THE INSULAR LIFE ASSURANCE COMPANY V.

EBRADO
G.R. No. L-44059 October 28, 1977

FACTS: On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance
Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for
the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in
his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died when he was hit by a failing branch of a tree.
As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00
plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of
P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also
filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T.
Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and
directing the payment of the insurance proceeds to the estate of the deceased insured. The
Appellate Court certified the case to us as involving only questions of law.

ISSUE: Whether or not a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds thereof in case of death of the latter.

RULING: NO. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the
new Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he
insurance shall be applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word
"interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary,
since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against
illicit relationships especially on property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance. Rather, the general rules of civil law should be
applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The
contract of insurance is governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code." When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by the general rules of the civil law

1
regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden
from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance
policy by the person who cannot make a donation to him. 4 Common-law spouses are, definitely,
barred from receiving donations from each other. Article 739 of the new Civil Code provides:

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the
time of donation;

Those made between persons found guilty of the same criminal offense, in
consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason

of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought
by the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. Policy considerations and
dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights
of the legitimate family.

Article 739 itself provides: In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action. The underscored clause neatly conveys that no
criminal conviction for the offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the
guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it
would be sufficient if evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.

In the case before us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate
children; that during his lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are nothing less than judicial
admissions which, as a consequence, no longer require proof and cannot be contradicted.

2
NARIO V. PHIL-AM LIFE INSURANCE

FACTS

Mrs. Santos-Mario was issued by respondent insurance company a life insurance policy under a
20-year endowment plan, with a face value of 5,000 which she designated on her husband and
minor son Nario as her irrevocable beneficiaries. Mrs. Nario then applied for a loan on the
above stated policy which she could avail under one of the provisions of the said company for
her minor son’s schooling. The application was signed and consented by Delfin Nation as one of
the irrevocable beneficiaries of the policy and the father of their minor son as well as being the
legal administrator of the minor’s properties.

The Insurance Company denied the loan application so Mrs. Nario signified her decision to
surrender her policy and demand its cash value be returned to her, which the insurance
company also denied. Thus, they filed a case against PhilAm Life Insurance on the CFI seeking
to compel them to grant their policy loan application and/or to accept the surrender of saif policy
in exchange of its cash value.

Defendant answered that the acts of disposition and alienation of the property rights of the
minor are acts not within the powers of the legal administrator under Art. 320 in relation to Art.
326 of the Civil Code, hence, mere written consent by the father-guardian without any court
authority was not a sufficient compliance of the law, and therefore, was justified in refusing to
disapprove the spouses’ request.

The lower court held that the minor son, being one of the designated irrevocable beneficiaries,
acquired a vested right to all benefits accruing to the policy, including that of containing a loan to
the extent stated in the schedule of values attached to the policy. That the proposed
transactions involved acts of disposition or alienation of the minor’s properties for which the
consent given by the father in behalf of his minor son must be with the court authority, thus, the
court affirmed the insurance company’s decision.

Hence, this petition.

ISSUE
Whether or not PHILAMLIFE was justified in refusing to grant the loan application and the
surrender of the policy.

RULING
YES​.

SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy
should be measured on its full face value and not on its cash surrender value, for in case of
death of the insured, said beneficiaries are paid on the basis of its face value and in case the
insured should discontinue paying premiums, the beneficiaries may continue paying it and are
entitled to automatic extended term or paid-up insurance options and that said vested right
under the policy cannot be divisible at any given time.

SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition
or alienation of property rights and not merely management or administration because they
involve the incurring or termination of contractual obligations.

Under the laws (CC and rules of Court) The father is constituted as the minor’s legal
administrator of the propty, and when the propty of the child is worth more than P2T (as in the
case at bar, the minor’s propty was worth 2,500 his ½ share as beneficiary), the father a must
file a petition for guardianship and post a guardianship bond. In the case at bar, the father did
not file any petition for guardianship nor post a guardianship bond, and as such cannot possibly
exercise the powers vested on him as legal administrator of the minor’s property. The consent
give for and in behalf of the son without prior court authorization to the loan application and the
surrender was insufficient and ineffective and PHILAMLIFE was justified in disapproving the
said applications.

Assuming that the propty of the ward was less than 2T, the effect would be the same, since the
parents would only be exempted from filing a bond and judicial authorization, but their acts as
legal administrators are only limited to acts of management or administration and not to acts of
encumbrance or disposition.
G.R. No. L-2227 August 31, 1948

Intestate estate of the late Esperanza J. Villanueva. MARIANO J. VILLANUEVA, claimant-appellant, vs.
PABLO ORO, administrator.

Facts:
The West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza J.
Villanueva, one for two thousand pesos and maturing on April 1, 1943, and the other for three thousand
pesos and maturing on March 31, 1943.

In both policies, the insurer agreed "to pay two thousand pesos, at the home office of the Company, in
San Francisco, California, to the insured hereunder, if living, on the 1st day of April 1943, or to the
beneficiary Bartolome Villanueva, father of the insured, immediately upon receipt of due proof of the
prior death of the insured, Esperanza J. Villanueva, of La Paz, Philippine Islands, during the continuance of
this policy, with right on the part of the insured to change the beneficiary.

After the death of Bartolome Villanueva in 1940, the latter was duly substituted as beneficiary under the
policies by Mariano J. Villanueva, a brother of the insured. Esperanza J. Villanueva survived the insurance
period, for she died only on October 15, 1944, without, however, collecting the insurance proceeds.

Adverse claims for said proceeds were presented by the estate of Esperanza J. Villanueva on the one hand
and by Mariano J. Villanueva on the other, which conflict was squarely submitted in the intestate
proceedings of Esperanza J. Villanueva pending in the Court of First Instance of Iloilo. From an order, dated
February 26, 1947, holding the estate of the insured is entitled to the insurance proceeds, to the exclusion
of the beneficiary, Mariano J. Villanueva, the latter has interposed the present appeal.

ISSUE: WON the beneficiary (the estate) is entitled to the proceeds.

HELD: NO. Under the policies, the insurer obligated itself to pay the insurance proceeds (1) to the insured
if the latter lived on the dates of maturity or (2) to the beneficiary if the insured died during the
continuance of the policies. The first contingency of course excludes the second, and vice versa. In other
words, as the insured Esperanza J. Villanueva was living on April 1, and March 31, 1943, the proceeds are
payable exclusively to her estate unless she had before her death otherwise assigned the matured
policies.

The beneficiary, Mariano J. Villanueva, could be entitled to said proceeds only in default of the first
contingency. To sustain the beneficiary's claim would be altogether eliminate from the policies the
condition that the insurer "agrees to pay . . . to the insured hereunder, if living".

Insurance Law (Act. No 2427) provides that "an insurance upon life may be made payable on the death of
the death of the person, or on his surviving a specified period, or otherwise, contingently on the
continuance or cessation of life" (section 165), and that "a policy of insurance upon life or health mat pass
by transfer, will, or succession, to any person, whether he has an insurable interest or not, and such person
may recover upon it whatever the insured might have recovered"

The appealed order is, therefore, hereby affirmed, and it is so ordered with costs against the appellant.
 VDA. DE CONSUEGRA v GOVERNMENT SERVICE INSURANCE SYSTEM
G.R. No. L-28093 | January 30, 1971 | ZALDIVAR, J.
Retirement benefits divided equally to both first and second wife

DOCTRINE: The insured in a life insurance may designate any person as beneficiary unless disqualified to be
so under the Civil Code. In the absence of any benifiary named in the life insurance policy, the proceeds of the
insurance will go to the estate of the insured.

FACTS: The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the
District Engineer in the province of Surigao del Norte. In his lifetime, Consuegra contracted two marriages, the
first with respondent Rosario Diaz out of which marriage were born two children but both predeceased their
father; and the second, which was contracted in good faith while the first marriage was subsisting, with
petitioner Basilia Berdin, out of which marriage were born seven children.

Being a member of the GSIS, for short when Consuegra died, the proceeds of his life insurance were paid by the
GSIS to petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. Having been
in the service of the government for 22.5028 years, Consuegra was entitled to retirement insurance benefits in
the sum of P6,304.47. Consuegra did not designate any beneficiary who would receive the retirement insurance
benefits due to him. Both Rosario Diaz and Basilia Berdin filed a claim with the GSIS asking that the retirement
insurance benefits be paid to them.

GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who
is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his
widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining
one-half, or 8/16, each of them to receive an equal share of 1/16.

Dissatisfied, Basilia Berdin and her children filed a petition for mandamus with preliminary injunction in the
CFI of Surigao, praying that they be declared the legal heirs and exclusive beneficiaries of the retirement
insurance and that a writ of preliminary injunction be issued restraining the implementation of the
adjudication made by the GSIS. The trial court declared the petitioner Basilia Berdin Vda. de Consuegra and her
co-petitioners, beneficiary and entitled to one-half (1/2) of the retirement benefit in the amount of (P6,304.47),
Likewise, the respondent Rosario Diaz Vda. de Consuegra is hereby declared beneficiary and entitled to the
other half of the retirement benefit of the late Jose Consuegra or the amount of P3,152.235.

Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children. Appellants contend
that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the
appellants who were the beneficiaries named in the life insurance should automatically be considered the
beneficiaries to receive the retirement insurance benefits, to the exclusion of respondent Rosario Diaz. It is
their stand that the system of life insurance and the system of retirement insurance are simply complementary
to each other, or that one is a part or an extension of the other.

ISSUE: Whether or not Basilia Berdin and her children alone are entitled to the retirement insurance benefits
of Consuegra - NO

HELD: The contention of appellants is untenable. The law creating the GSIS is Commonwealth Act 186 which
was enacted by the National Assembly on November 14, 1936. As originally approved, Commonwealth Act 186
provided for the compulsory membership in the Government Service Insurance System of all regularly and
permanently appointed officials and employees of the government, considering as automatically insured on life
all such officials and employees, and issuing to them the corresponding membership policy under the terms
and conditions as provided in the Act.
Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was amended by
Republic Act 660 which was enacted by the Congress of the Philippines on June 16, 1951, and, among others,
the amendatory Act provided that aside from the system of life insurance under the Government Service
Insurance System there was also established the system of retirement insurance. Thus, We will note in Republic
Act 660 that there is a chapter on life insurance and another chapter on retirement insurance. Republic Act
1616 was enacted by Congress, amending section 12 of Commonwealth Act 186 as amended by Republic Act
660, by adding thereto two new subsections, designated as subsections (b) and (c). This subsection (c) of
section 12 of Commonwealth Act 186, as amended by Republic Acts 660, 1616 and 3096, was again amended
by Republic Act 3836 which was enacted on June 22, 1963.lâwphî1.ñèt The pertinent provisions of subsection
(c) of Section 12 of Commonwealth Act 186, as thus amended and reamended, read as follows:

(c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty years of service.
The benefit shall, in addition to the return of his personal contributions plus interest and the payment of the
corresponding employer's premiums described in subsection (a) of Section 5 hereof, without interest, be only a
gratuity equivalent to one month's salary for every year of service, based on the highest rate received, but not to
exceed twenty-four months; Provided, That the retiring officer or employee has been in the service of the said
employer or office for at least four years, immediately preceding his retirement.

xxx xxx xxx

The gratuity is payable by the employer or office concerned which is hereby authorized to provide the necessary
appropriation to pay the same from any unexpended items of appropriations.

Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to the commutation
of the unused vacation and sick leave, based on the highest rate received, which they may have to their credit at the
time of retirement.

If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it follows
that he started in the government service sometime during the early part of 1943, or before 1943. In 1943 Com.
Act 186 was not yet amended, and the only benefits then provided for in said Com. Act 186 were those that
proceed from a life insurance. Upon entering the government service Consuegra became a compulsory member
of the GSIS, being automatically insured on his life, pursuant to the provisions of Com. Act 186 which was in
force at the time. During 1943 the operation of the Government Service Insurance System was suspended
because of the war, and the operation was resumed sometime in 1946. When Consuegra designated his
beneficiaries in his life insurance he could not have intended those beneficiaries of his life insurance as
also the beneficiaries of his retirement insurance because the provisions on retirement insurance under
the GSIS came about only when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951. Hence, it cannot
be said that because herein appellants were designated beneficiaries in Consuegra's life insurance they
automatically became the beneficiaries also of his retirement insurance. Rep. Act 660 added to Com. Act 186
provisions regarding retirement insurance, which are Sections 11, 12, and 13 of Com. Act 186, as amended.
Subsection (b) of Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as follows:

(b) Survivors benefit. — Upon death before he becomes eligible for retirement, his beneficiaries as recorded in the
application for retirement annuity filed with the System shall be paid his own premiums with interest of three per
centum per annum, compounded monthly. If on his death he is eligible for retirement, then the automatic retirement
annuity or the annuity chosen by him previously shall be paid accordingly.

The above-quoted provisions clearly indicate that there is need for the employee to file an application for
retirement insurance benefits when he becomes a member of the GSIS, and he should state in his application
the beneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless the same beneficiary in the
life insurance is so designated in the application for retirement insurance.

Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund and for a
retirement insurance fund. There was no such provision in Com. Act 186 before it was amended by Rep. Act
660. Thus, subsections (a) and (b) of Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, partly
read as follows:

(a) Life insurance fund. — This shall consist of all premiums for life insurance benefit and/or
earnings and savings therefrom. It shall meet death claims as they may arise or such equities
as any member may be entitled to, under the conditions of his policy, and shall maintain the
required reserves to the end of guaranteeing the fulfillment of the life insurance contracts
issued by the System ...

(b) Retirement insurance fund. — This shall consist of all contributions for retirement
insurance benefit and of earnings and savings therefrom. It shall meet annuity payments and
establish the required reserves to the end of guaranteeing the fulfillment of the contracts
issued by the System. ...

Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members — one is
the life insurance and the other is the retirement insurance. These two distinct systems of benefits are paid out
from two distinct and separate funds that are maintained by the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life
insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as amended),
the beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured. The insured in a
life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the
Civil Code.4 And in the absence of any beneficiary named in the life insurance policy, the proceeds of the
insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee — to provide for his old age, or
incapacity, after rendering service in the government for a required number of years. If the employee reaches
the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries
named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim
the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or
overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate
and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is
named in the insurance policy.

GSIS had correctly acted when it ruled that the proceeds of the retirement insurance of the late Jose Consuegra
should be divided equally between his first living wife Rosario Diaz, on the one hand, and his second wife Basilia
Berdin and his children by her, on the other; and the lower court did not commit error when it confirmed the
action of the GSIS, it being accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was
contracted in good faith. Whether as conjugal partner in a still subsisting marriage or as such putative heir she
has an interest in the husband's share in the property here in dispute.... " And with respect to the right of the
second wife, this Court observed that although the second marriage can be presumed to be void ab initio as it
was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such
nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial
declaration of its nullity, "[t]he only lust and equitable solution in this case would be to recognize the right of
the second wife to her share of one-half in the property acquired by her and her husband and consider the
other half as pertaining to the conjugal partnership of the first marriage."

WHEREFORE, the decision appealed from is affirmed, with costs against petitioners-appellants. It is so ordered.
 Spouses Cha v. Court of Appeals
GR No. 124520, August 18, 1997
J. Padilla
DOCTRINE: A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable interest in
the property insured must exist at the time the insurance takes effect and at the time the loss
occurs. The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a mere
wager which is void under Section 25 of the Insurance Code
FACTS: Petitioner-spouses Nilo Cha and Stella Uy-Cha entered into a lease contract with
private respondent CKS Development Corporation as lessor. One of the stipulations in the
lease contract was a prohibition on taking fire insurance by the lessee without the approval
of the lessor. In case the lessee shall obtain insurance without the consent of the lessor then
the policy shall be deemed assigned and transferred to the lessor. To wit:
"18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first obtaining
the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . ."
Notwithstanding this stipulation, the spouses Cha insured against loss by fire their
merchandise inside the leased premises. On the day the lease contract was to expire, fire
broke out inside the leased premises. CKS Development learned of the insurance procured
without its consent by the Cha spouses. CKS Development, therefore, claimed the proceeds
of the insurance from the insurer, but was refused by the latter. CKS Development filed a
complaint against the Cha spouses and the insurer and won its case. On appeal, the Court of
Appeals affirmed decision of trial court ordering the insurer to pay the proceeds of insurance
directly; to CKS Development Corporation. Hence, this petition for review on certiorari.
ISSUE: Whether or not aforequoted paragraph 18 of lease contract entered into between CKS
and Cha spouses is valid insofar as it provides that any fire insurance policy obtained by
lessee (Cha spouses) over their merchandise inside leased premises is deemed assigned or
transferred to lessor (CKS) if said policy is obtained without prior written consent of latter.
RULING: YES. It is, of course, basic in the law on contracts that the stipulations contained in
a contract cannot be contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides: "Sec. 18. No contract or policy of insurance on
property shall be enforceable except for the benefit of some person having an insurable interest
in the property insured."
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over
their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs. The
basis of such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is a mere wager which is void under
Section 25 of the Insurance Code, which provides: "Section 25. Every stipulation in a policy of
Insurance for the payment of loss whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void."
In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance
Code which provide: "Section 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured, the
Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public policy. The
proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella
Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the
property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha
spouses obtained a fire insurance policy over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not resolve in this case. cdasia
WHEREFORE, CA’s decision is SET ASIDE and a new decision is hereby entered, awarding
the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
HEIRS OF LORETO C. MARAMAG vs. EVA VERNA DE GUZMAN MARAMAG, et. al.

G.R. No. 181132 June 5, 2009

NACHURA, J.:

Facts: The case stems from a petition filed against respondents with the Regional Trial Court, Branch 29,
for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer for
a temporary restraining order (TRO) and a writ of preliminary injunction.

Petitioner Vicenta Maramag (heir of deceased) alleges that (1) petitioners were the legitimate wife and
children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de
Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is
disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company,
Ltd. (Insular) and Great Pacific Life Assurance Corporation (Grepalife); (3) the illegitimate children of
Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the
legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and
Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their
legitimes, which should be satisfied first.

In its answer, Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl
Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it
disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie,
as the remaining designated and further claimed that it was bound to honor the insurance policies
designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer with compulsory counterclaim, Grepalife alleged that Eva was not designated as an
insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied
because Loreto was ineligible for insurance due to a misrepresentation in his application form that he was
born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001;
that the case was premature, there being no claim filed by the legitimate family of Loreto; and that the law
on succession does not apply where the designation of insurance beneficiaries is clear. Both Insular and
Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the
policies, not to the estate or to the heirs of the insured.

Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.

The trial court ruled for the Petitioners since Eva was not able to file an answer nor unknown to their
whereabouts. It said that it is very clear under Sec. 53 thereof that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless
otherwise specified in the policy.

Insular and Grepalife filed their respective motions for reconsideration, arguing, in the main, that the
petition failed to state a cause of action. Insular further averred that the proceeds were divided among the
three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums
paid had already been refunded. In granting the motions for reconsideration of Insular and Grepalife, the
trial court considered the allegations of Insular that Loreto revoked the designation of Eva in one policy
and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would
be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of
jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a cause
of action involved a pure question of law. The appellate court also noted that petitioners did not file within
the reglementary period a motion for reconsideration of the trial court’s Resolution, dated September 21,
2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution
had already attained finality.

ISSUE: Whether the members of the legitimate family are entitled to the proceeds of the insurance for the
concubine?

HELD: No. In this case, it is clear from the petition filed before the trial court that, although petitioners are
the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by
Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a suspect
in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s
children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the
policies. They also argued that pursuant to Section 12 of the Insurance Code, Eva’s share in the proceeds
should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed
that the share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to
them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light
of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed by
special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either
the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the
policy. The exception to this rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case,
third parties may directly sue and claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation
to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy
and her disqualification as such in another are of no moment considering that the designation of the
illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the insured, the shares
of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion
of petitioners. It is only in cases where the insured has not designated any beneficiary, or when the
designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds
shall redound to the benefit of the estate of the insured.
 GAISANO CAGAYAN, INC. v. INSURANCE COMPANY OF
NORTH AMERICA
G.R. No. 147839
June 8, 2006

TICKLER: An insurable interest in property does not necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to
the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that
he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other
words, so long as he would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.

FACTS: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.)
Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co. Petitioner is a
customer and dealer of the products of IMC and LSPI.IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements

The Gaisano Superstore Complex owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

Respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent
their claims under their insurance policies but there was still unpaid amount of petitioner on the ready-made
clothing materials with IMC and with LSPI ,since respondent paid the claims of IMC and LSPI therefore,
respondent was subrogated to their rights against petitioner.

petitioner contends that it could not be held liable because the property covered by the insurance policies were
destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was due to fire.

RTC rendered its decision dismissing respondent's complaint, held that the fire was purely accidental; that the
cause of the fire was not attributable to the negligence of the petitioner and that it has not been established that
petitioner is the debtor of IMC and LSPI; IMC and LSPI retained ownership of the delivered goods and must
bear the loss.

CA rendered its decision setting aside the decision of the RTC,held that the sales invoices are proofs of sale, that
loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous
event, the risk is borne by the owner of the thing at the time the loss ,that petitioner's obligation to IMC and LSPI
is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is
not extinguished, by subrogation, the insurer has the right to go against petitioner and being a fire insurance with
book debt endorsements, what was insured was the vendor's interest as a creditor.

ISSUE: Whether or not the insurable interest pertains to the unpaid amount not the loss of the goods?

RULING: Yes. It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction. In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines." and defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."
Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold
and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the
contract. Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne
by the buyer. Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment
of the value of the delivered goods.

An insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession
of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence
of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured. Indeed, a vendor or seller
retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as
he would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss
covered by the policies.

Accordingly, petitioner's obligation is for the payment of money, where the obligation consists in the payment
of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve
him of his liability. The rationale for this is that the rule that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply
when the obligation is pecuniary in nature. 34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the
object thereof is designated merely by its class or genus without any particular designation or physical
segregation from all others of the same class, the loss or destruction of anything of the same kind even without
the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation.
This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit. An obligation
to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.
 RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS
G.R. No. 128834 April 20, 1998
MELO, J.
Doctrine:
It is settled that a mortgagor and a mortgagee have separated and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his own sole
benefit.
Facts:
Respondent GOYU applied for credit facilities and accommodations with Petitioner RCBC at its
Binondo Branch. After due evaluation, RCBC recommended GOYU's application for approval by
RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon
GOYU's application and Uy's and Lao's (RCBC’s key officers) recommendations, RCBC's executive
committee increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117
million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two
chattel mortgages in favor of RCBC. Under each of these four mortgage contracts, GOYU committed
itself to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from Malayan Insurance Inc. (MICO). In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions
of GOYU.
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently,
GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim
on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance proceeds were also
claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed
a complaint for specific performance and damages in the RTC of Manila.
RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons that MICO denied GOYU's
claims.
In an interlocutory order dated October 12, The RTC of Manila (Branch 3), confirmed that GOYU's
other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their
respective writs of attachments from various courts, covering an aggregate amount of
P14,938,080.23, and ordered that the proceeds of the ten insurance policies be deposited with the
said court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO
deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by another branch of the Manila
RTC (Branch 28) for the amount of P8,696,838.75.
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, ruling that the insurance
claim due to the fire, minus the already deposited amount to the court, plus damages be paid to GOYU.

On the Counterclaim of RCBC, GOYU was ordered to pay its loan obligations in the amount of
P68,785,069.04, as of April 27, 1992, with interest at the rate stipulated in promissory notes.
All parties then interposed their respective appeals. GOYU was unsatisfied with the amount awarded
in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of
Appeals party granted GOYU's appeal, increasing the damages awarded, but sustained the findings of
the trial court with respect to MICO and RCBC's liabilities.
Thus, the petition.
Issue:
1. W/N RCBC, as a mortgagee, has a right to the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.
2. W/N MICO is liable for denying the release of insurance claims to GOYU.
Held:
1. Yes. It is settled that a mortgagor and a mortgagee have separated and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the same
property for his own sole benefit. In the case at bar, GOYU insured the properties naming
itself as the payee; however, the court, on the basis of equity, took into consideration the
parties’ contemporaneous acts to determine who has the better right to the insurance claim.
It was ruled that Petitioner RCBC has the right to claim the insurance policies taken by GOYU.
The endorsements of the insurance policies declaring RCBC as the payee, despite lacking
GOYU’s officers’ signatures, are nonetheless valid. Alchester would not have endorsed such
policies to RCBC if it were not for the instructions of GOYU.
Thus, having instructed Alchester to issue such endorsements, GOYU is estopped from
claiming that the endorsements were invalid. Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the interest of the person
in whose name or for whose benefit it is made shall not be applicable to the case at bar in lieu
of the peculiar circumstances. The Court stated that such circumstances justified an
exemption to the strict construction of the Insurance code. Thus, it is RCBC who has the better
right to the insurance claims.
2. No. Due to the endorsement of the insurance policies, GOYU effectively lost its right to claim
the proceeds of such policies. Further, in order to hold that the insurance company is liable
for the withholding or delay in releasing the insurance claims, such withholding or delay must
be wanton, oppressive, or malevolent. Thus, an insurer, in good faith, is allowed to entertain
a difference in opinion as to its liability. MICO’s act of withholding due to the claims of other
creditors, thus, cannot be considered as wanton, oppressive, or malevolent. Thus, MICO is not
liable for damages.
 UCPB General Insurance. v. Masagana Telamart, Inc.
G.R. No. 137172, 4 April 2001
Davide, Jr., C.J.:

Doctrine:
Insurer may grant credit transactions for the payment of the premium. If the insurer has
granted the insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the premium is
paid after loss but within the credit term.

Estoppel may bar the insurer from taking refuge under Section 77.

Facts:
Masagana Telamart, Inc. obtained from UCPB General Insurance five insurance policies on
its properties in Pasay and Manila. All policies reflect on their face the effectivity term from
22 May 1991 to 22 May 1992.
On 13 June 1992, Masagana’s properties located along Taft Avenue, Pasay City were razed
by fire. Masagana tendered and UCPB tendered five manager’s check as renewal premium
payments. On 14 July 1992, Masagana made its formal demand for indemnification for the
burned but insured properties. On the same day, UCPB returned the manager’s checks
stating in its letter that it was rejecting the claim on the following grounds:
1. Said policies expired last 22 May 1992 and were not renewed for another term;
2. UCPB had put Masagana and its alleged broker on notice of non-renewal earlier; and
3. The properties covered by the said policies were burned in a fire that took place las
13 June 1992, before tender of premium of payment.
This led Masagana to file against UCPB. Both the CA and RTC found the case in favor of
Masagana, appreciating that there is sufficient proof that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted 60 to 90 day credit
term for the renewal of the policies. Such a practice had existed up to the time the claims
were filed.
Issue:
Whether Section 77 of the Insurance Code must be strictly applied to UCPB’s advantage
despite ​its practice of granting a 60-90 day credit term for the payment of premiums.

Held:
No. It was noted in the case of Makati Tuscany Condominium Corporation v. CA:

“while the import of Section 77 is the 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
or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer
of the condition of prepayment by making an acknowledgement in the insurance policy of
receipt of premium as conclusive evidence of payments 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 transactions credit extensions, and
such an agreement is not contrary to morals, good customs, public or public policy.
So is an understanding to allow insured to pay premiums in installments not so prescribed.
At the very least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted.

In the instant case, it would be unjust and inequitable if recovery on the policy would not
be permitted, which had consistently granted a 60 to 90 day credit term for the payment of
premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge
under sad Section sine Respondent relied in good faith on such practice.

Notes:

Section 77. 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 contrary 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 a life or an industrial
policy whenever te grace period applies.

Section 78. Any acknowledgement in a policy or contract of insurance of the receipt of

premium is conclusive evidence of it payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid.

Makati Tuscany Condominium Corporation v. CA. Section 77 may not apply if the parties have
agreed to the payment in installments of the premium and partial payment has been made at
the time of the loss.
SPS. TIBAY VS. CA
G.R. No. 119655 May 24, 1996

FACTS:

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE)
issued Fire Insurance Policy in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey
residential building located Makati City, 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 Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March
1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a
claim on the fire insurance policy. In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta
for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.

On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of
P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum,
P 100,000.00 moral damages, and attorney’s fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value
of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal
rate of 6% per annum from the filing of the complaint until full payment, and attorney’s fees equivalent
to 20% of the total amount claimed plus costs of suit.

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-appellant to return to the former the premium
of P2,983.50 plus 12% interest from 10 March 1987 until full payment.
Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the
appellate court, FORTUNE remains liable under the subject fire insurance policy inspite of the failure
of petitioners to pay their premium in full.

ISSUE:

Whether a fire insurance policy is valid, binding and enforceable upon mere partial payment of
premium?

RULING:

The Supreme Court finds no merit in the petition. Hence, it affirms the decision of the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy, and if not so paid,
the policy will lapse and be forfeited by its own terms.

Clearly the Policy entered into between Sps. Antonio and Violeta Tibay and Fortune Life and General
Insurance Co. provides for payment of premium in full. Accordingly, where the premium has only been
partially paid and the balance paid only after the peril insured against has occurred, the insurance
contract did not take effect and the insured cannot collect at all on the policy. This is fully supported
by Sec. 77 of the Insurance Code which provides:

SEC. 77. 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 a life or an industrial life policy whenever the grace period
provision applies.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law
ever resulted from the fractional payment of premium. The insurance contract itself expressly provided
that the policy would be effective only when the premium was paid in full. It would have been altogether
different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to
be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Arce v. Capital Insurance & Surety Co., Inc., G.R. No. L- 28501, September 30, 1982

FACTS

1. The INSURED (Arce) was the owner of a residential house in Tondo, Manila, which had been
insured with the COMPANY since 1961 under Fire Policy No. 24204.
2. On November 27, 1965, the COMPANY sent to the INSURED Renewal Certificate No. 47302 to
cover the period December 5, 1965 to December 5, 1966.
3. The COMPANY also requested payment of the corresponding premium in the amount of P 38.10.
4. Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to
pay it on January 4, 1966. The COMPANY accepted the promise but the premium was not paid
on January 4, 1966.
5. On January 8, 1966, the house of the INSURED was totally destroyed by fire.
6. On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She
was told that no indemnity was due because the premium on the policy was not paid.
7. Nonetheless the COMPANY tendered a check for P300.00 as financial aid which was received by
the INSURED's daughter, Evelina R. Arce. The voucher for the check which Evelina signed
stated that it was "in full settlement (ex gratia) of the fire loss under Claim No. F-554 Policy No.
F-24202."
8. Thereafter the INSURED and his wife went to the office of the COMPANY to have his signature
on the check Identified preparatory to encashment.
9. At that time the COMPANY reiterated that the check was given "not as an obligation, but as a
concession" because the renewal premium had not been paid, The INSURED cashed the check
but then sued the COMPANY on the policy

ISSUE
W/N petitioner should be indemnified by the insurer

HELD
No. In the instant case, the INSURED was given a grace period to pay the premium but the period having
expired with no payment made, he cannot insist that the COMPANY is nonetheless obligated to him.

1. Under the Insurance Act, as amended by R.A. No. 3540, the insurance will take effect upon the
payment of the premium.

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the
perils insured against, unless there is clear agreement to grant credit extension for the premium due. No
policy issued by an insurance company is valid and binding unless and until the premium thereof has
been paid "

****
Arce vs Delgado Cases
Arce= insurance takes effect upon payment of premium (prevailing law)
Delgado= insurance takes effect upon issuance of policy (prior law before amendment of Insurance Act)

2. It is stipulated under the contract of insurance that the insurance will be deemed valid and binding
upon the Company only when the premium and documentary stamps therefor have actually been
paid in full and duly acknowledged in an official receipt signed by an authorized
official/representative of the Company
MAKATI TUSCANY CONDOMINIUM CORPORATION
vs. THE COURT OF APPEALS|||
G.R. No. 95546. November 6, 1992||

Doctrine:

While the import of Section 77 is that prepayment of premiums is strictly required as a

condition to the validity of the contract, the court believed 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.

Facts:  

American Home Assurance Co. (AHAC) issued a policy on Tuscany's building and premises
from March 1, 1981 to March 1, 1983 with a total premium of P466,103.05. The premium
was paid on installments from March to November 1982. The policy was renewed in 1983
for which the premiums were also paid on installment. It was again renewed in 1984 for
which Tuscany made two installment payments but thereafter, Tuscany refused to pay the
balance because the policy did not contain a credit clause in its favor, and the receipts for
the installment payments covering all three policies, stated the following reservations:

1. Acceptance of payment shall not waive any company’s right to deny any claim
under the policy arising before such payments/ after the expiration of the credit
clause.
2. Subject to no loss prior to premium payment. If there be any loss, such is not
covered.

AHAC filed an action to recover the unpaid balance of P314,103.05. Tuscany filed
counterclaim for refund of premiums already paid for 1984, claiming the risk never
attached. Tuscany also argues that there is no perfected contract of insurance upon mere
partial payment of the premiums according to Section 77 of the Insurance Code which
states that "no contract of insurance is valid and binding unless the premium thereof has
been paid, notwithstanding any agreement to the contrary"
Issues:

Whether payment by installment of the premiums due on an insurance policy invalidates

the contract of insurance|||

Ruling

The Court ruled 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
prepaid in full.|||

It appearing from the peculiar circumstances that the parties actually intended to make the
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to
renege on its obligation to pay the balance of the premium after the expiration of the whole
term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly
observed by the appellate court, where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was exposed to the
risk insured for any period, however brief or momentary.
 G. R. No. L-56718; 17 January 1985

ACME SHOE RUBBER & PLASTIC CORPORATION V. THE COURT OF APPEALS,

DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES

FACTS:

ACME had been yearly insuring against fire its building, machines and general
merchandise located at Caloocan City with Domestic Insurance Company of the Philippines
since 1962.
On May 14,1963, the Insurer issued a Renewal Receipt to cover the period of May
15,1963 - May 15,1964. ACME paid its premium on January 8,1964 and Domestic Insurance
applied it for the same period (1963 - 1964).
Subsequently, the policy was again renewed by Domestic Insurance to cover the period of
May 15,1964 - May 15,1965 but with additional clauses:

(1) the insurance will be deemed valid and binding upon the Company only when the premium
and documentary stamps therefor have actually been paid in full and duly acknowledged in
an official receipt signed by an authorized official/representative of the Company
(2) … this Policy shall automatically become void and ineffective (without prejudice to the
obligation of the Insured to pay the corresponding short period premium for the said 90 days)
unless prior to the expiration of said period the Insured shall have actually paid to the
Company the total premium and the documentary stamps stipulated in this Policy.

Concurring to such additional clauses, ACME, through its President, signed and issued a
Promissory Note in favor of Domestic Insurance.
On October 13,1964, ACME’s properties were completely destroyed in a fire. ACME
then tried to claim the insurance from Domestic Insurance but the latter refused liability
maintaining that the subject properties were not covered by an insurance. This prompted the
former to file an action against the latter before the Court of First Instance for the collection of
insurance proceeds and for damages. ACME contended that Domestic Insurance had no right to
apply the payment made on January 8,1964 to the Insurance Coverage of 1963 - 1964 because
under R.A. 35401, the same coverage is already void (coverage had already lapsed). The CFI
ruled in favor of ACME but was reversed on appeal before the Court of Appeals.

1 Sec. 72, R.A. No. 3540 (Insurance Act) , approved on June 20,1963 but took effect on October
1,1963.

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against, unless there is clear agreement to grant the insured credit extension of the premium
due. No policy issued by an insurance company is valid and binding unless and until the premium thereof
has been paid.
ISSUE:

Whether a Contract of Insurance is present when there is a finding of failure to pay premium by
the Court of Appeals.

HELD:

The Supreme Court ruled in the negative.

The Supreme Court ruled that R.A. No. 3540 was only approved on June 20,1963 and
took effect on October 1,1963 and it could not, therefore, retroactively affect the renewal of the
insurance policy for the period of 1963 - 1964 and even those contracted prior. Thus, the
payment made by ACME was properly applied by Domestic Insurance to the insurance coverage
of 1963-1964.
Moreover, the Supreme Court ruled, based on facts, evidence and law, that ACME’s
failure to pay its premium for the period of 1964 - 1965, automatically cancelled the Policy.
Therefore, there was no insurance coverage to speak of when the fire happened. The Court found
that by the express terms of the Promissory Note issued by ACME in favor of Domestic
Insurance, the former was fully aware of its duty to pay the premium within 90 days counting
from May 14,1964 when the Insurance Policy was renewed, and non-fulfilment of such
obligation will render it void. Furthermore, Domestic Insurance made several reminders to
ACME for the payment of premium but to no avail. Because of such failure, the Supreme Court
held that the contract of insurance executed was automatically cancelled.
 The Manufacturers Life Insurance Co. vs. Meer
G.R. no. L-2910. June 29, 1951. Bengzon, J.

FACTS: The plaintiff, the Manufacturer Life Insurance Company in a corporation duly
organized in Canada with head office at Toronto. It is duly registered and licensed to engage
in life insurance business in the Philippines, and maintains a branch office in Manila. It was
engaged in such business in the Philippines for more than five years before and including the
year 1941. But due to the exigencies of the war it closed the branch office at Manila during
1942 up to September 1945. In the course of its operations before the war, plaintiff issued a
number of life insurance policies in the Philippines containing stipulations referred to as
non-forfeiture clauses. From January 1, 1942 to December 31, 1946 for failure of the insured
under the policies to pay the corresponding premiums for one or more years, the plaintiff's
head office of Toronto, applied the provision of the automatic premium loan clauses. The
clause provides that the Policy shall not lapse for non-payment of any premium after it has
been three full years in force, if, at the due date of such premium, the Cash Value of the Policy
and of any bonus additions and dividends left on accumulation shall exceed the amount of
said premium.

The net amount of premiums so advanced or loaned totalled P1,069,254.98. On this sum the
defendant Collector of Internal Revenue assessed P17,917.12 — which plaintiff paid supra
protest —. Plaintiff contends that when it made premium loans or premium advances, it did
not collect premiums within the meaning of the law, and therefore it is not subject to tax.

ISSUE: Whether or not premium advances made by plaintiff under the automatic premium
loan clause of its policies are "premium collected" by the Company subject to tax.

RULING: No. The Court made use of the practical illustration offered by appellant (plaintiff).
Suppose that "A" years of age, secures a 20-years endowment policy for P5,000 from
plaintiff-appellant Company and pays an annual premium of P250. 'A' pays the first ten
yearly premiums amounting to P2,500 and on this amount plaintiff-appellant pays the
corresponding taxes under section 255 of the National Internal Revenue Code. Suppose also
that the cash value of said policy after the payment of the 10th annual premium amounts to
P1,000." When on the eleventh year the annual premium fell due and the insured remitted
no money within the months grace, the insurer treated the premium then over due as paid
from the cash value, the amount being loan to the policyholder1 who could discharged it at
anytime with interest at 6 per cent. The insurance contract, therefore, continued in force for
the eleventh year.

Under the circumstances described, the Manufacturers Life Insurance Co., in effect, loaned
to "A" on the eleventh year, the sum of P250 and the latter in turn paid with that sum the
annual premium on his policy. The Company therefore collected the premium for the
eleventh year. In other words, "A" paid the premium for the eleventh; but in turn he became
a debtor of the company for the sum of P250. This debt he could repay either by later
remitting the money to the insurer or by letting the cash value compensate for it. The debt
may also be deducted form the amount of the policy should "A" die thereafter during the
continuance of the policy.
GSIS v PRUDENTIAL GUARANTEE AND ASSURANCE INC
G.R. No. 165585 and 176982, Nov 20,2013

Facts: Sometime in March 1999, the National Electrification Administration (NEA) entered into a
Memorandum of Agreement ​(MOA) with GSIS insuring all real and personal properties mortgaged
to it by electrical cooperatives under an Industrial All Risks Policy (IAR policy). The total sum
insured under the IAR policy was ₱16,731,141,166.80, out of which, 95% or ₱15,894,584,108.40
was reinsured by GSIS with PGAI for a period of one year or from March 5, 1999 to March 5, 2000.
As reflected in Reinsurance Request Note No. 99-150 (reinsurance cover) and the Reinsurance
Binder ​dated April 21, 1999 (reinsurance binder), GSIS agreed to pay PGAI reinsurance premiums
in the amount of ₱32,885,894.52 per quarter or a total of ₱131,543,578.08. While GSIS remitted to
PGAI the reinsurance premiums for the first three quarters, it, however, failed to pay the fourth and
last reinsurance premium due on December 5, 1999 despite demands. This prompted PGAI to file,
on November 15, 2001, a Complaint for sum of money (complaint) against GSIS before the RTC,
docketed as Civil Case No. 01-1634.

In its complaint, ​PGAI alleged​, among others, that: (a) after it had issued the IAR policy, it further
reinsured the risks covered under the said reinsurance with reputable reinsurers worldwide such
as Lloyds of London, Copenhagen Re, Cigna Singapore, CCR, Generali, and Arig;​18 (b) the first three
reinsurance premiums were paid to PGAI by GSIS and, in the same vein, NEA paid the first three
reinsurance premiums due to GSIS;​19 (c) GSIS failed to pay PGAI the fourth and last reinsurance
premium due on December 5, 1999;​20 (d) the IAR policy remained in full force and effect for the
entire insurable period and, in fact, the losses/damages on various risks reinsured by PGAI were
paid and accordingly settled by it;​21 (e) PGAI is under continuous pressure from its reinsurers in the
international market to settle the matter;​22 and (f) GSIS acknowledged its obligation to pay the last
reinsurance premium as it, in turn, demanded from NEA the fourth and last reinsurance premium.
In its Answer,​24 ​GSIS admitted, among others, that: (a) its request for reinsurance cover was
accepted by PGAI in a reinsurance binder;​25 (b) it remitted to PGAI the first three reinsurance
premiums which were paid by NEA;​26 and (c) it failed to remit the fourth and last reinsurance
premium to PGAI.​27 It, however, denied, inter alia, that: (a) it had acknowledged its obligation to pay
the last quarter’s reinsurance premium to PGAI;​28 and (b) the IAR policy remained in full force and
effect for the entire insurable period of March 5, 1999 to March 5, 2000.​29 GSIS also proffered the
following affirmative defenses: (a) the complaint states no cause of action against GSIS because the
non-payment of the last reinsurance premium only renders the reinsurance contract ineffective,
and does not give PGAI a right of action to collect;

The RTC granted PGAI’s Motion for Judgment on the Pleadings. It observed that the admissions of
GSIS that it paid the first three quarterly reinsurance premiums to PGAI affirmed the validity of the
contract of reinsurance between them. As such, GSIS cannot now renege on its obligation to remit
the last and remaining quarterly reinsurance premium.​38 It further pointed out that while it is true
that the payment of the premium is a requisite for the validity of an insurance contract as provided
under Section 77 of Presidential Decree No. (PD) 612,​39 otherwise known as "The Insurance Code,"
it was held in Makati Tuscany Condominium Corp. v. CA​40 (Makati Tuscany) that insurance policies
are valid even if the premiums were paid in installments, as in this case.​41 Thus, in view of the
foregoing, the RTC ordered GSIS to pay PGAI the last quarter reinsurance premium. The CA affirmed
the decision of the RTC.

Issue: Won the non payment of the last reinsurance premium only renders the reinsurance contract
ineffective

Ruling: NO.

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 the motion to reconsider its
Decision —
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 (De Leon, the
Insurance Code, at p. 175). 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.

[I]n the case before Us, petitioner paid the initial installment and thereafter made staggered
payments resulting in full payment of the 1982 and 1983 insurance policies. ​For the 1984 policy,
petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third
policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate
court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund
of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or
momentary.​99​ (Emphases supplied and citation omitted)

Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court upholds
PGAI’s right to be paid by GSIS the amount of the fourth and last reinsurance premium pursuant to
the reinsurance contract between them. All told, the petition in G.R. No. 176982 is denied.
SOUTH SEA SURETY AND INSURANCE COMPANY, INC.,​ vs. ​HON. COURT OF APPEALS and
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC.,
G.R. No. 102253 June 2, 1995
VITUG, ​J.:

FACTS​: ​Plaintiff ​Valenzuela Hardwood and Industrial Supply, Inc. entered into an
agreement with the defendant ​Seven Brothers whereby the latter undertook to load on
board its vessels M/V Seven Ambassador the former's lauan round logs numbering 940
at the port of Maconacon, Isabela for shipment to Manila. On 20 January 1984, plaintiff
insured the logs against loss and/or, damage with defendant ​South Sea Surety and
Insurance Co., Inc​. for P2,000,000.00 and the latter issued its Marine Cargo Insurance
Policy for P2,000,000.00 on said date. On 24 January 1984, the plaintiff gave the check
in payment of the premium on the insurance policy to Mr. Victorio Chua. In the
meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting
in the loss of the plaintiff's insured logs. On 30 January 1984, a check for P5,625.00 to
cover payment of the premium and documentary stamps due on the policy was
tendered to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception
for non-payment of the premium due in accordance with Section 77 of the Insurance
Code. Plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the
payment of the proceeds of the policy but the latter denied liability under the policy.
Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim.

ISSUES​: (1) ​Whether ​SouthSea Surety and Insurance Co., Inc., can be absolved
from liability for failure of Valenzuela Hardwood (insured) to pay insurance
premium

(2) ​Whether Victorio Chua, in receiving the check for the insurance premium
acted as an agent of petitioner

RULING​: (1) NO. ​Undoubtedly, the payment of the premium is a condition

precedent to, and essential for, the efficaciousness of the contract. The only two
statutorily provided exceptions are (a) in case the insurance coverage relates to
life or industrial life (health) insurance when a grace period applies and (b) when
the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of the
premium payment (Secs. 77-78, Insurance Code). The appellate court, contrary
to what the petition suggests, did not make any pronouncement to the contrary.
(2) YES. In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was
issued by the defendant insurance company on 20 January 1984. At the time the vessel
sank on 25 January 1984 resulting in the loss of the insured logs, the insured had
already delivered to Victorio Chua the check in payment of premium. But, as Victorio
Chua testified, it was only in the morning of 30 January 1984 or 5 days after the vessel
sank when his messenger tendered the check to defendant South Sea Surety and
Insurance Co., Inc. When the appellant South Sea Surety and Insurance Co., Inc.
delivered to Mr. Chua the marine cargo insurance policy for the plaintiff's logs, he is
deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to
receive the premium which is due on its behalf. When therefore the insured logs were
lost, the insured had already paid the premium to an agent of the South Sea Surety and
Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under
the policy it issued to the insured.
AMERICAN HOME ASSURANCE COMPANY, vs. TANTUCO ENTERPRISES, INC
G.R. No. 138941. October 8, 2001

FACTS:
Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining
industry. It owns two oil mills. Both are located at factory compound at Lucena City.
The two oil mills were separately covered by fire insurance policies issued by
petitioner American Home Assurance Co., Philippine Branch. The first oil mill was
insured for three million pesos (P3,000,000.00) under Policy No. 306-7432324-3
for the period March 1, 1991 to 1992. The new oil mill was insured for six million
pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the same term.
Official receipts indicating payment for the full amount of the premium were issued
by the petitioner's agent. On September 1991, a fire broke out and destroyed the
new mill, Tantuco immediately notified American Home. The respondent inspected
the burned premises and the properties destroyed. petitioner rejected respondent's
claim for the insurance proceeds on the ground that no policy was issued by it
covering the burned oil mill. A complaint for specific performance and damages
was instituted by the respondent with the RTC, the RTC rendered a decision
against the insurance company. The CA affirmed the decision.
ISSUE:
Whether or not the respondent forfeited the renewal policy for its failure to
pay the full amount of the premium and breach of the Fire Extinguishing Appliances
Warranty.
RULING:
No. According to the Supreme Court, while it is true that the asseverations
petitioner made in paragraph 24 of its Answer ostensibly spoke of the policy's
condition for payment of the renewal premium on time and respondent's non-
compliance with it. However, it did not contain any specific and definite allegation
that respondent did not pay the premium, or that it did not pay the full amount, or
that it did not pay the amount on time.
When the issues to be resolved in the trial court were formulated at the pre-
trial proceedings, the question of the supposed inadequate payment was never
raised. Most significant to point, petitioner fatally neglected to present, during the
whole course of the trial, any witness to testify that respondent indeed failed to pay
the full amount of the premium. The thrust of the cross-examination of Mr. Borja,
on the other hand, was not for the purpose of proving this fact.