SUSANA GLARAGA, for herself and as administratrix of the estate of Jose Concepcion,

deceased, ANGELICA JUARES and JUAN JUARES, Plaintiffs-Appellees, v. SUN LIFE

ASSURANCE COMPANY OF CANADA and O. O. HANSON, Defendants-Appellants.

Facts:
July 23, 1924, the defendant, a licensed corporation, duly authorized to do business in the
Philippine Islands, issued its insurance policy No. 585625 on the life of Jose Concepcion
Juares in and by which it promised and agreed to pay P5,000 to the legal representatives of the
insured, if, and upon the condition that, the policy was in legal force and effect at the time of
the death of the insured. Jose Concepcion Juares died in January, 1925.

The plaintiff, Susana Glaraga, was duly appointed as administratrix of his estate, and a
demand was made upon the company for the amount of the policy and payment refused.
Plaintiff alleges that the defendant 0. 0. Hanson was the agent of the insurance company, who
insured the life of Jose Concepcion Juares, and was the identical person to whom the first
premium on the policy was paid on June 3, 1924, and that Hanson was one of the agents
authorized by the company to collect premiums; that the second premium should have been paid
in December, 1924, and that the deceased was prepared to send the amount of it to the defendant
at Manila, and that he would have sent it in due time, but that before remitting the money, he
received from the defendant Hanson written instructions not to send the amount of the premium
to Manila, and stating that he, Hanson, would pay it to the insurance company; that when Hanson
came to Negros in the month of January, 1925, he would collect the premium to reimburse
himself, and plaintiff avers that Hanson did pay the second premium to the company at its
maturity; that after the death of Juares, and before this action was brought, plaintiff made a
demand upon the company for the payment of the policy, which was refused. Wherefore, she
prays for judgment against the insurance company for P5,000, with legal interest and costs, and
that should it develop that Hanson has not paid the insurance company the second premium,
which he undertook to pay, that judgment be rendered against him jointly and severally with the
company for the full amount of the policy, with legal interest.
As a special defense, alleges that the policy expressly provides:

"No persons, except the President, Managing-Director or Secretary has power to alter this
contract, to extend the time for paying a premium, to bind the Company by making any promise
or by receiving" any representation or information not contained in the application for this
policy. No payment made to any person, except in exchange for the Company's official receipt,
will be recognized by the Company. This policy does not take effect until the first premium has
been actually paid, during the life and good health of the insured." That this defendant at no time
authorized or empowered its codefendant O. O, Hanson or any other person, to modify the terms
of the policy, and that Hanson is not an official of the defendant corporation.

For a third special defense, the company alleges that it did not have any knowledge of the alleged
promise of its co-defendant Hanson to pay the second premium upon the policy, and that it never
received from him any payment whatever on behalf of the insured within the thirty-day period
of grace or ever at all, and it prays that the action be dismissed, and that this defendant go hence
without day, with costs.
Issue:
Whether or not there is payment of the premium

Held:
The testimony is conclusive that the second premium was never paid to the defendant company.

Assuming that fact to be true, plaintiff contends that Hanson, who was the agent of the
company, wrote to the deceased during his lifetime the letter or postscript, known in the record
as Exhibit D, as follows:

"I am going to pay your policy. Have money ready when I come in January. Your brother
Hanson."
The defendant Hanson vigorously denies that he ever wrote it. That is a purely question of fact
upon which the trial court found for the plaintiff.
The remaining question is the legal force and effect of the letter, and as to whether or not it is
binding upon the defendant company.

The testimony is conclusive that the second premium was never paid to the defendant company
by any one. The policy is in writing, and it was issued and delivered to the deceased in June,
1924, and, among other things, upon its face, recites:

"II. Days of Grace. Thirty days of grace are allowed for the payment of renewal premiums,
without interest charge, during which times the insurance shall continue in full force. If any
premium is not paid within the days of grace this policy shall thereupon become void, subject,
however, to the non-forfeiture provision of section

By its express terms, the non-payment of any premium when due or within the thirty-day period
of grace, ipso facto causes the policy to lapse, and relieves the insurance company from all
liability.

The policy in question was issued in June, 1924, and, exclusive of the first no other premium
was ever paid. Among other things, the policy further provides:

By the simple reading of the policy, the deceased would or should have known that by its
express provisions, a payment made to any person, except in exchange for the company's
official receipt would not be recognized by the company, and that no person, except the
President, Managing-Director or Secretary, had any power to alter the contract or to extend the
time for the payment of the premium, or to bind the company itself by the making of any
promise, and that if the premium was not paid within the thirty-day period of grace, his policy
would lapse and become null and void.

Again, the policy expressly recites that the amount of the premiums are to be paid in pesos
which, without the consent of the company, could not be paid any other manner. Upon this
point, Corpus Juris, vol. 32, p. 1201, says:
There is a marked distinction between the legal force and effect of the powers and duties of a life
insurance agent in soliciting insurance and what he says or does before the policy is issued and
his powers and duties, and the legal force of what he says and does after the policy is issued. In
the one case, the powers and duties of the agent, and as to what he says and does are all previous
to the issuance of the policy, and when the policy is once issued, the insurance company is then
estopped to deny the authority of its agent, and in that case, there is no written contract between
the insured and the insurance company. In the other case, the policy has been written, signed by
the respective parties, and issued and delivered to the insured, and there is a written contract
with provisions which specifically define and limit the powers and duties of the agent.
In the instant case, there was a written contract between the defendant company and the insured,
which was duly signed and accepted by both parties, and it specifically defines how, when and
to whom, and in what manner the premiums are to be paid, and specifies and limits the powers
and duties of the agent to the delivery of the official receipt of the company upon the payment to
him of the amount of the premium.

For all of such reasons, we are clearly of the opinion that the policy had lapsed, and was of no
legal force and effect at the time of the death of the deceased.

As to the defendant Hanson, the proof is conclusive that the deceased had the money and was
able, ready and willing to pay the premium at the time he received Exhibit D. After its receipt,
he relied upon Hanson to pay the premium, and for that reason, and that reason only, the
deceased failed to pay the premium. Because of the fact that Hanson failed to keep his promise
to pay the premium, it was never paid, which resulted in the loss to the deceased of the full
amount of the policy. Hanson having promised and agreed to pay the premium, and the
deceased having relied upon that promise, and Hanson having failed to pay the premium, the
judgment as to him must be affirmed, with costs.

The judgment against the defendant company, Sun Life Assurance Company of Canada, is
reversed, and the complaint dismissed, with costs against the plaintiff and in favor of the
defendant company. So ordered
G.R. No. L-28501 September 30, 1982

PEDRO ARCE, plaintiff-appellee,

vs.
THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.

ABAD SANTOS, J.:

Facts:

The INSURED was the owner of a residential house in Tondo, Manila, which had been insured
with the COMPANY since 1961 under Fire Policy No. 24204. 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. The COMPANY also requested payment of the corresponding
premium in the amount of P 38.10.

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. On January 8, 1966, the house of the INSURED was totally destroyed
by fire.

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.
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." Thereafter the INSURED and his wife went to the office of the COMPANY to have
his signature on the check Identified preparatory to encashment. 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.
The court a quo held that since the COMPANY could have demanded payment of the premium,
mutuality of obligation requires that it should also be liable on its policy. The court a quo also
held that the INSURED was not bound by the signature of Evelina on the check voucher because
he did not authorize her to sign the waiver.

Issue:

Whether or not the insurance is liable for indemnity without payment of the premium

Held:

Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:

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."

Morever, the parties in this case had stipulated:

IT IS HEREBY DECLARED AND AGREED that notwithstanding anything to the contrary

contained in the within policy, this 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, "

It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time
is of the essence in respect of the payment of the insurance premium so that if it is not paid the
contract does not take effect unless there is still another stipulation to the contrary. 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.

It is to be noted that Delgado was decided in the light of the Insurance Act before Sec. 72 was
amended by the addition of the underscored portion, supra, Prior to the amendment, an insurance
contract was effective even if the premium had not been paid so that an insurer was obligated to
pay indemnity in case of loss and correlatively he had also the right to sue for payment of the
premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the
premium is paid there is no insurance.

With the foregoing, it is not necessary to dwell at length on the trial court's second proposition
that the INSURED had not authorized his daughter Evelina to make a waiver because the
INSURED had nothing to waive; his policy ceased to have effect when he failed to pay the
premium.

We commiserate with the INSURED. We are well aware that many insurance companies have
fallen into the condemnable practice of collecting premiums promptly but resort to all kinds of
excuses to deny or delay payment of just claims. Unhappily the instant case is one where the
insurer has the law on its side.

WHEREFORE, the decision of the court a quo is reversed; the appellee's complaint is dismissed.
No special pronouncement as to costs.

SO ORDERED.
G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by
American International Underwriters (Phils.), Inc., respondent.

Facts:

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner
Makati Tuscany Condominium Corporation Insurance Policy on the latter's building and
premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium
of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21
June 1982 and 16 November 1982, all of which were accepted by private respondent.

On 10 February 1983, private respondent issued to petitioner Insurance Policy which replaced
and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The
premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July
1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise
accepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy. 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
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy. It
explained that it discontinued the payment of premiums because the policy did not contain a
credit clause in its favor and the receipts for the installment payments covering the policy for
1984-85, as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any
claim under the policy arising before such payments or after the expiration of the credit clause of
the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-
85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing
the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the
following findings:

While it is true that the receipts issued to the defendant contained the aforementioned
reservations, it is equally true that payment of the premiums of the three aforementioned policies
(being sought to be refunded) were made during the lifetime or term of said policies, hence, it
could not be said, inspite of the reservations, that no risk attached under the policies.
Consequently, defendant's counterclaim for refund is not justified.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the
reservation in the receipts ordinarily issued by the plaintiff on premium payments the only
plausible conclusion is that plaintiff has no right to demand their payment after the lapse of the
term of said policy on March 1, 1985. Therefore, the defendant was justified in refusing to pay
the same.

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals
rendered a decision modifying that of the trial court by ordering herein petitioner to pay the
balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest
until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire
premium. Here, the parties herein agreed to make the premiums payable in installments, and
there is no pretense that the parties never envisioned to make the insurance contract binding
between them. It was renewed for two succeeding years, the second and third policies being a
renewal/replacement for the previous one. And the insured never informed the insurer that it was
terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to
make the insurance contract valid and binding without payment of premiums, there is nothing in
said section which suggests that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium.
Otherwise, we would allow the insurer to renege on its liability under the contract, had a loss
incurred (sic) before completion of payment of the entire premium, despite its voluntary
acceptance of partial payments, a result eschewed by a basic considerations of fairness and
equity.

To our mind, the insurance contract became valid and binding upon payment of the first
premium, and the plaintiff could not have denied liability on the ground that payment was not
made in full, for the reason that it agreed to accept installment payment. . . . 3

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.

It argues that where the premiums are not actually paid in full, the policy would only be effective
if there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the
Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the
corresponding premium payments, and petitioner's failure to pay said premiums on or before the
effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot
be a perfected contract of insurance upon mere partial payment of the premiums because under
Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium
thereof has been paid, notwithstanding any agreement to the contrary. As a consequence,
petitioner seeks a refund of all premium payments made on the alleged invalid insurance
policies.

Issue:

Whether payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance, in view of Sec. 77 of P.D. 612
Ruling:

We 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.

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. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different from those in the case at
bar. In Arce, no payment was made by the insured at all despite the grace period given. In 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.

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC.,
respondents-appellees.

Gutierrez, Cortes & Gonzales for petitioners.

Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:

Facts:

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal
Accident Insurance Policy, respondent insurance company unilaterally cancelled the same since
company records revealed that petitioner-insured failed to pay his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same policy it had
previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a
finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-
insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch
manager.

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a
lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and
Assurance, Inc, a personal accident insurance policy covering the one-year period between noon
of November 28, 1984 and noon of November 28, 1985. Under the terms of the statement of
account issued by respondent insurance company, petitioner-insured was supposed to pay the
total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of
P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of
account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to
you upon payment of this account.

If payment is made to our representative, demand for a Provisional Receipt and if our Official
Receipts is not received by you within 7 days please notify us.

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional receipt No.
9300 to petitioner-insured for the amount of P1,609.65.On the lower portion of the receipt the
following is written in capital letters:
Note: This collector's provisional receipt will be confirmed by our official receipt. If our official
receipt is not received by you within 7 days, please notify us.

On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M.
Malapit, sent petitioner-insured Endorsement

No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium
effective as of inception dated." 5 The same endorsement also credited "a return premium of
P1,609.65 plus documentary stamps and premium tax" to the account of the insured.

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the issuance of an official receipt. Ang told
petitioner-insured that the cancellation of the policy was a mistake but he would personally see
to its rectification. However, petitioner-insured failed to receive any official receipt from
Prudential.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter
demanding that he be insured under the same terms and conditions as those contained in Policy
No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate
of increase on the payment he had made under provisional receipt No. 9300 be returned within
five days. Areola also warned that should his demands be unsatisfied, he would sue for damages.

On July 17, 1985, he received a letter from production manager Malapit informing him that the
"partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the
provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned
Areola that should he fail to pay the balance, the company's liability would cease to operate.
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company,
through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25,
1985 stating that the company was verifying whether the payment had in fact been issued
therefor. Ampil emphasized that the official receipt should have been issued seven days from the
issuance of the provisional receipt but because no official receipt had been issued in Areola's
name, there was reason to believe that no payment had been made. Apologizing for the
inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover under
the terms of the referenced policy until such time that this matter is cleared."

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65
covered by provisional receipt No. 9300 was in fact received by Prudential on December 17,
1984. Hence, Ampil informed

Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17,

1985 or one year from the date when payment was received." Apologizing again for the
inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by
signing on the space provided for in the letter.

The letter was personally delivered by Carlito Ang to Areola on

August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had
filed a complaint for breach of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-
insured's policy was due to the failure of Malapit to turn over the premiums collected, for which
reason no official receipt was issued to him. However, it argued that, by acknowledging the
inconvenience caused on petitioner-insured and after taking steps to rectify its omission by
reinstating the cancelled policy prior to the filing of the complaint, respondent insurance
company had complied with its obligation under the contract. Hence, it concluded that petitioner-
insured no longer has a cause of action against it. It insists that it cannot be held liable for
damages arising from breach of contract, having demonstrated fully well its fulfillment of its
obligation.

The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured.

In its decision, the court below declared that respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy, having done so only after seven months from the
time that it had taken force and effect and despite the fact of full payment of premiums and other
charges on the issued insurance policy. Cancellation from the date of the policy's inception,
explained the lower court, meant that the protection sought by petitioner-insured from the risks
insured against was never extended by respondent insurance company. Had the insured met an
accident at the time, the insurance company would certainly have disclaimed any liability
because technically, the petitioner could not have been considered insured. Consequently, the
trial court held that there was breach of contract on the part of respondent insurance company,
entitling petitioner-insured to an award of the damages prayed for.

This ruling was challenged on appeal by respondent insurance company, denying bad faith on its
part in unilaterally cancelling subject insurance policy.

After consideration of the appeal, the appellate court issued a reversal of the decision of the trial
court, convinced that the latter had erred in finding respondent insurance company in bad faith
for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent
insurance company was not motivated by negligence, malice or bad faith in cancelling subject
policy. Rather, the cancellation of the insurance policy was based on what the existing records
showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of
premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a
furtive design of ulterior purpose, proof of which must be established convincingly. On the
contrary, it further observed, the following acts indicate that respondent insurance company did
not act precipitately or willfully to inflict a wrong on petitioner-insured:

(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed
paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on
December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective
period to December 17, 1985; and (d) respondent insurance company's apologies for the
"inconvenience" caused upon petitioner-insured. The appellate court added that respondent
insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to
resign.

Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals
denied. Hence, this petition for review on certiorari anchored on these arguments:

Issue:

W/N the Areolas can file against damages despite the effort to rectify the cancellation

Ruling: YES. RTC reinstated

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent

insurance company's branch office in Baguio, in misappropriating his premium payments is the
proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that
Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his
personal knowledge of petitioner-insured's full payment of premiums, further reinforces the
allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is
attributable to respondent insurance company, an artificial corporate being which can act only
through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore
not separate and distinct from that of respondent-insurance company, contrary to the view held
by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation
of subject insurance policy caused by the non-remittance by its own employee of the premiums
paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve
respondent insurance company from liability, there being an obvious breach of contract. After
all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of
rectification could remedy the same.

Respondent insurance company, on the other hand, argues that where reinstatement, the
equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to
the filing of the complaint, petitioner-insured is left without a cause of action on which to
predicate his claim for damages. Reinstatement, it further explained, effectively restored
petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might
have been against it, no longer exists and the consequent award of damages ordered by the lower
court in unsustainable.

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the

premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance
company. A corporation, such as respondent insurance company, acts solely thru its employees.
The latters' acts are considered as its own for which it can be held to account. The facts are clear
as to the relationship between private respondent insurance company and Malapit. As admitted
by private respondent insurance company in its answer, Malapit was the manager of its Baguio
branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of
receiving the premiums collected is well within the province of his authority. Thus, his receipt of
said premiums is receipt by private respondent insurance company who, by provision of law,
particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The fact
that private respondent insurance company was itself defrauded due to the anomalies that took
place in its Baguio branch office, such as the non-accrual of said premiums to its account, does
not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of
Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.:

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority. A bank holding out its officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its responsibility for such frauds, even though
no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of subject insurance
policy. Its earlier act of reinstating the insurance policy cannot obliterate the injury inflicted on
petitioner-insured. Respondent company should be reminded that a contract of insurance creates
reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise
from the same cause and in which each party is both a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other.

Under the circumstances of instant case, the relationship as creditor and debtor between the
parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of
insurance under whose terms, respondent insurance company promised to extend protection to
petitioner-insured against the risk insured for a consideration in the form of premiums to be paid
by the latter. Under the law governing reciprocal obligations, particularly the second paragraph
of Article 1191, the injured party, petitioner-insured in this case, is given a choice between
fulfillment or rescission of the obligation in case one of the obligors, such as respondent
insurance company, fails to comply with what is incumbent upon him. However, said article
entitles the injured party to payment of damages, regardless of whether he demands fulfillment
or rescission of the obligation. Untenable then is reinstatement insurance company's argument,
namely, that reinstatement being equivalent to fulfillment of its obligation divests petitioner-
insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on
obligations and contracts.
G.R. No. 119655 May 24, 1996

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,

VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and
ROSABELLA M. RORALDO, petitioners,

vs.

COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC.,
respondents.

BELLOSILLO, J.:

Facts:

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc., issued
Fire Insurance Policy in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey
residential building located at 5855 Zobel Street, 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. Her claim was accordingly referred to its
adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta
requesting her to furnish it with the necessary documents for the investigation and processing of
her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement
with GASI to the effect that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas,
Makati on March 8, 1987, or in the investigating or ascertainment of the amount of actual cash
value and loss, shall not waive or invalidate any condition of the policies of such companies held
by said claimant, nor the rights of either or any of the parties to this agreement, and such action
shall not be, or be claimed to be, an admission of liability on the part of said companies or any of
them.

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. Efforts to settle the case before the
Insurance Commission proved futile. 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, P100, 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 in spite
of the failure of petitioners to pay their premium in full.
Issue: Whether or not a fire insurance policy be valid, binding and enforceable upon mere partial
payment of premium.

Ruling:

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

The pertinent provisions in the Policy on premium read —

THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the Company in
accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above
for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as
herein appears, the Property herein described . . .

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until
the premium has been fully paid to and duly receipted by the Company in the manner provided
herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no effect..

Except only in those specific cases where corresponding rules and regulations which are or may
hereafter be in force provide for the payment of the stipulated premiums in periodic installments
at fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed
effective, valid and binding upon the Company only when the premiums therefor have actually
been paid in full and duly acknowledged in a receipt signed by any authorized official or
representative/agent of the Company in such manner as provided herein.
Clearly the Policy 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 (emphasis supplied).

Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof
has been paid." This leads us to the manner of payment envisioned by the law to make the
insurance policy operative and binding. For whatever judicial construction may be accorded the
disputed phrase must ultimately yield to the clear mandate of the law. The principle that where
the law does not distinguish the court should neither distinguish assumes that the legislature
made no qualification on the use of a general word or expression.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial
payment of the premium due and the express stipulation thereof to the contrary, petitioners rely
heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.where
the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial
payment of the premium made the policy effective during the whole period of the policy. In that
case, the insurance company commenced action against the insured for the unpaid balance on a
fire insurance policy. In its defense the insured claimed that nonpayment of premium produced
the cancellation of the insurance contract. Ruling otherwise the Court held —
It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the same year, the latter paid to the former
the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is,
consequently, no doubt at all that, as between the insurer and the insured, there was not only a
perfected contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount,
for which the policy was issued in case the conditions therefor had been complied with, arose
and became binding upon it, while the obligation of the insured to pay the remainder of the total
amount of the premium due became demandable.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec.
77 of the Insurance Code the payment of partial premium by the assured in this particular
instance should not be considered the payment required by the law and the stipulation of the
parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until
such time that the full amount has been tendered and duly receipted for. In other words, as
expressly agreed upon in the contract, full payment must be made before the risk occurs for the
policy to be considered effective and in force.

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.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance
contract is the intention of the parties as expressed in the policy. Courts have no other function
but to enforce the same. The rule that contracts of insurance will be construed in favor of the
insured and most strongly against the insurer should not be permitted to have the effect of
making a plain agreement ambiguous and then construe it in favor of the insured. Verily, it is
elemental law that the payment of premium is requisite to keep the policy of insurance in force.
If the premium is not paid in the manner prescribed in the policy as intended by the parties the
policy is ineffective. Partial payment even when accepted as a partial payment will not keep the
policy alive even for such fractional part of the year as the part payment bears to the whole
payment.

In the desire to safeguard the interest of the assured, it must not be ignored that the contract of
insurance is primarily a risk distributing device, a mechanism by which all members of a group
exposed to a particular risk contribute premiums to an insurer. From these contributory funds are
paid whatever losses occur due to exposure to the peril insured against. Each party therefore
takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay
the entire sum agreed upon, and the insured, that of parting with the amount required as
premium, without receiving anything therefor in case the contingency does not happen. To
ensure payment for these losses, the law mandates all insurance companies to maintain a legal
reserve fund in favor of those claiming under their policies. It should be understood that the
integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of
premiums were to be construed as a legal nexus between the applicant and the insurer despite an
express agreement to the contrary.

Interpreting the contract of insurance stringently against the insurer but liberally in favor of the
insured despite clearly defined obligations of the parties to the policy can be carried out to
extremes that there is the danger that we may, so to speak, "kill the goose that lays the golden
egg." We are well aware of insurance companies falling into the despicable habit of collecting
premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just
insurance claims. But, in this case, the law is manifestly on the side of the insurer. For as long as
the current Insurance Code remains unchanged and partial payment of premiums is not
mentioned at all as among the exceptions provided in Sees. 77 and 78, no policy of insurance can
ever pretend to be efficacious or effective until premium has been fully paid.

AMERICAN HOME ASSURANCE COMPANY vs. ANTONIO CHUA

DAVIDE, JR. C.J.:

Facts:

• Chua obtained from American Home a fire insurance covering the stock-in-trade of his
business. The insurance was due to expire on March 25, 1990.

• On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James
Uy, as payment for the renewal of the policy.

• The official receipt was issued on April 10. In turn, the latter a renewal certificate. A new
insurance policy was issued where petitioner undertook to indemnify respondent for any damage
or loss arising from fire up to P200,000 March 20, 1990 to March 25, 1991.

• On April 6, 1990, the business was completely razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and
four other co-insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and
Domestic Insurance. Petitioner refused to honor the claim hence, the respondent filed an action
in the trial court.

• American Home claimed there was no existing contract because respondent did not pay
the premium. Even with a contract, they contended that he was ineligible bacause of his
fraudulent tax returns, his failure to establish the actual loss and his failure to notify to petitioner
of any insurance already effected. The trial court ruled in favor of respondent because the
respondent paid by way of check a day before the fire occurred and that the other insurance
companies promptly paid the claims. American Home was made to pay 750,000 in damages.

• The Court of Appeals found that respondent’s claim was substantially proved and
petitioner’s unjustified refusal to pay the claim entitled respondent to the award of damages.
• American Home filed the petition reiterating its stand that there was no existing insurance
contract between the parties. It invoked Section 77 of the Insurance Code, which provides that no
policy or contract of insurance issued by an insurance company is valid and binding unless and
until the premium thereof has been paid and the case of Arce v. Capital Insurance that until the
premium is paid there is no insurance.

Issue:

1. Whether there was a valid payment of premium, considering that respondent’s check was
cashed after the occurrence of the fire. (Ito talaga ang applicable na issue ditto sa topic na ito.)

2. Whether respondent violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contract

3. Whether respondent is entitled to the award of damages.

Held:

Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

1. Yes. The trial court found, as affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. The court respected this. The renewal certificate issued to
respondent contained the acknowledgment that premium had been paid. In the instant case, 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 explicitly provides: 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.
2. NO. Submission of the alleged fraudulent documents pertained to respondent’s income tax
returns for 1987 to 1989. Respondent, however, presented a BIR certification that he had paid the
proper taxes for the said years. Since this is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-
insurers, non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose for
the inclusion of this clause is to prevent an increase in the moral hazard. The relevant provision
is Section 75, which 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.
Respondent acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument due to the loss adjuster’s
admission of previous knowledge of the co-insurers. It cannot be said that petitioner was
deceived by respondent by the latter’s non-disclosure of the other insurance contracts when
petitioner actually had prior knowledge thereof. The loss adjuster, being an employee of
petitioner, is deemed a representative of the latter whose awareness of the other insurance
contracts binds petitioner.

3. Yes. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance against the
damages and attorney’s fees awarded. There was no basis for an award for loss of profit. This
cannot be shouldered by petitioner whose obligation is limited to the object of insurance. There
was no fraud to justify moral damages. Exemplary damages can’t be awarded because the
defendant never acted in a reckless manner to claim insurance. Attorney’s fees can’t be
recovered as part of damages because no premium should be placed on the right to litigate.
UCPB General Insurance Co., INC versus Masagana Telmart, Inc., G.R No. 137172, April
4, 2001

Principle:

Facts:

Masagana Telmart Inc., insured his several property with petitioner which is effective from May
1991 to May 1992. For years, the insurance company has been granting respondent a 60 to 90
day credit term for the renewal of the policies. One June 13, 1992, or after the expiration of the
policy, property was razed by fire. On July 13, 1992, Masagana Telmart Inc renewed the
insurance policy and the premium was accepted by the insurance company. The following day,
Masagana Telmart Inc filed its claim for the indemnification of the burned insured property. The
insurance company return the renewal premium payment and stating in its letter that they are
rejecting the renewal. They argued that the policy already expired in May 1992 and that the
properties covered by the insurance was burned down on June 13, 1992 or before the tender of
premium payment. Hence, an action was brought agaisnt the insurance company. The RTC ruled
the case in favor of Masagana Telmart Inc. and the same was affirmed by the CA. The decision
was appealed before the SC. The decision was reversed by the SC but an MR was filed by
respondent.

Issue:

Whether or not the insurance policy has been extended by implied credit agreement although the
actual payment of premium was made on a later date or after the occurence of the risk insured
agaisnt.

Ruling:

Yes. Notwithstanding any agreement to the contrary no policy or an insurance contract is not
valid and binding until and unless the premium thereof has been paid. This rule admits several
exceptions which allows the insured to recover despite the non-payment of the premium. 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 contract of
insurance issues by the insurance company shall be valid and binding until and unless the
premium thereof has been paid, except in the case of a life or an industrial life policy whenever
the grace provision applies. Exception: 1. Life or industrial insurance policy whenever the grace
provision applies; 2. Any acknowldgement in a policy or contract of insurance of the receipt of
the premium is conclusive evidence of payment, so far as to make the policy binding,
Notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid. (Section 78) 3. The parties agreed to the payment in installment of the premium and partial
payment has made at the time of loss. 4. The insurer may grant credit extension for the payment
of the premium and loss occurs before the expiration term, recovery on the policy maybe allowed
even though the premium is paid after the loss but within the credit term; 5. Estoppel Sabi ng
Justice Vitug is his dissent - [ ] Notwithstanding any agreement to the contrary, no policy or an
insurance contract is not valid and binding until and unless the premium thereof has been paid. -
This preclude the parties from stipulating that the policy is valid even if premium are not paid.
Hence, under the present law, the policy is not valid and binding unless the premium has been
paid. - [x] Estoppel cannot create a contract of insurance nor it can give validity to what the law
so proscribe by reason of public policy. Payment of the premium is so essential. - [ ] A partial
payment of the premium if accepted by the insurer renders the contact valid and binding not
merely pro tanto. Hence, in case of loss, full recovery can be had by the insured less the unpaid
portion of the unpaid premium. Because of respondent failure to pay the premium prior to the
occurrence of the fire insured against, no valid and binding insurance policy was created to cover
the loss and destruction of the property

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner, vs. HON.
COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY,
INC., respondents.

FACTS:
• Respondent Hardwood filed a complaint for the recovery of the value of lost logs and
freight charges from Seven Brothers Shipping Corporation or, to the extent of its alleged
insurance cover, from South Sea Surety and Insurance Company.

• Seven Brothers undertook to load on board its vessel M/V Seven Ambassador
Hardwood’s lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to
Manila.

• South Sea Surety issued its Marine Cargo Insurance Policy to Hardwood and gave the
check in payment of the premium on the insurance policy to Mr. Victorio Chua.

• Meanwhile, M/V Seven Ambassador sank resulting in the loss of the Hardwood’s insured
logs.

• A check was tendered to South Sea to cover the payment of the premium and
documentary stamps due on the policy but was not accepted instead it cancelled the insurance
policy for non-payment of the premium due in accordance with Section 77 of the Insurance
Code.

• Thereafter, Hardwood demanded from South Sea Surety the payment of the proceeds of
the policy but denied its liability under the policy. Likewise, it filed a formal claim with
defendant Seven Brothers Shipping Corporation for the value of the lost.

• The trial court rendered judgment in favor of Hardwood.

• On appeal, the Court of Appeals affirmed the judgment of the court a quo only against
the South Sea Surety but absolved Seven Brothers from liability.

• Hence, this petition.

ISSUE:

Whether South Sea Surety is liable to Hardwood’s lost logs.

RULING:
At the time the vessel sank Hardwood had already delivered to Victorio Chua the check in
payment of premium. But, as Victorio Chua testified, it was only 5 days after the vessel sank
when his messenger tendered the check to South Sea Surety.

“When the appellant South Sea Surety 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 to receive
the premium which is due on its behalf.

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).

South Sea Surety contended that Mr. Chua, having received the insurance premiums as an agent
of the Columbia Insurance Broker, acted as an agent of Hardwood under Section 301 of the
Insurance Code which provides as follows:

“ ‘Section 301. Any person who for any compensation, commission or other thing of value,
acts or aids in soliciting, negotiating or procuring the making of any insurance contract or in
placing risk or taking out insurance, on behalf of an insured other than himself, shall be an
insurance broker within the intent of this Code, and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance broker is subject.’

“The appellees, upon the other hand, claim that the second paragraph of Section 306 of the
Insurance Code provides as follows:
 “ ‘Section 306. x x x Any insurance company which delivers to an insurance agent or
insurance broker a policy or contract of insurance shall be deemed to have authorized such agent
or

As a rule, insurance contracts are supposed to be interpreted liberally in favor of the assured

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs WOODWORKS, INC.

DIZON, J.:

Facts:

 On April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the amount of
P300,000.00.
 The premiums of said policy amounted to P6,051.95, however, the defendant was able
to pay only P3,000.00 on September 22, 1960 under official receipt No. 30245 of
plaintiff.
 Despite several demands, the defendant failed to pay the balance of the premium.
 The Municipal court ordered Woodworks to pay the unpaid balance of the premiums.
 The lower court ruled that a partial payment of the premium made the policy effective
during the whole period of the policy.
 Appellant's theory that non-payment of Woodworks of the premium due, produced the
cancellation of the contract of insurance.

Issue:

Whether or not the lower court erred in deciding that a partial payment of the premium made the
policy effective during the whole period of the policy.

Held:

Yes. There is, consequently, no doubt at all that, as between the insurer and the insured, there
was not only a perfected contract of insurance but a partially performed one as far as the
payment of the agreed premium was concerned.

Thereafter the obligation of the insurer to pay the insured the amount for which the policy was
issued in case the conditions therefor had been complied with, arose and became binding upon
it, while the obligation of the insured to pay the remainder of the total amount of the premium
due became demandable.
As the contract had become perfected, the parties could demand from each other the
performance of whatever obligations they had assumed. In the case of the insurer, it is obvious
that it had the right to demand from the insured the completion of the payment of the premium
due or sue for the rescission of the contract. As it chose to demand specific performance of the
insured's obligation to pay the balance of the premium, the latter's duty to pay is indeed
indubitable.

Western Guaranty versus Court of Appeal, 187 SCRA 652

Facts:

Private respondent bus company was insured with Western Guarantee. Under the policy,
petitioner undertook to pay all sums necessary to discharge liability of insured in respect to
death or injury to or damage to property or any of its passenger and death, injury to and
damages to property of third person.

One of the insured bus of private Respondent bumped respondent Priscilla Rodriguez and as a
result thereof, her face was disfigured.

He then filed an action for damages against the bus company who in turn filed a third party
complaint against petitioner.

The trial court rendered a decision holding the Bus Company and Petitioner jointly and severally
liable.

On appeal, petitioner contend that it cannot be held liable for loss of earning, moral damages
and attorneys fees because these are not included in the schedule of indemnities set forth in the
policy.

ISSUE: Whether or not petitioner is liable?

RULING:
Yes.

Firstly, the schedule of indemnities does not purport to restrict the kinds of damage that may be
awarded against Western once liability arisen.

Within this over all quantitative limit, all kinds of damages allowable by law- “actual or
compensatory damages, moral damages, nominal damages, temperate or moderate damages,
liquidated damages and exemplary damages, may be awarded by a competent court.

The schedule of liabilities was not intended to be an enumeration much less a closed
enumeration but was merely to limits to the amount the movant would recovers.

It is well settled that contractual limitation of liability found in the insurance contract should be
regarded by court with jaundiced eye and extreme care and should be construed as to preclude
the insurer from evading compliance to its obligation.

Finaly, a contract of insurance is a contract of adhesion. Such contracts are to be construed

strictly against the party which repaired the contract which in this case is petitioner.

(In this case, petitioner is arguing that the liabilities are not included in the schedule of liabilities
that is why they should not be included in the payment.

THE CAPITAL INSURANCE & SURETY CO., INC., petitioner, vs. PLASTIC ERA CO., INC., AND COURT OF
APPEALS, respondents.

FACTS:

 Petitioner Capital delivered to the respondent Plastic Era its open Fire Policy wherein the former
undertook to insure the latter’s building, equipment, raw materials, products and accessories in
Mandaluyong, Rizal.
 The policy expressly provides that if the property insured would be destroyed or damaged by
fire after the payment of the premiums, at any time between the 15th day of December 1960
and one o’clock in the afternoon of the 15th day of December 1961, the insurance company
shall make good all such loss or damage in an amount not exceeding P100,000.00. When the
policy was delivered, Plastic Era failed to pay the corresponding insurance premium but instead
executed an acknowledgment receipt of Policy No. 22760 wherein it promised to pay the
 premium within thirty (30) days from the effectivity date of the policy on December 17, 1960
and Capital Insurance accepted it.
 Subsequently, Plastic Era delivered to Capital Insurance in partial payment of the insurance
premium, a postdated check for the amount of P1,000.00 payable to the order of the latter and
drawn against the Bank of America. However, Capital Insurance tried to deposit the check only
on February 20, 1961 and the same was dishonored by the bank for lack of funds. The records
show that as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the Bank of
America.
 Two days after the insurance premium became due the property insured by Plastic Era was
destroyed by fire. Plastic Era notified Capital Insurance of the incident and accordingly filed its
claim for indemnity thru the Manila Adjustment Company. The loss and/or damage suffered by
Plastic Era was estimated by the Manila Adjustment Company to be P283,875. However,
according to the records the same property has been insured by Plastic Era with the Philamgen
Insurance Company for P200,000.00.
 Plastic Era demanded from Capital Insurance the payment of the sum of P100,000.00 as
indemnity for the loss of the insured property but the latter refused because Plastic Era failed to
pay the insurance premium.
 Thus, Plastic Era filed its complaint against Capital Insurance for the recovery of the sum of
P100,000.00 plus P25,000.00 for attorney’s fees and P20,000.00 for additional expenses. Capital
Insurance filed a counterclaim of P25,000.00 as and for attorney’s fees.
 Trial court ruled in favour of Plastic Era.
 Capital Insurance appealed to CA but CA affirmed the decision of the trial court.
 Hence, this petition.

ISSUE:

Whether or not there’s a perfected contract between the parties.

RULING:

 The Court held that YES, there was a perfected contract between the parties.
 When the Capital Insurance accepted the acknowledgment receipt (promissory notes) of the
Plastic Era promising to pay the insurance premium within thirty (30) days from December 17,
1960, it is deemed to have been accepted in payment of the premium. Therefore, it rendered
the policy immediately operative on the date; the insurance policy was in full force and effect.
 Plastic Era has complied with its obligation to pay the insurance premium and therefore Capital
Insurance is obliged to make good its undertaking to Plastic Era.
 The fact that the check issued by the insured was later on dishonored did not in any way
operate as a forfeiture of its rights under the policy, there being no express stipulation therein
to that effect. In the absence of express agreement or stipulation to that effect in the policy, the
non-payment at maturity of a note given for and accepted as premium on a policy does not
operate to forfeit the rights of the insured even though the note is given for an initial premium,
 nor does the fact that the collection of the note had been enjoined by the insured in any way
affect the policy.
 The payment of the premium on the insurance policy therefore became an independent
obligation the non-fulfillment of which would entitle Capital Insurance to recover. The insurer
could just deduct the premium due and unpaid upon the satisfaction of the loss under the
policy. It did not have the right to cancel the policy for non-payment of the premium except by
putting the insured in default and giving him personal notice to that effect. Where credit is given
by an insurance company for the payment of the premium it has no right to cancel the policy for
non-payment except by putting the insured in default and giving him personal notice.
 Having held the check for such an unreasonable period of time, Capital Insurance was estopped
from claiming a forfeiture of its policy for non-payment even if the check had been dishonored
later.


Same; Same; Insurer estopped from claiming forfeiture of insurance policy if check held for a long time
dishonored.—Having held the check for such an unreasonable period of time, the insurer was estopped
from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.
Where the check is held for an unreasonable time before presenting it for payment, the insurer may be
held estopped from claiming a forfeiture if the check is dishonored.

Paulino vs. Capital Inc., 105 Phil. 1315 (1959)

LEONA PAULINO, as owner of the JUNIOR CAFE, BAKERY & GROCERY STORE, plaintiff and appellant,

vs.

THE CAPITAL INSURANCE & SURETY COMPANY, INC., defendant and appellee.

Facts:

Appeal from the decision of the Court of First Instance of Albay, dismissing an action for recovery of
amount of fire insurance policy.

The appealed decision show that on February 8, 1952, the plaintiff accepted a fire insurance policy
issued by the defendant; that on April 30, 1952, the plaintiff wrote the defendant requesting
cancellation of the policy, which the latter received on May 10, 1952; that the plaintiff did not return the
policy or demanded for the return of the proportionate premium; that neither did the defendant offer
to return the premium; that the property covered by the policy was destroyed by fire on August 16,
1952.
The defendant refused to make payment on plaintiff's claim, on the ground that the policy was cancelled
as of May 10, 1952. Plaintiff contends in this appeal that her letter, dated April 30, 1952, was a mere
request or offer to cancel the policy and did not terminate the same since it was not accompanied by
the surrender of the policy for cancellation.

Held: This case hinges on the interpretation of paragraph 10 of the policy, reading:

"This insurance may be terminated at any time at the request of the Insured, in which case the Company
will retain the customary short period rate for the time the policy has been in force. This insurance may
also at any time be terminated at the option of the Company, on notice to that effect being given to the
Insured, in which case the Company shall be liable to repay on demand a ratable proportion of the
premium for the expired term from the date of cancelment."

Pursuant to this stipulation, the contract in question could be terminated, "at any time", upon the
unilateral act of either party. Whichever party exercised the "option", did not need the approval,
consent or concurrence of the other thereto. That consent was given at the time of the making of the
contract. Moreover, pursuant to her letter, plaintiff considered the contract terminated upon receipt of
said letterby the defendant ("desde el recibo de la presente).

Furthermore, the case of Buckley vs. Citizens Insurance Co. (81 N.E. 165) relied upon by the plaintiff is
not in point. Although the insurance policy involved in that case contained a clause analogous to the one
involved here, the option was exercised therein, not by the insured, but by the insurance company,
which likewise, requested the return of the policy. Upon receipt of the communication of the company
to this effect, the insured returned the policy. Subsequently, but before the corresponding portion of
the premium had been refunded to the insured, the property was destroyed by fire. Upon these facts,
the insured was not entitled to collect the amount of the policy, because the unconditional return
thereof upon request of the company implied "a waiver of his right to treat the policy as in full force and
effect until the company paid or tendered to him the unearned premium."