (Phils.), Inc., respondent.
> On may 1957, Helen died of influenza with
complication of broncho pneumonia. Ngo filed a
claim with Gepalife, but the latter denied liability BELLOSILLO, J.:

on the ground that there was no contract between This case involves a purely legal question: whether
the insurer and the insured and a binding receipt payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in
is NOT evidence of such contract. view of Sec. 77 of P.D. 612, otherwise known as the
Insurance Code, as amended, which provides:

Sec. 77. An insurer is entitled to the

Issue: payment of the premium as soon as the
thing is exposed to the peril insured
Whether or not the binding deposit receipt, against. Notwithstanding any agreement
constituted a temporary contract of life insurance. to the contrary, no policy or contract of
insurance issued by an insurance
company is valid and binding unless and
until the premium thereof has been paid,
Held: except in the case of a life or an industrial
life policy whenever the grace period
provision applies.
NO.
Sometime in early 1982, private respondent American
The binding receipt in question was merely an
Home Assurance Co. (AHAC), represented by American
acknowledgement on behalf of the company, that International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation
the latter’s branch office had received from the
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on
applicant, the insurance premium and had the latter's building and premises, for a period beginning
accepted the application subject for processing by 1 March 1982 and ending 1 March 1983, with a total
premium of P466,103.05. The premium was paid on the policies. Consequently, defendant's
installments on 12 March 1982, 20 May 1982, 21 June counterclaim for refund is not justified.
1982 and 16 November 1982, all of which were accepted
by private respondent. As regards the unpaid premiums on
Insurance Policy No. AH-CPP-9210651,
On 10 February 1983, private respondent issued to in view of the reservation in the receipts
petitioner Insurance Policy No. AH-CPP-9210596, which ordinarily issued by the plaintiff on
replaced and renewed the previous policy, for a term premium payments the only plausible
covering 1 March 1983 to 1 March 1984. The premium in conclusion is that plaintiff has no right to
the amount of P466,103.05 was again paid on demand their payment after the lapse of
installments on 13 April 1983, 13 July 1983, 3 August the term of said policy on March 1, 1985.
1983, 9 September 1983, and 21 November 1983. All Therefore, the defendant was justified in
payments were likewise accepted by private respondent. refusing to pay the same. 1

On 20 January 1984, the policy was again renewed and Both parties appealed from the judgment of the trial
private respondent issued to petitioner Insurance Policy court. Thereafter, the Court of Appeals rendered a
No. AH-CPP-9210651 for the period 1 March 1984 to 1 decision 2modifying that of the trial court by ordering
March 1985. On this renewed policy, petitioner made two herein petitioner to pay the balance of the premiums due
installment payments, both accepted by private on Policy No. AH-CPP-921-651, or P314,103.05 plus
respondent, the first on 6 February 1984 for P52,000.00 legal interest until fully paid, and affirming the denial of
and the second, on 6 June 1984 for P100,000.00. the counterclaim. The appellate court thus explained —
Thereafter, petitioner refused to pay the balance of the
premium. The obligation to pay premiums when
due is ordinarily as indivisible obligation
Consequently, private respondent filed an action to to pay the entire premium. Here, the
recover the unpaid balance of P314,103.05 for Insurance parties herein agreed to make the
Policy No. AH-CPP-9210651. premiums payable in installments, and
there is no pretense that the parties never
In its answer with counterclaim, petitioner admitted the envisioned to make the insurance
issuance of Insurance Policy No. AH-CPP-9210651. It contract binding between them. It was
explained that it discontinued the payment of premiums renewed for two succeeding years, the
because the policy did not contain a credit clause in its second and third policies being a
favor and the receipts for the installment payments renewal/replacement for the previous
covering the policy for 1984-85, as well as the two (2) one. And the insured never informed the
previous policies, stated the following reservations: insurer that it was terminating the policy
because the terms were unacceptable.
2. Acceptance of this payment shall not
waive any of the company rights to deny While it may be true that under Section
liability on any claim under the policy 77 of the Insurance Code, the parties
arising before such payments or after the may not agree to make the insurance
expiration of the credit clause of the contract valid and binding without
policy; and payment of premiums, there is nothing in
said section which suggests that the
3. Subject to no loss prior to premium parties may not agree to allow payment
payment. If there be any loss such is not of the premiums in installment, or to
covered. consider the contract as valid and binding
upon payment of the first premium.
Otherwise, we would allow the insurer to
Petitioner further claimed that the policy was never
renege on its liability under the contract,
binding and valid, and no risk attached to the policy. It
had a loss incurred (sic) before
then pleaded a counterclaim for P152,000.00 for the
completion of payment of the entire
premiums already paid for 1984-85, and in its answer
premium, despite its voluntary
with amended counterclaim, sought the refund of
acceptance of partial payments, a result
P924,206.10 representing the premium payments for
eschewed by a basic considerations of
1982-85.
fairness and equity.
After some incidents, petitioner and private respondent
To our mind, the insurance contract
moved for summary judgment.
became valid and binding upon payment
of the first premium, and the plaintiff
On 8 October 1987, the trial court dismissed the could not have denied liability on the
complaint and the counterclaim upon the following ground that payment was not made in
findings: full, for the reason that it agreed to accept
installment payment. . . . 3
While it is true that the receipts issued to
the defendant contained the Petitioner now asserts that its payment by installment of
aforementioned reservations, it is equally the premiums for the insurance policies for 1982, 1983
true that payment of the premiums of the and 1984 invalidated said policies because of the
three aforementioned policies (being provisions of Sec. 77 of the Insurance Code, as
sought to be refunded) were made during amended, and by the conditions stipulated by the insurer
the lifetime or term of said policies, in its receipts, disclaiming liability for loss for occurring
hence, it could not be said, inspite of the before payment of premiums.
reservations, that no risk attached under
It argues that where the premiums is not actually paid in Co. 5 is unavailing because the facts therein are
full, the policy would only be effective if there is an substantially different from those in the case at bar.
acknowledgment in the policy of the receipt of premium In Arce, no payment was made by the insured at all
pursuant to Sec. 78 of the Insurance Code. The absence despite the grace period given. In the case before Us,
of an express acknowledgment in the policies of such petitioner paid the initial installment and thereafter made
receipt of the corresponding premium payments, and staggered payments resulting in full payment of the 1982
petitioner's failure to pay said premiums on or before the and 1983 insurance policies. For the 1984 policy,
effective dates of said policies rendered them invalid. petitioner paid two (2) installments although it refused to
Petitioner thus concludes that there cannot be a pay the balance.
perfected contract of insurance upon mere partial
payment of the premiums because under Sec. 77 of the It appearing from the peculiar circumstances that the
Insurance Code, no contract of insurance is valid and parties actually intended to make three (3) insurance
binding unless the premium thereof has been paid, contracts valid, effective and binding, petitioner may not
notwithstanding any agreement to the contrary. As a be allowed to renege on its obligation to pay the balance
consequence, petitioner seeks a refund of all premium of the premium after the expiration of the whole term of
payments made on the alleged invalid insurance policies. the third policy (No. AH-CPP-9210651) in March 1985.
Moreover, as correctly observed by the appellate court,
We hold that the subject policies are valid even if the where the risk is entire and the contract is indivisible, the
premiums were paid on installments. The records clearly insured is not entitled to a refund of the premiums paid if
show that petitioner and private respondent intended the insurer was exposed to the risk insured for any
subject insurance policies to be binding and effective period, however brief or momentary.
notwithstanding the staggered payment of the premiums.
The initial insurance contract entered into in 1982 was WHEREFORE, finding no reversible error in the
renewed in 1983, then in 1984. In those three (3) years, judgment appealed from, the same is AFFIRMED. Costs
the insurer accepted all the installment payments. Such against petitioner.
acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner. SO ORDERED.
Certainly, basic principles of equity and fairness would
not allow the insurer to continue collecting and accepting
G.R. No. 137172 April 4, 2001
the premiums, although paid on installments, and later
deny liability on the lame excuse that the premiums were
not prepared in full. UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.
We therefore sustain the Court of Appeals. We quote
with approval the well-reasoned findings and conclusion
of the appellate court contained in its Resolution denying RESOLUTION
the motion to reconsider its Decision —
DAVIDE, JR., C.J.:
While the import of Section 77 is that
prepayment of premiums is strictly In our decision of 15 June 1999 in this case, we reversed
required as a condition to the validity of and set aside the assailed decision 1 of the Court of
the contract, We are not prepared to rule Appeals, which affirmed with modification the judgment
that the request to make installment of the trial court (a) allowing Respondent to consign the
payments duly approved by the insurer, sum of P225,753.95 as full payment of the premiums for
would prevent the entire contract of the renewal of the five insurance policies on
insurance from going into effect despite Respondent's properties; (b) declaring the replacement-
payment and acceptance of the initial renewal policies effective and binding from 22 May 1992
premium or first installment. Section 78 of until 22 May 1993; and (c) ordering Petitioner to pay
the Insurance Code in effect allows Respondent P18,645,000.00 as indemnity for the burned
waiver by the insurer of the condition of properties covered by the renewal-replacement policies.
prepayment by making an The modification consisted in the (1) deletion of the trial
acknowledgment in the insurance policy court's declaration that three of the policies were in force
of receipt of premium as conclusive from August 1991 to August 1992; and (2) reduction of
evidence of payment so far as to make the award of the attorney's fees from 25% to 10% of the
the policy binding despite the fact that total amount due the Respondent.
premium is actually unpaid. Section 77
merely precludes the parties from The material operative facts upon which the appealed
stipulating that the policy is valid even if judgment was based are summarized by the Court of
premiums are not paid, but does not Appeals in its assailed decision as follows:
expressly prohibit an agreement granting
credit extension, and such an agreement Plaintiff [herein Respondent] obtained from
is not contrary to morals, good customs, defendant [herein Petitioner] five (5) insurance
public order or public policy (De Leon, the policies (Exhibits "A" to "E", Record, pp. 158-175)
Insurance Code, at p. 175). So is an on its properties [in Pasay City and Manila] . . . .
understanding to allow insured to pay
premiums in installments not so All five (5) policies reflect on their face the
proscribed. At the very least, both parties effectivity term: "from 4:00 P.M. of 22 May 1991
should be deemed in estoppel to question to 4:00 P.M. of 22 May 1992." On June 13, 1992,
the arrangement they have voluntarily plaintiffs properties located at 2410-2432 and
accepted. 4 2442-2450 Taft Avenue, Pasay City were razed
by fire. On July 13, 1992, plaintiff tendered, and
The reliance by petitioner on Arce vs. Capital Surety and defendant accepted, five (5) Equitable Bank
Insurance Manager's Checks in the total amount of
 P225,753.45 as renewal premium payments for Policy No. 34688 for insurance coverage from
which Official Receipt Direct Premium No. 62926 May 22, 1990 to May 22, 1991 was issued on
(Exhibit "Q", Record, p. 191) was issued by May 7, 1990 but premium was paid only on July
defendant. On July 14, 1992, Masagana made its 19, 1990 under O.R. No. 46585 (Exhs. "Y" and
formal demand for indemnification for the burned "Y-1"). Fire Insurance Policy No. 29126 to cover
insured properties. On the same day, defendant insurance risks from May 22, 1989 to May 22,
returned the five (5) manager's checks stating in 1990 was issued on May 22, 1989 but premium
its letter (Exhibit "R" / "8", Record, p. 192) that it therefor was collected only on July 25, 1990[sic]
was rejecting Masagana's claim on the following under O.R. No. 40799 (Exhs. "AA" and "AA-1").
grounds: Fire Insurance Policy No. HO/F-26408 covering
risks from January 12, 1989 to January 12, 1990
"a) Said policies expired last May 22, was issued to Intratrade Phils. (Masagana's
1992 and were not renewed for another sister company) dated December 10, 1988 but
term; premium therefor was paid only on February 15,
1989 under O.R. No. 38075 (Exhs. "BB" and
b) Defendant had put plaintiff and its "BB-1"). Fire Insurance Policy No. 29128 was
alleged broker on notice of non-renewal issued on May 22, 1989 but premium was paid
earlier; and only on July 25, 1989 under O.R. No. 40800 for
insurance coverage from May 22, 1989 to May
22, 1990 (Exhs. "CC" and "CC-1"). Fire
c) The properties covered by the said
Insurance Policy No. 29127 was issued on May
policies were burned in a fire that took
22, 1989 but premium was paid only on July 17,
place last June 13, 1992, or before tender
1989 under O.R. No. 40682 for insurance risk
of premium payment."
coverage from May 22, 1989 to May 22, 1990
(Exhs. "DD" and "DD-1"). Fire Insurance Policy
(Record, p. 5) No. HO/F-29362 was issued on June 15, 1989
but premium was paid only on February 13, 1990
under O.R. No. 39233 for insurance coverage
Hence Masagana filed this case. from May 22, 1989 to May 22, 1990 (Exhs. "EE"
and "EE-1"). Fire Insurance Policy No. 26303
The Court of Appeals disagreed with Petitioner's stand was issued on November 22, 1988 but premium
that Respondent's tender of payment of the premiums on therefor was collected only on March 15, 1989
13 July 1992 did not result in the renewal of the policies, under O.R. NO. 38573 for insurance risks
having been made beyond the effective date of renewal coverage from December 15, 1988 to December
as provided under Policy Condition No. 26, which states: 15, 1989 (Exhs. "FF" and "FF-1").

26. Renewal Clause. — Unless the company at Moreover, according to the Court of Appeals the
least forty five days in advance of the end of the following circumstances constitute preponderant proof
policy period mails or delivers to the assured at that no timely notice of non-renewal was made by
the address shown in the policy notice of its Petitioner:
intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of (1) Defendant-appellant received the
coverages, the assured shall be entitled to renew confirmation (Exhibit "11", Record, p. 350) from
the policy upon payment of the premium due on Ultramar Reinsurance Brokers that plaintiff's
the effective date of renewal. reinsurance facility had been confirmed up to
67.5% only on April 15, 1992 as indicated on
Both the Court of Appeals and the trial court found that Exhibit "11". Apparently, the notice of non-
sufficient proof exists that Respondent, which had renewal (Exhibit "7," Record, p. 320) was sent
procured insurance coverage from Petitioner for a not earlier than said date, or within 45 days from
number of years, had been granted a 60 to 90-day credit the expiry dates of the policies as provided under
term for the renewal of the policies. Such a practice had Policy Condition No. 26; (2) Defendant insurer
existed up to the time the claims were filed. Thus: unconditionally accepted, and issued an official
receipt for, the premium payment on July 1[3],
Fire Insurance Policy No. 34658 covering May 1992 which indicates defendant's willingness to
22, 1990 to May 22, 1991 was issued on May 7, assume the risk despite only a 67.5%
1990 but premium was paid more than 90 days reinsurance cover[age]; and (3) Defendant
later on August 31, 1990 under O.R. No. 4771 insurer appointed Esteban Adjusters and Valuers
(Exhs. "T" and "T-1"). Fire Insurance Policy No. to investigate plaintiff's claim as shown by the
34660 for Insurance Risk Coverage from May 22, letter dated July 17, 1992 (Exhibit "11", Record,
1990 to May 22, 1991 was issued by UCPB on p. 254).
May 4, 1990 but premium was collected by
UCPB only on July 13, 1990 or more than 60 In our decision of 15 June 1999, we defined the main
days later under O.R. No. 46487 (Exhs. "V" and issue to be "whether the fire insurance policies issued by
"V-1"). And so were as other policies: Fire petitioner to the respondent covering the period from
Insurance Policy No. 34657 covering risks from May 22, 1991 to May 22, 1992 . . . had been extended or
May 22, 1990 to May 22, 1991 was issued on renewed by an implied credit arrangement though actual
May 7, 1990 but premium therefor was paid only payment of premium was tendered on a later date and
on July 19, 1990 under O.R. No. 46583 (Exhs. after the occurrence of the (fire) risk insured against." We
"W" and "W-1"). Fire Insurance Policy No. 34661 resolved this issue in the negative in view of Section 77
covering risks from May 22, 1990 to May 22, of the Insurance Code and our decisions in Valenzuela v.
1991 was issued on May 3, 1990 but premium Court of Appeals; 2 South Sea Surety and Insurance Co.,
was paid only on July 19, 1990 under O.R. No. Inc. v. Court of Appeals; 3 and Tibay v. Court of
46582 (Exhs. "X" and "X-1"). Fire Insurance Appeals. 4 Accordingly, we reversed and set aside the
decision of the Court of Appeals.
Respondent seasonably filed a motion for the 3. There was no valid notice of non-renewal of
reconsideration of the adverse verdict. It alleges in the the policies in question, as there is no proof at all
motion that we had made in the decision our own that the notice sent by ordinary mail was received
findings of facts, which are not in accord with those of the by Respondent, and the copy thereof allegedly
trial court and the Court of Appeals. The courts below sent to Zuellig was ever transmitted to
correctly found that no notice of non-renewal was made Respondent.
within 45 days before 22 May 1992, or before the
expiration date of the fire insurance policies. Thus, the 4. The premiums for the policies in question in
policies in question were renewed by operation of law the aggregate amount of P225,753.95 were paid
and were effective and valid on 30 June 1992 when the by Respondent within the 60- to 90-day credit
fire occurred, since the premiums were paid within the term and were duly accepted and received by
60- to 90-day credit term. Petitioner's cashier.

Respondent likewise disagrees with our ruling that The instant case has to rise or fall on the core issue of
parties may neither agree expressly or impliedly on the whether Section 77 of the Insurance Code of 1978 (P.D.
extension of credit or time to pay the premium nor No. 1460) must be strictly applied to Petitioner's
consider a policy binding before actual payment. It urges advantage despite its practice of granting a 60- to 90-day
the Court to take judicial notice of the fact that despite credit term for the payment of premiums.
the express provision of Section 77 of the Insurance
Code, extension of credit terms in premium payment has Section 77 of the Insurance Code of 1978 provides:
been the prevalent practice in the insurance industry.
Most insurance companies, including Petitioner, extend
SECTION 77. An insurer is entitled to payment of
credit terms because Section 77 of the Insurance Code
the premium as soon as the thing insured is
is not a prohibitive injunction but is merely designed for
exposed to the peril insured against.
the protection of the parties to an insurance contract. The
Notwithstanding any agreement to the contrary,
Code itself, in Section 78, authorizes the validity of a
no policy or contract of insurance issued by an
policy notwithstanding non-payment of premiums.
insurance company is valid and binding unless
and until the premium thereof has been paid,
Respondent also asserts that the principle of estoppel except in the case of a life or an industrial life
applies to Petitioner. Despite its awareness of Section 77 policy whenever the grace period provision
Petitioner persuaded and induced Respondent to believe applies.
that payment of premium on the 60- to 90-day credit term
was perfectly alright; in fact it accepted payments within
This Section is a reproduction of Section 77 of P.D. No.
60 to 90 days after the due dates. By extending credit
612 (The Insurance Code) promulgated on 18 December
and habitually accepting payments 60 to 90 days from
1974. In turn, this Section has its source in Section 72 of
the effective dates of the policies, it has implicitly agreed
Act No. 2427 otherwise known as the Insurance Act as
to modify the tenor of the insurance policy and in effect
amended by R.A. No. 3540, approved on 21 June 1963,
waived the provision therein that it would pay only for the
which read:
loss or damage in case the same occurred after payment
of the premium.
SECTION 72. An insurer is entitled to payment of
premium as soon as the thing insured is exposed
Petitioner filed an opposition to the Respondent's motion
to the peril insured against, unless there is clear
for reconsideration. It argues that both the trial court and
agreement to grant the insured credit extension
the Court of Appeals overlooked the fact that on 6 April
of the premium due. No policy issued by an
1992 Petitioner sent by ordinary mail to Respondent a
insurance company is valid and binding unless
notice of non-renewal and sent by personal delivery a
and until the premium thereof has been paid.
copy thereof to Respondent's broker, Zuellig. Both courts
(Italic supplied)
likewise ignored the fact that Respondent was fully
aware of the notice of non-renewal. A reading of Section
66 of the Insurance Code readily shows that in order for It can be seen at once that Section 77 does not restate
an insured to be entitled to a renewal of a non-life policy, the portion of Section 72 expressly permitting an
payment of the premium due on the effective date of agreement to extend the period to pay the premium. But
renewal should first be made. Respondent's argument are there exceptions to Section 77?
that Section 77 is not a prohibitive provision finds no
authoritative support. The answer is in the affirmative.

Upon a meticulous review of the records and The first exception is provided by Section 77 itself, and
reevaluation of the issues raised in the motion for that is, in case of a life or industrial life policy whenever
reconsideration and the pleadings filed thereafter by the the grace period provision applies.
parties, we resolved to grant the motion for
reconsideration. The following facts, as found by the trial The second is that covered by Section 78 of the
court and the Court of Appeals, are indeed duly Insurance Code, which provides:
established:
SECTION 78. Any acknowledgment in a policy or
1. For years, Petitioner had been issuing fire contract of insurance of the receipt of premium is
policies to the Respondent, and these policies conclusive evidence of its payment, so far as to
were annually renewed. make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until
2. Petitioner had been granting Respondent a 60- premium is actually paid.
to 90-day credit term within which to pay the
premiums on the renewed policies. A third exception was laid down in Makati Tuscany
Condominium Corporation vs. Court of
Appeals, 5 wherein we ruled that Section 77 may not
apply if the parties have agreed to the payment in ARTICLE 1306. The contracting parties may
installments of the premium and partial payment has establish such stipulations clauses, terms and
been made at the time of loss. We said therein, thus: conditions as they may deem convenient,
provided they are not contrary to law, morals,
We hold that the subject policies are valid even if good customs, public order, or public policy.
the premiums were paid on installments. The
records clearly show that the petitioners and Finally in the instant case, it would be unjust and
private respondent intended subject insurance inequitable if recovery on the policy would not be
policies to be binding and effective permitted against Petitioner, which had consistently
notwithstanding the staggered payment of the granted a 60- to 90-day credit term for the payment of
premiums. The initial insurance contract entered premiums despite its full awareness of Section 77.
into in 1982 was renewed in 1983, then in 1984. Estoppel bars it from taking refuge under said Section,
In those three years, the insurer accepted all the since Respondent relied in good faith on such practice.
installment payments. Such acceptance of Estoppel then is the fifth exception to Section 77.
payments speaks loudly of the insurer's intention
to honor the policies it issued to petitioner. WHEREFORE, the Decision in this case of 15
Certainly, basic principles of equity and fairness June 1999 is RECONSIDERED and SET ASIDE,
would not allow the insurer to continue collecting and a new one is hereby entered DENYING the
and accepting the premiums, although paid on instant petition for failure of Petitioner to
installments, and later deny liability on the lame sufficiently show that a reversible error was
excuse that the premiums were not prepaid in committed by the Court of Appeals in its
full. challenged decision, which is hereby
AFFIRMED in toto.
Not only that. In Tuscany, we also quoted with approval
the following pronouncement of the Court of Appeals in No pronouncement as to cost.
its Resolution denying the motion for reconsideration of
its decision: SO ORDERED.

While the import of Section 77 is that prepayment

of premiums is strictly required as a condition to [G.R. No. 130421. June 28, 1999.]
the validity of the contract, We are not prepared
to rule that the request to make installment AMERICAN HOME ASSURANCE COMPANY, Petitioner, v.
payments duly approved by the insurer would ANTONIO CHUA, Respondent.
prevent the entire contract of insurance from
DECISION
going into effect despite payment and
acceptance of the initial premium or first
installment. Section 78 of the Insurance Code in DAVIDE, JR., C.J.:
effect allows waiver by the insurer of the
condition of prepayment by making an
acknowledgment in the insurance policy of In this petition for review on certiorari under Rule 45 of the
receipt of premium as conclusive evidence of 1997 Rules of Civil Procedure, petitioner seeks the reversal of
payment so far as to make the policy binding the decision 1 of the Court of Appeals in CA-G.R. CV No.
despite the fact that premium is actually unpaid. 40751, which affirmed in toto the decision of the Regional
Section 77 merely precludes the parties from Trial Court, Makati City, Branch 150 (hereafter trial court), in
Civil Case No. 91-1009.
stipulating that the policy is valid even if
chanroble svi rtualawl ib rary

premiums are not paid, but does not expressly Petitioner is a domestic corporation engaged in the insurance
prohibit an agreement granting credit extension, business. Sometime in 1990, respondent obtained from
and such an agreement is not contrary to morals, petitioner a fire insurance covering the stock-in-trade of his
good customs, public order or public policy (De business, Moonlight Enterprises, located at Valencia,
Leon, The Insurance Code, p. 175). So is an Bukidnon. The insurance was due to expire on 25 March
1990.
understanding to allow insured to pay premiums
in installments not so prescribed. At the very On 5 April 1990 respondent issued PCIBank Check No.
least, both parties should be deemed in estoppel 352123 in the amount of P2,983.50 to petitioner’s agent,
to question the arrangement they have voluntarily James Uy, as payment for the renewal of the policy. In turn,
accepted. the latter delivered Renewal Certificate No. 00099047
to Respondent. The check was drawn against a Manila bank
and deposited in petitioner’s bank account in Cagayan de Oro
By the approval of the aforequoted findings and City. The corresponding official receipt was issued on 10
conclusion of the Court of Appeals, Tuscany has April. Subsequently, a new insurance policy, Policy No. 206-
provided a fourth exception to Section 77, namely, that 4234498-7, was issued, whereby petitioner undertook to
the insurer may grant credit extension for the payment of indemnify respondent for any damage or loss arising from fire
up to P200,000 for the period 25 March 1990 to 25 March
the premium. This simply means that if the insurer has
1991.
granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the On 6 April 1990 Moonlight Enterprises was completely razed
term, recovery on the policy should be allowed even by fire. Total loss was estimated between P4,000,000 and
though the premium is paid after the loss but within the P5,000,000. Respondent filed an insurance claim with
credit term. petitioner and four other co-insurers, namely, Pioneer
Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and
Moreover, there is nothing in Section 77 which prohibits Domestic Insurance Company of the Philippines. Petitioner
the parties in an insurance contract to provide a credit refused to honor the claim notwithstanding several demands
term within which to pay the premiums. That agreement by respondent, thus, the latter filed an action against
is not against the law, morals, good customs, public petitioner before the trial court.
order or public policy. The agreement binds the parties. In its defense, petitioner claimed there was no existing
Article 1306 of the Civil Code provides: insurance contract when the fire occurred since respondent
did not pay the premium. It also alleged that even assuming
there was a contract, respondent violated several conditions Citing jurisprudence, 4 petitioner also contends that
of the policy, particularly: (1) his submission of fraudulent respondent’s non-disclosure of the other insurance contracts
income tax return and financial statements; (2) his failure to rendered the policy void. It underscores the trial court’s
establish the actual loss, which petitioner assessed at neglect in considering the Commission on Audit’s certification
P70,000; and (3) his failure to notify to petitioner of any that the BIR receipts submitted by respondent were, in effect,
insurance already effected to cover the insured goods. These fake since they were issued to other persons. Finally,
violations, petitioner insisted, justified the denial of the petitioner argues that the award of damages was excessive
[Link]. [Link] : vi rtua l law lib rary and unreasonable considering that it did not act in bad faith
in denying respondent’s claim.
The trial court ruled in favor of Respondent. It found that
respondent paid by way of check a day before the fire Respondent counters that the issue of non-payment of
occurred. The check, which was deposited in petitioner’s bank premium is a question of fact which can no longer be
account, was even acknowledged in the renewal certificate assailed. The trial court’s finding on the matter, which was
issued by petitioner’s agent. It declared that the alleged affirmed by the Court of Appeals, is conclusive.
fraudulent documents were limited to the disparity between
the official receipts issued by the Bureau of Internal Revenue Respondent refutes the reason for petitioner’s denial of his
(BIR) and the income tax returns for the years 1987 to 1989. claim. As found by the trial court, petitioner’s loss adjuster
All the other documents were found to be genuine. admitted prior knowledge of respondent’s existing insurance
Nonetheless, it gave credence to the BIR certification that contracts with the other insurance companies. Nonetheless,
respondent paid the corresponding taxes due for the the loss adjuster recommended the denial of the claim, not
questioned years. because of the said contracts, but because he was suspicious
of the authenticity of certain documents which respondent
As to respondent’s failure to notify petitioner of the other submitted in filing his claim.
insurance contracts covering the same goods, the trial court
held that petitioner failed to show that such omission was To bolster his argument, respondent cites Section 66 of the
intentional and fraudulent. Finally, it noted that petitioner’s Insurance Code, 5 which requires the insurer to give a notice
investigation of respondent’s claim was done in collaboration to the insured of its intention to terminate the policy forty-
with the representatives of other insurance companies who five days before the policy period ends. In the instant case,
found no irregularity therein. In fact, Pioneer Insurance and petitioner opted not to terminate the policy. Instead, it
Surety Corporation and Prudential Guarantee and Assurance, renewed the policy by sending its agent to respondent, who
Inc. promptly paid the claims filed by Respondent. was issued a renewal certificate upon delivery of his check
payment for the renewal of premium. At this precise moment
The trial court decreed as follows: c hanro b1es vi rtua l 1aw li bra ry the contract of insurance was executed and already in effect.
Respondent also claims that it is standard operating
WHEREFORE, judgment is hereby rendered in favor of procedure in the provinces to pay insurance premiums by
[respondent] and against the [petitioner] ordering the latter check when collected by insurance agents. [Link] m : virt ual law li bra ry

to pay the former the following: chan rob1es v irt ual 1aw l ibra ry

On the issue of damages, respondent maintains that the

1. P200,000.00, representing the amount of the insurance, amounts awarded were reasonable. He cites numerous trips
plus legal interest from the date of filing of this case; he had to make from Cagayan de Oro City to Manila to follow
up his rightful claim. He imputes bad faith on petitioner who
2. P200,000.00 as moral damages; made enforcement of his claim difficult in the hope that he
would eventually abandon it. He further emphasizes that the
3. P200,000.00 as loss of profit; adjusters of the other insurance companies recommended
payment of his claim, and they complied therewith.
4. P100,000.00 as exemplary damages;
In its reply, petitioner alleges that the petition questions the
5. P50,000.00 as attorney’s fees; and conclusions of law made by the trial court and the Court of
Appeals.
6. Cost of suit. chanrob les vi rtualaw lib rary c hanro bles. com:chan rob [Link]. ph

Petitioner invokes respondent’s admission that his check for

On appeal, the assailed decision was affirmed in toto by the the renewal of the policy was received only on 10 April 1990,
Court of Appeals. The Court of Appeals found that taking into account that the policy period was 25 March 1990
respondent’s claim was substantially proved and petitioner’s to 25 March 1991. The official receipt was dated 10 April
unjustified refusal to pay the claim entitled respondent to the 1990. Anent respondent’s testimony that the check was given
award of damages. to petitioner’s agent, a certain James Uy, the latter points out
that even respondent was not sure if Uy was indeed its agent.
Its motion for reconsideration of the judgment having been It faults respondent for not producing Uy as his witness and
denied, petitioner filed the petition in this case. Petitioner not taking any receipt from him upon presentment of the
reiterates its stand that there was no existing insurance check. Even assuming that the check was received a day
contract between the parties. It invokes Section 77 of the before the occurrence of the fire, there still could not have
Insurance Code, which provides: chan rob1e s virtual 1aw lib rary been any payment until the check was cleared.

An insurer is entitled to payment of the premium as soon as Moreover, petitioner denies respondent’s allegation that it
the thing insured is exposed to the peril insured against. intended a renewal of the contract for the renewal certificate
Notwithstanding any agreement to the contrary, no policy or clearly specified the following conditions:chan rob 1es vi rtual 1aw lib rary

contract of insurance issued by an insurance company is valid

and binding unless and until the premium thereof has been Subject to the payment by the assured of the amount due
paid, except in the case of life or an industrial life policy prior to renewal date, the policy shall be renewed for the
whenever the grace period provision applies. period stated.

and cites the case of Arce v. Capital Insurance & Surety Co., Any payment tendered other than in cash is received subject
Inc., 2 where we ruled that unless and until the premium is to actual cash collection.
paid there is no insurance.
Subject to no loss prior to premium payment. If there be any
Petitioner emphasizes that when the fire occurred on 6 April loss, and is not covered [sic].
1990 the insurance contract was not yet subsisting pursuant
to Article 1249 3 of the Civil Code, which recognizes that a Petitioner asserts that an insurance contract can only be
check can only effect payment once it has been cashed. enforced upon the payment of the premium, which should
Although respondent testified that he gave the check on 5 have been made before the renewal period. chan roble s lawlib rary : rednad

April to a certain James Uy, the check, drawn against a

Manila bank and deposited in a Cagayan de Oro City bank, Finally, in assailing the excessive damages awarded to
could not have been cleared by 6 April, the date of the fire. respondent petitioner stresses that the policy in issue was
In fact, the official receipt issued for respondent’s check limited to a liability of P200,000; but the trial court granted
payment was dated 10 April 1990, four days after the fire the following monetary awards: P200,000 as actual damages;
occurred. chan robles v irt ual lawl ibra ry P200,000 as moral damages; P100,000 as exemplary
damages; and P50,000 as attorney’s fees. several co-insurers and he failed to disclose this information
to petitioner. Nonetheless, petitioner is estopped from
The following issues must be resolved: first, whether there invoking this argument. The trial court cited the testimony of
was a valid payment of premium, considering that petitioner’s loss adjuster who admitted previous knowledge of
respondent’s check was cashed after the occurrence of the the co-insurers. Thus,
fire; second, whether respondent violated the policy by his
submission of fraudulent documents and non-disclosure of COURT: chanrob1es v irt ual 1aw l ibra ry

the other existing insurance contracts; and finally, whether

respondent is entitled to the award of damages. Q The matter of additional insurance of other companies, was
that ever discussed in your investigation?
The general rule in insurance laws is that unless the premium
is paid the insurance policy is not valid and binding. The only A Yes, sir.
exceptions are life and industrial life insurance. 6 Whether
payment was indeed made is a question of fact which is best Q In other words, from the start, you were aware the insured
determined by the trial court. The trial court found, as was insured with other companies like Pioneer and so on?
affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. Well-settled is the rule A Yes, Your Honor.
that the factual findings and conclusions of the trial court and
the Court of Appeals are entitled to great weight and respect, Q But in your report you never recommended the denial of
and will not be disturbed on appeal in the absence of any the claim simply because of the non-disclosure of other
clear showing that the trial court overlooked certain facts or insurance? [sic]
circumstances which would substantially affect the disposition
of the case. 7 We see no reason to depart from this ruling. A Yes, Your Honor.

According to the trial court the renewal certificate issued to Q In other words, to be emphatic about this, the only reason
respondent contained the acknowledgment that premium had you recommended the denial of the claim, you found three
been paid. It is not disputed that the check drawn by documents to be spurious. That is your only basis? chanrobles. com:cra law:red

respondent in favor of petitioner and delivered to its agent

was honored when presented and petitioner forthwith issued A Yes, Your Honor. 13 [Emphasis supplied]
its official receipt to respondent on 10 April 1990. Section
306 of the Insurance Code provides that any insurance Indubitably, it cannot be said that petitioner was deceived by
company which delivers a policy or contract of insurance to respondent by the latter’s non-disclosure of the other
an insurance agent or insurance broker shall be deemed to insurance contracts when petitioner actually had prior
have authorized such agent or broker to receive on its behalf knowledge thereof. Petitioner’s loss adjuster had known all
payment of any premium which is due on such policy or along of the other existing insurance contracts, yet, he did
contract of insurance at the time of its issuance or delivery or not use that as basis for his recommendation of denial. The
which becomes due thereon. 8 In the instant case, the best loss adjuster, being an employee of petitioner, is deemed a
evidence of such authority is the fact that petitioner accepted representative of the latter whose awareness of the other
the check and issued the official receipt for the payment. It insurance contracts binds petitioner. We, therefore, hold that
is, as well, bound by its agent’s acknowledgment of receipt of there was no violation of the "other insurance" clause
payment. chanroble svirtual|awli bra ry by Respondent.

Section 78 of the Insurance Code explicitly provides: chan rob1e s vi rtual 1aw lib rary Petitioner is liable to pay its share of the loss. The trial court
and the Court of Appeals were correct in awarding P200,000
An acknowledgment in a policy or contract of insurance of the for this. There is, however, merit in petitioner’s grievance
receipt of premium is conclusive evidence of its payment, so against the damages and attorney’s fees awarded.
far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the There is no legal and factual basis for the award of P200,000
premium is actually paid. for loss of profit. It cannot be denied that the fire totally
gutted respondent’s business; thus, respondent no longer
This Section establishes a legal fiction of payment and should had any business to operate. His loss of profit cannot be
be interpreted as an exception to Section 77. 9 shouldered by petitioner whose obligation is limited to the
object of insurance, which was the stock-in-trade, and not
Is respondent guilty of the policy violations imputed against the expected loss in income or profit.
him? We are not convinced by petitioner’s arguments. The
submission of the alleged fraudulent documents pertained to Neither can we approve the award of moral and exemplary
respondent’s income tax returns for 1987 to 1989. damages. At the core of this case is petitioner’s alleged
Respondent, however, presented a BIR certification that he breach of its obligation under a contract of insurance. Under
had paid the proper taxes for the said years. The trial court Article 2220 of the Civil Code, moral damages may be
and the Court of Appeals gave credence to the certification awarded in breaches of contracts where the defendant acted
and it being a question of fact, we hold that said finding is fraudulently or in bad faith. We find no such fraud or bad
conclusive. chan roblesv irt ual|awlib ra ry faith. It must again be stressed that moral damages are
emphatically not intended to enrich a plaintiff at the expense
Ordinarily, where the insurance policy specifies as a condition of the defendant. Such damages are awarded only to enable
the disclosure of existing co-insurers, non-disclosure thereof the injured party to obtain means, diversion or amusements
is a violation that entitles the insurer to avoid the policy. This that will serve to obviate the moral suffering he has
condition is common in fire insurance policies and is known as undergone, by reason of the defendant’s culpable action. Its
the "other insurance clause." The purpose for the inclusion of award is aimed at the restoration, within the limits of the
this clause is to prevent an increase in the moral hazard. We possible, of the spiritual status quo ante, and it must be
have ruled on its validity and the case of Geagonia v. Court of proportional to the suffering inflicted. 14 When awarded,
Appeals 10 clearly illustrates such principle. However, we see moral damages must not be palpably and scandalously
an exception in the instant case. excessive as to indicate that it was the result of passion,
prejudice or corruption on the part of the trial court judge.
Citing Section 29 11 of the Insurance Code, the trial court 15cralawna d

reasoned that respondent’s failure to disclose was not

intentional and fraudulent. The application of Section 29 is The law 16 is likewise clear that in contracts and quasi-
misplaced. Section 29 concerns concealment which is contracts the court may award exemplary damages if the
intentional. The relevant provision is Section 75, which defendant acted in a wanton, fraudulent, reckless,
provides that: chan rob1e s virtual 1aw l ibra ry oppressive, or malevolent manner. Nothing thereof can be
attributed to petitioner which merely tried to resist what it
A policy may declare that a violation of specified provisions claimed to be an unfounded claim for enforcement of the fire
thereof shall avoid it, otherwise the breach of an immaterial insurance policy.
provision does not avoid the policy.
As to attorney’s fees, the general rule is that attorney’s fees
To constitute a violation the other existing insurance cannot be recovered as part of damages because of the policy
contracts must be upon the same subject matter and with the that no premium should be placed on the right to litigate. 17
same interest and risk. 12 Indeed, respondent acquired In short, the grant of attorney’s fees as part of damages is
the exception rather than the rule; counsel’s fees are not case before the Insurance Commission proved futile. On
awarded every time a party prevails in a suit. It can be 3 March 1988 Violets and the other petitioners sued
awarded only in the cases enumerated in Article 2208 of the
FORTUNE for damages in the amount of P600,000.00
Civil Code, and in all cases it must be reasonable. 18
Thereunder, the trial court may award attorney’s fees where representing the total coverage of the fire insurance
it deems just and equitable that it be so granted. While we policy plus 12% interest per annum, P100,000.00 moral
respect the trial court’s exercise of its discretion in this case, damages, and attorney's fees equivalent to 20% of the
the award of P50,000 is unreasonable and excessive. It total claim.
should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The On 19 July 1990 the trial court ruled for petitioners and
challenged decision of the Court of Appeals in CA-G.R. No. adjudged FORTUNE liable for the total value of the
40751 is hereby MODIFIED by a) deleting the awards of insured building and personal properties in the amount of
P200,000 for loss of profit, P200,000 as moral damages and P600,000.00 plus interest at the legal rate of 6% per
P100,000 as exemplary damages, and b) reducing the award annum from the filing of the complaint until full payment,
of attorney’s fees from P50,000 to P10,000. chanroble svirtuallaw lib rary

and attorney's fees equivalent to 20% of the total amount

No pronouncement as to costs. claimed plus costs of suit.2

SO ORDERED. On 24 March 1995 the Court of Appeals reversed the

court a quo by declaring FORTUNE not to be liable to
plaintiff-appellees therein but ordering defendant-
G.R. No. 119655 May 24, 1996 appellant to return to the former the premium of
P2,983.50 plus 12% interest from 10 March 1987 until
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and full payment.3
OFELIA M. RORALDO, VICTORINA M. RORALDO,
VIRGILIO M. RORALDO, MYRNA M. RORALDO and Hence this petition for review with petitioners contending
ROSABELLA M. RORALDO, petitioners, mainly that contrary to the conclusion of the appellate
vs. court, FORTUNE remains liable under the subject fire
COURT OF APPEALS and FORTUNE LIFE AND insurance policy in spite of the failure of petitioners to
GENERAL INSURANCE CO., INC., respondents. pay their premium in full.

We find no merit in the petition; hence, we affirm the

Court of Appeals.
BELLOSILLO, J.:p
Insurance is a contract whereby one undertakes for a
May a fire insurance policy be valid, binding and enforceable upon mere partial consideration to indemnify another against loss, damage
payment of premium?
or liability arising from an unknown or contingent
event.4 The consideration is the premium, which must be
On 22 January 1987 private respondent Fortune Life and paid at the time and in the way and manner specified in
General Insurance Co., Inc. (FORTUNE) issued Fire the policy, and if not so paid, the policy will lapse and be
Insurance Policy No. 136171 in favor of Violeta R. Tibay forfeited by its own terms.5
and/or Nicolas Roraldo on their two-storey residential
building located at 5855 Zobel Street, Makati City,
The pertinent provisions in the Policy on premium read
together with all their personal effects therein. The
—
insurance was for P600,000.00 covering the period from
23 January 1987 to 23 January 1988. On 23 January
1987, of the total premium of P2,983.50, petitioner THIS POLICY OF INSURANCE
Violeta Tibay only paid P600.00 thus leaving a WITNISSETH THAT only after payment
considerable balance unpaid. to the Company in accordance with
Policy Condition No. 2 of the total
premiums by the insured as stipulated
On 8 March 1987 the insured building was completely
above for the period aforementioned for
destroyed by fire. Two days later or on 10 March 1987
insuring against Loss or Damage by Fire
Violeta Tibay paid the balance of the premium. On the
or Lightning as herein appears, the
same day, she filed with FORTUNE a claim on the fire
Property herein described . . .
insurance policy. Her claim was accordingly referred to
its adjuster, Goodwill Adjustment Services, Inc. (GASI),
which immediately wrote Violeta requesting her to furnish 2. This policy including any renewal
it with the necessary documents for the investigation and thereof and/or any endorsement thereon
processing of her claim. Petitioner forthwith complied. On is not in force until the premium has been
28 March 1987 she signed a non-waiver agreement with fully paid to and duly receipted by the
GASI to the effect that any action taken by the Company in the manner provided herein.
companies or their representatives in investigating the
claim made by the claimant for his loss which occurred at Any supplementary agreement seeking to
5855 Zobel Roxas, Makati on March 8, 1987, or in the amend this condition prepared by agent,
investigating or ascertainment of the amount of actual broker or Company official, shall be
cash value and loss, shall not waive or invalidate any deemed invalid and of no effect.
condition of the policies of such companies held by said
claimant, nor the rights of either or any of the parties to xxx xxx xxx
this agreement, and such action shall not be, or be
claimed to be, an admission of liability on the part of said Except only in those specific cases where
companies or any of them.1 corresponding rules and regulations
which are or may hereafter be in force
In a letter dated 11 June 1987 FORTUNE denied the provide for the payment of the stipulated
claim of Violeta for violation of Policy Condition No. 2 and premiums in periodic installments at fixed
of Sec. 77 of the Insurance Code. Efforts to settle the percentage, it is hereby declared, agreed
 and warranted that this policy shall be policy effective during the whole period of the policy. In
deemed effective, valid and binding upon that case, the insurance company commenced action
the Company only when the premiums against the insured for the unpaid balance on a fire
therefor have actually been paid in full insurance policy. In its defense the insured claimed that
and duly acknowledged in a receipt nonpayment of premium produced the cancellation of the
signed by any authorized official or insurance contract. Ruling otherwise the Court held —
representative/agent of the Company in
such manner as provided herein. It is clear . . . that on April 1, 1960, Fire
(emphasis supplied).6 Insurance Policy No. 9652 was issued by
appellee and delivered to appellant, and
Clearly the Policy provides for payment of premium in that on September 22 of the same year,
full. Accordingly, where the premium has only been the latter paid to the former the sum of
partially paid and the balance paid only after the peril P3,000.00 on account of the total
insured against has occurred, the insurance contract did premium of P6,051.95 due thereon.
not take effect and the insured cannot collect at all on the There is, consequently, no doubt at all
policy. This is fully supported by Sec. 77 of the Insurance that, as between the insurer and the
Code which provides — insured, there was not only a perfected
contract of insurance but a partially
Sec. 77. An insurer is entitled to payment performed one as far as the payment of
of the premium as soon as the thing the agreed premium was concerned.
insured is exposed to the peril insured Thereafter the obligation of the insurer to
against. Notwithstanding any agreement pay the insured the amount, for which the
to the contrary, no policy or contract of policy was issued in case the conditions
insurance issued by an insurance therefor had been complied with, arose
company is valid and binding unless and and became binding upon it, while the
until the premium thereof has been paid, obligation of the insured to pay the
except in the case of a life or an industrial remainder of the total amount of the
life policy whenever the grace period premium due became demandable.
provision applies (emphasis supplied).
The 1967 Phoenix case is not persuasive; neither is it
Apparently the crux of the controversy lies in the phrase decisive of the instant dispute. For one, the factual
"unless and until the premium thereof has been paid." scenario is different. In Phoenix it was the insurance
This leads us to the manner of payment envisioned by company that sued for the balance of the premium, i.e., it
the law to make the insurance policy operative and recognized and admitted the existence of an insurance
binding. For whatever judicial construction may be contract with the insured. In the case before us, there is,
accorded the disputed phrase must ultimately yield to the quite unlike in Phoenix, a specific stipulation that (t)his
clear mandate of the law. The principle that where the policy . . . is not in force until the premium has been fully
law does not distinguish the court should neither paid and duly receipted by the Company . . . Resultantly,
distinguish assumes that the legislature made no it is correct to say that in Phoenix a contract was
qualification on the use of a general word or expression. perfected upon partial payment of the premium since the
In Escosura v. San Miguel Brewery, Inc.,7 the Court parties had not otherwise stipulated that prepayment of
through Mr. Justice Jesus G. Barrera, interpreting the the premium in full was a condition precedent to the
phrase "with pay" used in connection with leaves of existence of a contract.
absence with pay granted to employees, ruled —
In Phoenix, by accepting the initial payment of P3,000.00
. . . the legislative practice seems to be and then later demanding the remainder of the premium
that when the intention is to distinguish without any other precondition to its enforceability as in
between full and partial payment, the the instant case, the insurer in effect had shown its
modifying term is used . . . intention to continue with the existing contract of
insurance, as in fact it was enforcing its right to collect
Citing C.A. No. 647 governing maternity leaves of premium, or exact specific performance from the insured.
married women in government, R. A. No. 679 This is not so here. By express agreement of the parties,
regulating employment of women and children, novinculum juris or bond of law was to be established
R.A. No. 843 granting vacation and sick leaves to until full payment was effected prior to the occurrence of
judges of municipal courts and justices of the the risk insured against.
peace, and finally, Art. 1695 of the New Civil
Code providing that every househelp shall be In Makati Tuscany Condominium Corp. v. Court of
allowed four (4) days vacation each month, which Appeals9 the parties mutually agreed that the premiums
laws simply stated "with pay," the Court could be paid in installments, which in fact they did for
concluded that it was undisputed that in all these three (3) years, hence, this Court refused to invalidate
laws the phrase "with pay" used without any the insurance policy. In giving effect to the policy, the
qualifying adjective meant that the employee was Court quoted with approval the Court of Appeals —
entitled to full compensation during his leave of
absence. The obligation to pay premiums when
due is ordinarily an indivisible obligation
Petitioners maintain otherwise. Insisting that FORTUNE to pay the entire premium. Here, the
is liable on the policy despite partial payment of the parties . . . agreed to make the premiums
premium due and the express stipulation thereof to the payable in installments, and there is no
contrary, petitioners rely heavily on the 1967 case pretense that the parties never
ofPhilippine Phoenix and Insurance Co., envisioned to make the insurance
Inc. v. Woodworks, Inc.8 where the Court through Mr. contract binding between them. It was
Justice Arsenio P. Dizon sustained the ruling of the trial renewed for two succeeding years, the
court that partial payment of the premium made the second and third policies being a
 renewal/replacement for the previous policy of insurance in force. If the premium is not paid in
one. And the insured never informed the the manner prescribed in the policy as intended by the
insurer that it was terminating the policy parties the policy is ineffective. Partial payment even
because the terms were unacceptable. when accepted as a partial payment will not keep the
policy alive even for such fractional part of the year as
While it may be true that under Section the part payment bears to the whole
77 of the Insurance Code, the parties payment.12
may not agree to make the insurance
contract valid and binding without Applying further the rules of statutory construction, the
payment of premiums, there is nothing in position maintained by petitioners becomes even more
said section which suggests that the untenable. The case of South Sea Surety and Insurance
parties may not agree to allow payment Company, Inc. v. Court Of Appeals, 13 speaks only of two
of the premiums in installment, or to (2) statutory exceptions to the requirement of payment of
consider the contract as valid and binding the entire premium as a prerequisite to the validity of the
upon insurance contract. These exceptions are: (a) in case the
payment of the first premium. Otherwise insurance coverage relates to life or industrial life (health)
we would allow the insurer to renege on insurance when a grace period applies, and (b) when the
its liability under the contract, had a loss insurer makes a written acknowledgment of the receipt of
incurred (sic) before completion of premium, this acknowledgment being declared by law to
payment of the entire premium, despite be then conclusive evidence of the premium payment. 14
its voluntary acceptance of partial
payments, a result eschewed by basic A maxim of recognized practicality is the rule that the
considerations of fairness and equity . . . expressed exception or exemption excludes
others. Exceptio firmat regulim in casibus non exceptis.
These two (2) cases, Phoenix and Tuscany, adequately The express mention of exceptions operates to exclude
demonstrate the waiver, either express or implied, of other exceptions; conversely, those which are not within
prepayment in full by the insurer: impliedly, by suing for the enumerated exceptions are deemed included in the
the balance of the premium as in Phoenix, and general rule. Thus, under Sec. 77, as well as Sec. 78,
expressly, by agreeing to make premiums payable in until the premium is paid, and the law has not expressly
installments as in Tuscany. But contrary to the stance excepted partial payments, there is no valid and binding
taken by petitioners, there is no waiver express or contract. Hence, in the absence of clear waiver of
implied in the case at bench. Precisely, the insurer and prepayment in full by the insurer, the insured cannot
the insured expressly stipulated that (t)his policy collect on the proceeds of the policy.
including any renewal thereof and/or any indorsement
thereon is not in force until the premium has been fully In the desire to safeguard the interest of the assured, it
paid to and duly receipted by the Company . . . and that must not be ignored that the contract of insurance is
this policy shall be deemed effective, valid and binding primarily a risk distributing device, a mechanism by
upon the Company only when the premiums therefor which all members of a group exposed to a particular risk
have actually been paid in full and duly acknowledged. contribute premiums to an insurer. From these
contributory funds are paid whatever losses occur due to
Conformably with the aforesaid stipulations explicitly exposure to the peril insured against. Each party
worded and taken in conjunction with Sec. 77 of the therefore takes a risk: the insurer, that of being
Insurance Code the payment of partial premium by the compelled upon the happening of the contingency to pay
assured in this particular instance should not be the entire sum agreed upon, and the insured, that of
considered the payment required by the law and the parting with the amount required as premium, without
stipulation of the parties. Rather, it must be taken in the receiving anything therefor in case the contingency does
concept of a deposit to be held in trust by the insurer until not happen. To ensure payment for these losses, the law
such time that the full amount has been tendered and mandates all insurance companies to maintain a legal
duly receipted for. In other words, as expressly agreed reserve fund in favor of those claiming under their
upon in the contract, full payment must be made before policies. 15 It should be understood that the integrity of
the risk occurs for the policy to be considered effective this fund cannot be secured and maintained if by judicial
and in force. fiat partial offerings of premiums were to be construed as
a legal nexus between the applicant and the insurer
Thus, no vinculum juris whereby the insurer bound itself despite an express agreement to the contrary. For what
to indemnify the assured according to law ever resulted could prevent the insurance applicant from deliberately
from the fractional payment of premium. The insurance or wilfully holding back full premium payment and wait for
contract itself expressly provided that the policy would be the risk insured against to transpire and then
effective only when the premium was paid in full. It would conveniently pass on the balance of the premium to be
have been altogether different were it not so stipulated. deducted from the proceeds of the insurance? Worse,
Ergo, petitioners had absolute freedom of choice whether what if the insured makes an initial payment of only 10%,
or not to be insured by FORTUNE under the terms of its or even 1%, of the required premium, and when the risk
policy and they freely opted to adhere thereto. occurs simply points to the proceeds from where to
source the balance? Can an insurance company then
Indeed, and far more importantly, the cardinal polestar in exist and survive upon the payment of 1%, or even 10%,
the construction of an insurance contract is the intention of the premium stipulated in the policy on the basis that,
of the parties as expressed in the after all, the insurer can deduct from the proceeds of the
policy. 10 Courts have no other function but to enforce the insurance should the risk insured against occur?
same. The rule that contracts of insurance will be
construed in favor of the insured and most strongly Interpreting the contract of insurance stringently against
against the insurer should not be permitted to have the the insurer but liberally in favor of the insured despite
effect of making a plain agreement ambiguous and then clearly defined obligations of the parties to the policy can
construe it in favor of the insured. 11 Verily, it is elemental be carried out to extremes that there is the danger that
law that the payment of premium is requisite to keep the we may, so to speak, "kill the goose that lays the golden
egg." We are well aware of insurance companies falling
into the despicable habit of collecting premiums promptly
yet resorting to all kinds of excuses to deny or delay
payment of just insurance claims. But, in this case, the
law is manifestly on the side of the insurer. For as long
as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as
among the exceptions provided in Sees. 77 and 78, no
policy of insurance can ever pretend to be efficacious or
effective until premium has been fully paid.

And so it must be. For it cannot be disputed that

premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve
fund to meet its contingent obligations to the public,
hence, the imperative need for its prompt payment and
full satisfaction. 16 It must be emphasized here that all
actuarial calculations and various tabulations of
probabilities of losses under the risks insured against are
based on the sound hypothesis of prompt payment of
premiums. Upon this bedrock insurance firms are
enabled to offer the assurance of security to the public at
favorable rates. But once payment of premium is left to
the whim and caprice of the insured, as when the courts
tolerate the payment of a mere P600.00 as partial
undertaking out of the stipulated total premium of
P2,983.50 and the balance to be paid even after the risk
insured against has occurred, as petitioners have done in
this case, on the principle that the strength of
the vinculum juris is not measured by any specific
amount of premium payment, we will surely wreak havoc
on the business and set to naught what has taken
actuarians centuries to devise to arrive at a fair and
equitable distribution of risks and benefits between the
insurer and the insured.

The terms of the insurance policy constitute the measure

of the insurer's liability. In the absence of statutory
prohibition to the contrary, insurance companies have
the same rights as individuals to limit their liability and to
impose whatever conditions they deem best upon their
obligations not inconsistent with public policy. 17 The
validity of these limitations is by law passed upon by the
Insurance Commissioner who is empowered to approve
all forms of policies, certificates or contracts of insurance
which insurers intend to issue or deliver. That the policy
contract in the case at bench was approved and allowed
issuance simply reaffirms the validity of such policy,
particularly the provision in question.

WHEREFORE, the petition is DENIED and the assailed

Decision of the Court of Appeals dated 24 March 1995 is
AFFIRMED.

SO ORDERED.