AMERICAN HOME ASSURANCE v CHUA

FACTS: Antonio Chua renewed the fire insurance for its stock-in-trade of his business, Moonlight Enterprises
with American Home Assurance Company by issuing a check of P2, 983.50 to its agent James Uy who delivered
the Renewal Certificate to him. Moonlight Enterprises was completely razed by fire with an est. loss of P4,
000,000 to P5, 000,000. An official receipt was issued and subsequently, a policy was issued covering March 25
1990 to March 25 1991. Antonio Chua filed an insurance claim with American Home and 4 other co-insurers
(Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc. and Filipino Merchants
Insurance Co). American Home refused alleging the no premium was paid. RTC favored Antonio Chua for
paying by way of check a day before the fire occurred. CA affirmed.

ISSUE:

1. W/N there was a valid payment of premium considering that the check was cashed after the
occurrence of the fire since the renewal certificate issued containing the acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents and non-disclosure of the
other existing insurance contracts or “other insurance clause"

RULING:

1. Yes. Section 77 of the IC provides that an insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. Notwithstanding any agreement 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, except in the case of life or an industrial life policy whenever the
grace period provision applies.

Section 306 of the Insurance Code provides that any insurance company which delivers a policy or
contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized
such agent or broker to receive on its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or which becomes due thereon. The best
evidence of such authority is the fact that petitioner accepted the check and issued the official receipt
for the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment.

Section 78 of the Insurance Code an acknowledgment in a policy or contract of insurance of the receipt
of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.
This Section establishes a legal fiction of payment and should be interpreted as an exception to Section
77

2. No. The purpose for the “other insurance clause” is to prevent an increase in the moral hazard. The
failure to disclose was not intentional and fraudulent. Section 75 provides that a policy may declare
that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy. American Home is estopped because its loss adjusters had
previous knowledge of the co-insurers. The loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other insurance contracts binds petitioner.
MERCANTILE INSURANCE v YSMAEL, JR. and CO.

FACTS: Ysmael filed an application for overdraft and credit line with the PNB with a surety bond from
Mercantile Insurance. Ysmael defaulted its obligation with the PNB, thus the latter demanded from
Mercantile. Plainitff invited the attention of defendant to the letter from PNB. Defendant ignored the letter
prompting the plaintiff to file an action. The trila court rendered the judgment in favor of the plaintiff. The
defendant elevated the case to CA.

ISSUE: WON surety can be allowed indemnification from the defendants-appellants, upon the latter's default
even before the former has paid to the creditor.

RULING: Yes. The stipulation in the indemnity agreement allowing the surety to recover even before it paid
the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even
before paying the creditors.

Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the
prerogative of filing an action even prior to the latter's making any payment to the Philippine National Bank. In
the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement. The only bone of
contention is whether or not such terms are null and void as defendants-appellants would have this Court
declare.

A careful analysis of the contract in question will show that the provisions therein do not contravene any law
or public policy much less do they militate against the public good. In fact, as shown above, they are fully
sanctioned by well-established jurisprudence. Having voluntarily entered into such contract, the appellants
cannot now be heard to complain. Their indemnity agreement have the force and effect of law.

It must be stressed that in the case at bar, the principal debtors, defendants-appellants herein, are
simultaneously the same persons who executed the Indemnity Agreement. Thus, the position occupied by
them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several
with the plaintiff-appellee, the Philippine National Bank may proceed against either for fulfillment of the
obligation as covered by the surety bonds. There is, therefore, no principle of guaranty involved and,
therefore, the provision of Article 2071 of the Civil Code does not apply. Otherwise stated, there is no more
need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed
against defendants-appellants.
MAKATI TUSCANY v CA

FACTS: American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.),
Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No.
AH-CPP-9210452 on the latter's building and premises. The premium was paid on installments. The policy was
again renewed and private respondent issued to petitioner Insurance Policy No. AH-CPP-9210651 for the
period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment payments,
both accepted by private respondent, the first on 6 February 1984 for P52, 000.00 and the second, on 6 June
1984 for P100, 000.00. Thereafter, petitioner refused to pay the balance of the premium. Consequently,
private respondent filed an action to recover the unpaid balance of P314, 103.05 for Insurance Policy No. AH-
CPP-9210651. Petitioner further claimed that the policy was never binding and valid, and no risk attached to
the policy. The trial court dismissed the complaint and the counterclaim. CA modified the decision of the trial
court.
Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982,
1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as
amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability for loss for
occurring before payment of premiums.

ISSUE: WON Sec.77 of Insurance Code is applicable in this case.

RULING: The Court hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that petitioner and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered
into in 1982 was renewed in 1983, then in 1984.

In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments
speaks loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles
of equity and fairness would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that the premiums were not
prepared in full.

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the
validity of the contract, We are not prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance
policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite
the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the
policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public order or public policy. So is
an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.