[ G.R. No.

228402, August 26, 2020 ]

LOYOLA LIFE PLANS INCORPORATED (NOW LOYOLA PLANS CONSOLIDATED INC.) AND
ANGELITA D. LUMIQUED, PETITIONERS, VS. ATR PROFESSIONAL LIFE ASSURANCE
CORPORATION (NOW ASIAN LIFE AND GENERAL ASSURANCE CORPORATION),
RESPONDENT.

[G.R. No. 222912]

ATR PROFESSIONAL LIFE ASSURANCE CORPORATION (NOW ASIAN LIFE AND GENERAL
ASSURANCE CORPORATION), PETITIONER, VS. LOYOLA LIFE PLANS INCORPORATED
(NOW LOYOLA PLANS CONSOLIDATED INC.) AND ANGELITA D. LUMIQUED,
RESPONDENTS.

DECISION

CARANDANG, J.:

Before this Court are two consolidated Petitions for Review on Certiorari1 under Rule 45 of the
Rules of Court, assailing the Decision2 dated February 4, 2016 and the Resolution3 dated
November 17, 2016 of the Court of Appeals (CA) in CA-G.R. CV No. 97528.

Antecedents

Loyola Life Plans, Inc. (Loyola) is a pre-need company engaged in the business of insuring the lives
of its plan holders through its Timeplans (pension contracts) and Lifeplans (memorial service
contracts), which are covered by insurance benefits provided by several insurance companies
including GE Life Insurance Company, Incorporated (GE Life), later known as ATR Professional Life
Assurance Corporation (ATR).4 On June 8, 1999, Loyola applied with ATR for a Group Creditors
Life Insurance plan, with Group Yearly Renewable Term Life and Accidental Death Benefit as
supplementary benefits.5 They entered into a Group Creditors Life Insurance Agreement, effective
on June 15, 1999, under Master Policy No. GCL-878.6

On April 28, 2000, Dwight L. Lumiqued (Dwight), husband of Angelita Lumiqued (Angelita),
purchased a Timeplan from Loyola payable in 120 monthly installments in the amount of P5,040.00
per month. To pay for the first monthly premium, Dwight issued two Metrobank checks in the
amounts of P2,824.75 and P600.00 under Check Nos. 1200011493 and 1200114994, respectively.
He also paid in cash P1,615.25. Simultaneous with the payment of the first monthly premium, Dwight
executed Timeplan Application No. OT-003810717 for which Timeplan Contract No.
GGG4300047858 was issued.9 He was then issued an Official Receipt,10 which expressly states:

This Receipt is valid for downpayment only. Checks and other similar forms shall be valid only when
cleared by the Bank.11

Belen Edith C. Ganit (Ganit), Loyola's Sales Operation Assistant, deposited on the same day the two
Metrobank checks while the cash payment was deposited to the account of Loyola on May 2,
2000.12

On May 1, 2000, Dwight died due to multiple stab wounds.13

Thereafter, Angelita filed a claim to recover the proceeds of the insurance benefits through Loyola's
broker, Network Unlimited, Inc. However, in a letter14 dated April 17, 2001, ATR denied the claim on
the ground that the initial installment payment was not completed.15 Loyola asked for a
reconsideration, insisting that the Timeplan Dwight obtained was already in full force and effect upon
payment of the premium on April 28, 2000.16

On October 16, 2001, ATR, through its Vice President of Legal and Compliance, denied Angelita's
claim, reiterating its position that payment of the premium had not been completed.17 ATR also
invalidated Dwight's application as his signature appearing therein was allegedly forged.18  To bar
Angelita from further pursuing any claim for the insurance benefits, ATR instituted a complaint19 to
declare the individual insurance coverage of Dwight under Master Policy No. GCL-878 void and of
no effect at the time of his death on May 1, 2000. ATR also prayed for the payment of attorney's
fees, litigation expenses, and costs of suit.20

In Loyola's Answer with Compulsory Counterclaim,21 which was adopted in toto by

Angelita,22 Loyola argued that: (1) Dwight's signature appearing in his Timeplan application was not
forged;23 and (2) Dwight paid in full the first installment of the insurance premium in the amount of
P5,040.00 on April 28, 2000, prior to his death.24 Loyola added that ATR cannot escape paying the
proceeds under the Group Creditors Life Insurance in the amount of P599,760.00, Group Yearly
Renewable Term Life in the amount of P604,800,00, and the Accidental Death Benefit in the amount
of P604,800.00 by insisting that Dwight was murdered. Loyola pointed out that ATR failed to give
any evidence to support its claim that Dwight was murdered and not a victim of homicide.25  Thus,
Loyola and Angelita prayed that ATR be directed to comply with its obligations under the Group
Creditors Life Insurance Agreement by paying P1,809,360.00 in actual damages. In addition, Loyola
and Angelita prayed that judgment be rendered ordering ATR to pay moral damages, and exemplary
damages. Attorney's fees, litigation expenses, and costs of suit were also prayed for.26

Ruling of the Regional Trial Court

On July 7, 2011, the RTC rendered its Decision,27 the dispositive portion of which reads:

WHEREFORE, the Court renders judgment:

1. DISMISSING the Complaint of plaintiff;

2. HOLDING plaintiff ATR Professional Life Insurance Corporation, now the Asian
Life and General Assurance Corporation, liable for defendants' counterclaim. Plaintiff
is ordered to:

a. Pay to defendant Angelita Lumiqued actual damages in the amount of

P1,809,360;

b. Pay to defendants Loyola Plans Inc. and Angelita Lumiqued moral

damages in the amount of P100,000;

c. Pay to the defendants exemplary damages in the amount of P100,000;

d. Pay to the defendants attorney's fees in the amount of P100,000;

e. Pay to the defendants the costs of suit.

SO ORDERED.28 (Emphasis omitted)

The RTC held that Dwight timely paid the premium of the policy. Since the agreement and the official
receipt state that the insurance coverage of a planholder shall take effect on the date of initial
payment and/or down payment on the Timeplan, the RTC ruled that the date of receipt by the agent
of Loyola of the down payment on April 28, 2000 is also the date of payment of the premium.29 The
RTC also found that ATR's allegation of forgery was a mere afterthought.30 The RTC noted that it
was only on September 22, 2001, or almost 18 months after the death of the Dwight, that the
genuineness of his signature was assailed for the first time.31

The RTC computed the actual damages as follows:

Group Creditors Life Insurance P599.760.00

(outstanding balance net of the first installment
paid)
Group Yearly Renewable Term 604,800.00
Life (the gross contract price)
Accidental Death Benefit 604,800.00
(the gross contract price)
TOTAL P1,809,360.0032

The RTC also awarded P100,000.00 as moral damages for ATR's bad faith and P100,000.00 as
exemplary damages for not honoring its obligation. Attorney's fees in the amount of P100,000.00
was also found to be reasonable.33

Ruling of the Court of Appeals

On February 4, 2016, the CA rendered its Decision,34 the dispositive portion of which reads:

WHEREFORE, premises considered, the instant Appeal is hereby DENIED. The assailed Decision

dated 7 July 2011 of the Regional Trial Court, Branch 136, Makati City in Civil Case No. Q-01-1665
is hereby AFFIRMED with MODIFICATION by holding appellant liable to pay the heirs or
beneficiaries listed in the insurance policy Plan Benefit in the amount of P992,000.00. Actual
damages awarded in the aggregate amount of P1,809,360.00 including the damages for moral and
exemplary as well as attorney's fees each in the sum of P100,000.00 are hereby DELETED.

SO ORDERED.35 (Emphasis in the original)

The CA held that the partial payment of the premium rendered the policy in full force and effect. This
is expressly provided in the terms of the policy.36 The CA declared that the assumption of risk by
ATR started from the moment of the initial down payment on the premium through the payment of
checks and the cash received by Loyola's agent, as reflected in the Official Receipt issued to Dwight
on April 28, 2000.37

The CA explained that, though delivery of the checks does not immediately effect payment, it simply
suspends the action arising from the original obligation until payment is accompanied either actually
or presumptively. The payment of the premium on the policy thus became an independent
obligation, the non-fulfillment of which would entitle the insurer to recover. The CA opined that the
insurer could just deduct the premium due and unpaid upon the satisfaction of the loss under the
policy. It does not have a right to cancel the policy. It could place the insured in default in case of
such and give the latter personal notice to that effect.38

The CA also did not find any merit to ATR's claim that Dwight's application was forged. The
testimony confirming the genuineness of Dwight's signature by the Philippine National Police
handwriting examiner Mely Feliciano Sora was given full credence.39 Likewise, the CA believed
Jacobo Gumiran's (Gumiran) statement that he personally witnessed Dwight affix his signature in the
application and even admitted receiving the down payment.40

The CA deleted the award of actual damages in the amount of P1,809,360.00, stating that the
Timeplan contract specifically provides payment of P992,000.00 as plan benefit only. The CA did not
find sufficient evidence to prove that the policy in question falls within the categories of Group
Creditors Life Insurance and Group Yearly Renewable Term Life or that the death of Dwight was
accidental in order for him to be entitled to P1,809,360.00.41

The moral and exemplary damages awarded were deleted as the CA found that ATR did not commit
any fraudulent act nor employ bad faith. The CA also removed the award of attorney's fees as the
RTC decision did not state the reason why it was awarded.42

On March 16, 2016, ATR filed its petition for review on certiorari docketed as G.R. No.
222912,43 claiming that it is not liable to pay the heirs of Dwight because: (1) Dwight did not
complete the monthly premium payment prior to his death because the cash payment of P1,615.25
was only deposited on May 2, 2000;44 (2) the Timeplan application of Dwight is forged;45 and (3)
murder is not among the risks covered by the Group Creditors Life Insurance Agreement.46

In its Comment47, Loyola pointed out that ATR's petition is premature because the CA had not yet
resolved Loyola's Motion for Reconsideration48 to the Decision of the CA. Loyola proposed that the
case be remanded to the CA for the final disposition of the Motion for Reconsideration.49

Thereafter, in a Resolution50 dated November 17, 2016, the CA denied the Motion for (Partial)
Reconsideration Loyola filed.

Meanwhile, in the petition filed on January 11, 2017 docketed as G.R. No. 228402, Loyola
emphasized that the records, including documentary evidence and pleadings submitted by ATR,
recognize that the policy in question is entitled to the Group Creditors Life Insurance and the Group
Yearly Renewable Term Life benefits Loyola obtained under Master Policy No. GCL-878.51 Loyola
also highlighted that the amount of P1,809,360 was stipulated by the parties and that the specific
amount of loss need not be proven.52 Loyola further argued that the CA erred in deleting the award
of moral and exemplary damages despite the trial court's finding of bad faith on the part of ATR and
its failure to honor its obligation.53 Contrary to the ruling of the CA, Loyola averred that the award of
attorney's fees is justified because it was clearly stated in the RTC decision that ATR filed an
unfounded suit.54

On January 18, 2017, the Court issued a Resolution ordering that G.R. No. 228402 and G.R. No.
222912 be consolidated as both cases assail the same Decision of the CA in CA-G.R. CV No.
97528.

In its Comment55 in G.R. No. 228402, ATR insisted that the amount paid by Dwight should be
treated only as a deposit and not a premium payment because the cash payment of P1,615.25 was
deposited on May 2, 2000, making the first installment not fully paid.56 Because the downpayment
in the amount of P5,040.00 was not fully paid on its due date, April 28, 2000, ATR reiterated its
position that the policy is not valid and binding.57 ATR also maintained that it is not liable because
"[m]urder or provoked assault; or any attempt thereat" are among the exclusions of the
policy.58 Moreover, ATR insisted that it has substantially proven that Dwight's Timeplan application
was forged.59

In its Reply,60 Loyola essentially restated its substantive arguments to support its position.

Issues

The issues to be resolved are:

1. Whether Dwight's Timeplan application was forged;

2. Whether an insurance contract was perfected between Dwight and ATR on April 28, 2000
when Dwight paid Loyola's agent, Gumiran, cash in the amount of P1,615.25 and two checks
amounting to P2,824.75, and P600.00, thus entitling his heirs to the proceeds of the policy
following his death on May 1, 2000;

3. Whether the cause of Dwight's death is a risk covered by the Timeplan contract;

4. Whether Dwight's Timeplan contract is entitled to the Group Creditors Life Insurance and
the Group Yearly Renewable Term Life benefits obtained by Loyola; and

5. Whether the CA correctly deleted the award of moral damages, exemplary damages, and
attorney's fees.

Ruling of the Court

ATR failed to sufficiently establish

that Dwight's Timeplan application
was forged.

It is well-settled that allegations of forgery, like all other allegations, must be proved by clear,
positive, and convincing evidence by the party alleging it. It should not be presumed but must be
established by comparing the alleged forged signature with the genuine signatures. Although
handwriting experts are often offered as witnesses, they are not indispensable because judges must
exercise independent judgment in determining the authenticity or genuineness of the signatures in
question.61

In this case, to prove forgery, ATR relied on the Report62 of retired Chief Document Examiner of the
National Bureau of Investigation, Atty. Desiderio A. Pagui (Atty. Pagui), who concluded that:

FINDINGS-CONCLUSION:

The questioned signature "Dwight L. Lumiqued" in carbon-original appears inherent defect in line
quality which comparing scientifically with standard signatures, assuming that they are authentic
copies of the originals, which though the latter are undoubtedly clear copies reflecting free flowing
execution of the writing strokes reveals inconsistency in line qualities with the
former. As consequence, while the original of questioned document is preferably the most desired to
be examined, the available signatures would show significant differences in handwriting
characteristics between said questioned and standard signatures. Using those that are available as
aforesaid, the questioned and standard signatures could have not been affixed by one and the same
person.63 (Emphasis supplied)

Noticeably, the language used by Atty. Pagui in his findings is not definitive and cannot be
considered a reliable examination of the genuineness of Dwight's signature. While it concludes that
the questioned and standard signatures could not have been affixed by one and the same person,
this conclusion is made on the assumption that the standard signatures provided by ATR are
authentic copies of the originals. Moreover, only the carbon-original copy of Dwight's questioned
document was examined, not the original questioned document bearing his signature. Atty. Pagui
admitted that the original copy of the document where the questioned signature appears is
"preferably the most desired to be examined." Even Mely Feliciano Sora, Chief of the Questioned
Document Examination Division of the Philippine National Police Crime Laboratory, opined that it is
impossible to conduct a reliable handwriting examination of Dwight's signature appearing on the
Timeplan Application. According the her, the Application is a mere carbon original wherein the
minute details are not clear.64 Moreover, it must be stressed that ATR hired Atty. Pagui to prepare
the report. Thus, the CA was correct in not giving credence to Atty. Pagui's testimony because his
report is susceptible to bias and prejudice.65 Given the unreliable quality of the available sample
signatures of Dwight in the records, the Court is inclined to refuse conducting an independent
examination of the genuineness of his signature in the disputed Timeplan application.

Nevertheless, the Court finds Gumiran's admission that he personally witnessed Dwight affix his
signature in the application sufficient to rebut the allegation of forgery. Between the unreliable
findings of Atty. Pagui and the sworn statement of Gumiran, the Court is inclined to give more
credence to the latter.

The Court also agrees with the observation of the lower courts that the allegation of forgery is a
mere afterthought. It was only on September 22, 2001, or almost 18 months after the death of
Dwight, that ATR belatedly assailed for the first time the genuineness of his signature. ATR's timing
in raising the allegation of forgery is suspicious and questionable.66 Thus, the Court is convinced
that the signature of Dwight appearing in his Timeplan application is genuine.

Dwight timely paid the initial monthly

premium for the Timeplan on April
28, 2000 to Loyola who is an agent of
ATR. Hence, an insurance contract was
perfected.

A contract of insurance is defined as an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage, or liability arising from an unknown or contingent
event.67 An insurance contract exists where the following elements concur: (1) the insured has an
insurable interest; (2) the insured is subject to a risk of loss by the happening of the designated peril;
(3) the insurer assumes the risk; (4) such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and (5) in consideration of the
insurer's promise, the insured pays a premium.68 In the case of Perez v. Court of Appeals,69 the
Court held that assent is given when the insurer issues a corresponding policy to the applicant. The
Court declared that "[i]t is only when the applicant pays the premium and receives and accepts the
policy while he is in good health that the contract of insurance is deemed to have been perfected."70

The fact that Dwight was only able to make an initial payment of the insurance premium and that
Loyola failed to immediately remit cash portion of the initial payment to ATR should not affect the
validity of the perfected insurance contract.
Furthermore, ATR agreed to insure all present and future planholders of Loyola. The pertinent
provisions in Master Policy No. GCL-878 on payment of premium and effectivity of policy read:

DATE OF EFFECTIVITY OF INDIVIDUAL INSURANCE

The insurance coverage of all present and future eligible PLANHOLDER shall become effective on
the latest of the following dates.

1. the date the contract of agreement with the CREDITOR is legally perfected; or

2. the date of the initial payment and/or down payment;

3. the date written application is accomplishment (sic); or

4. the date of approval by the COMPANY of evidence of insurability, if required; or

5. the date the COMPANY received the corresponding premium.71

xxxx

PAYMENT OF PREMIUMS

The initial premium for each benefit provided in the Policy shall be stated in the SCHEDULE OF
PREMIUM RATES provision applicable to said benefit. All premium on this Policy are payable in
advance directly to the Home Office of the Company or to a duly authorized Agent of the Company.

Payment of premiums whether monthly, quarterly, semi-annually, or annually are payable as they
become due according to the mode of premium payment. Any change in the mode of premium
payments may be affected only at the beginning of any Policy year. No premium payment shall
maintain this Policy in force beyond the date when the next premium becomes due, except as
provided in the Grace Period provision herein.72

xxxx

EFFECTIVE DATE

The coverage of insurable PLANHOLDER shall take effect on the date of initial payment and/or
down payment on the selected plan (as shown in the Binding Deposit Receipt). However, the
Company reserves the right to require a PLANHOLDER to submit Evidence of Insurability even the
coverage does not exceed the Non-Medical Limit.

REPORTING OF INSURED PLANHOLDERS

xxxx

Applications for insurance must be submitted to GE LIFE within seven (7) working days from the
date of initial/ first payment of the Plan holders together with the list of Certificate issued. Effective
Date shall coincide with the date of first payment if complied with. However, GE LIFE will not be held
liable for Certificates issued not reported for coverage within the said 7-working day
period.73 (Emphasis supplied)
Noticeably, the date of effectivity of individual insurance provision contains conflicting terms that are
susceptible to different interpretations. While the policy states that it shall become effective on the
"latest" of a list of dates, the use of the conjunction "or" suggests that there are options and that any
of the options chosen can give rise to the effectivity of the individual insurance. Meanwhile, in the
clause pertaining to the "EFFECTIVE DATE" of the policy, it clearly states that "[t]he coverage of
insurable PLANHOLDER shall take effect on the date of initial payment and/or down payment on the
selected plan (as shown in the Binding Deposit Receipt)."74

The contract between ATR and Loyola is a contract of adhesion as it was prepared solely by ATR for
Loyola and its planholders to conform to. Any ambiguity in a contract of adhesion is construed strictly
against the party that prepared it. In this case, the obscure provision pertaining to the date of
effectivity of the policy coverage should be resolved in favor of Angelita. Thus, the happening of any
of the instances enumerated should suffice in giving rise to the effectivity of the individual insurance.
This interpretation is more consistent with the other provisions of the policy such as the clause on
the "EFFECTIVE DATE" of the policy.

ATR argues that the date of receipt of payment of premium is the date when the cash was actually
deposited in the bank. The Court finds this proposition contrary to logic and unreasonable.

Here, it is undisputed that at 10:34 am on April 28, 2000, Loyola's Sales Operation Assistant
deposited the two Metrobank checks at Metrobank Solano, Nueva Viscaya branch. However,
instead of immediately depositing the cash payment of P1,615.25, Loyola used the money and
waited until May 2, 2000, the next banking day which fell on a Tuesday, to deposit the remainder of
the initial payment of Dwight.75 By then, Dwight had already passed away due to the multiple stab
wounds he sustained on May 1, 2000. Loyola admitted that the delay in the deposit of the P1,615.25
cash was due to its district office's immediate need for cash.76

It is important to clarify that Loyola is an agent of ATR. In a contract of agency, "a person binds
himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter."77 Therefore, a planholder's payment made to Loyola has the
same legal effect as payment made to ATR, even if Loyola failed to immediately deposit the cash
payment to its account.

In the case of Bank of the Philippine Islands v. Laingo,78 the Court held that the Bank of the
Philippine Islands (BPI) acted as agent of FGU Insurance with respect to the insurance feature of its
commercial product, a savings account which offered insurance coverage for free for every deposit
account opened. The controversy in Laingo involved the alleged non-compliance with the
requirement of submitting a written notice of insurance claim to FGU Insurance within three calendar
months from the death of the insured. The beneficiary of the policy contended that BPI did not notify
her of the attached insurance policy yet allowed her to withdraw from the savings account after the
death of the insured. In ruling that it was incumbent upon BPI, as agent of FGU Insurance, to give
proper notice of the existence of the insurance coverage and the stipulation in the insurance contract
for filing a claim, the Court observed that the account holder directly communicated with BPI as the
agent of FGU Insurance. BPI facilitated the processing of the deposit account, collection of
necessary documents, and the endorsement for the approval of the insurance coverage without any
other action on the part of the account holder. FGU Insurance did not interact directly with the
account holder and all communications were coursed through BPI.79

While the facts and issue surrounding the case of Laingo is different from the case at bar, the ruling
of the Court still finds applications to the present case. The relationship between BPI and FGU
Insurance in the Laingo case is similar to the arrangement between Loyola and ATR in the present
case. Loyola offered its Timeplan product with a life insurance feature to entice customers to invest
their money. Loyola secured Master Policy No. GCL-878 from ATR to insure all of its future
planholders. Customers who intend to avail the Timeplan of Loyola do not transact with ATR and
merely submit all the requirements, including the payment of premiums, to Loyola. As such, it is
apparent that Loyola acted as agent of ATR with respect to the insurance feature of its Timeplan
product. The collective conduct of Loyola, as an agent of ATR, in accepting from Dwight the initial
payment, issuing the corresponding Official Receipt,80 and delivering the pre-signed Timeplan
contract reveal that a contract of insurance was perfected. The acts of Loyola, as an agent of ATR,
binds the latter.

The effectivity of the Timeplan cannot be left to the will of Loyola and ATR. This arrangement will
leave Dwight in a helpless position where the implementation of the contract is put on hold and
made dependent upon the will of Loyola and ATR despite having complied with his contractual
obligations. Moreover, the Official Receipt81 Gumiran issued to Dwight clearly states:

This Receipt is valid for down payment only. Checks and other similar forms shall be valid only when
cleared by the Bank.82

As far as Dwight is concerned, his payment to Gumiran is considered his payment to Loyola and
ATR for the initial monthly installment of the Timeplan even if the cash portion of his payment was
not immediately deposited to Loyola's account.

Furthermore, upon payment of the premium, Dwight was issued a copy of the Timeplan contract that
was pre-signed by Jesusa Puyat-Concepcion, President and Chief Executive Officer of Loyola, and
Francisco D. Cauilan, Area Manager of Loyola.83 Dwight's receipt of the Timeplan contract, while he
was in good health, signifies that the contract was perfected. The delivery of the corresponding
Timeplan contract signifies the perfection of the contract between him and Loyola.

More importantly, it must be clarified that, while the first monthly installment due from Dwight is
P5,040.00, the insurance premium payable to ATR is only a fraction of said installment payment.
The breakdown of the cost allocation of the installment values made on the plan of Dwight indicates
that the insurance premium payable to ATR is only P447.55. Pursuant to the Certification of
Distribution of Monthly Installments84 as of April 28, 2000 Loyola issued, the breakdown of the initial
payment is as follows:

Installment Amount 1st Month 5,040

      Filing fee       50.40

      Documentary stamp       252.00

      10% VAT       403.20

      Commission/ Overrides       2,166.66

      Collection fee       0.00

      Bonuses       140.11

      Other expenses (GAE)       504.00

      Insurance cost       447.55

      Trust fund deposit       1,008.00

       Total Expenses       4,971.92

      Remainder of Installment       68.0885

Here, it is readily apparent that the amount Loyola received from Dwight is more than enough to
cover the P447.55 insurance cost. The cash payment of P1,615.25 alone was more than sufficient to
pay for the insurance cost payable to ATR yet the employees of Loyola opted to delay depositing it
and used it for other purposes not intended by the parties. The insurance coverage of Dwight should
not be adversely affected by Loyola's delay.

The cause of Dwight's death is a risk

covered by the Timeplan contract.

ATR argues that the cause of Dwight's death is an excluded risk because he was murdered. The
Exclusions Clause of Master Policy No. GCL-878 states:

No benefit shall be payable for any loss resulting from or caused directly or indirectly, wholly or
partially, by:

xxxx

10. Murder or provoked assault; or any attempt thereat; or

x x x x86

Noticeably, the records are bereft of any circumstance showing that the fatal stabbing of Dwight is a
product of the crime of murder. The Investigation Report of ATR states:

Since the coverage was only 3 days from the effective date, I went to Nueva Vizcaya to have this
case investigated. I found out, however, that the insured died actually on May 1, 2000 at about 2:30
in the morning. He was stabbed to death by his brother in law Joemar Tallud after trying to pacify
Joemar and his wife Angelita quarelling (sic) over real property inheritances. A case was already
filed against Joemar Tallud at the Regional Trial Court in Bayombong, Nueva Vizcaya.87 (Emphasis
supplied)

From the foregoing, it is clear that, though Dwight died as a result of stab wounds inflicted by his
brother-in-law Joemar Tallud (Joemar), nothing in the Investigation Report suggests that he was
murdered or that he died due to a provoked assault as understood in criminal law. The act of Joemar
cannot be equated to murder or provoked assault without a final judgment from the court finding
Joemar guilty beyond reasonable doubt. The conclusion of ATR, unsupported by any competent
evidence, fails to persuade the Court that the cause of Dwight's death comes within the purview of
the exclusion clause of Master Policy No. GCL-878. Hence, ATR is not exempted from liability.

Dwight's Timeplan contract entitles

him to the Group Creditors Life
Insurance and the Group Yearly Renewable Term Life benefits
obtained by Loyola.

The CA committed serious error in deleting the award of actual damages comprising the insurance
benefits from the Group Creditors Life Insurance amounting to P599.760.00 and Group Yearly
Renewable Term Life amounting to P604,800.00. The evidence on record and the pleadings
submitted by ATR all show that Loyola obtained a Group Creditors Life Insurance from ATR, with
supplementary Group Yearly Renewable Term Life and Accidental Death benefits, for its present
and future planholders.88

The cover page of Master Policy No. GCL-878, where the dry seal of GE Life and the signature of its
president & chief executive officer Eulogio A. Mendoza appear, specifically states:

: GCL-878
MASTER POLICY NO.
POLICYHOLDER/
: LOYOLA TIMEPLAN
CREDITOR
GROUP CREDITORS
PLAN OF INSURANCE :
LIFE INSURANCE
GROUP YEARLY RENEWABLE TERM
SUPPLEMENTARY
: LIFE ACCIDENTAL
BENEFITS
DEATH BENEFIT
POLICY EFFECTIVE DATE : 36326
PREMIUM DUE DATE : JUNE 15, 1999 & EVERY YEAR THEREAFTER
JUNE 15, 2000 & EVERY YEAR
POLICY ANNIVERSARIES :
THEREAFTER89 (Emphasis supplied)

Master Policy No. GCL-878 enumerates the amount of insurance for each benefit as follows:

AMOUNT OF INSURANCE

Group - equal to the outstanding and

Creditorss Life unpaid balance of the gross
Insurance contract price.
Group Yearly - equal to the original amount of
Renewable gross contract price.
Accidental - equal to the original amount of
Death Benefit gross contract
price.90 [Emphasis and
underscoring in the original]

Throughout the text of Master Policy No. GCL-878, the listed benefits have been consistently
mentioned and is deemed to cover all present and future eligible planholders of Loyola.91 Even the
Claims Committee Action Sheet reflecting ATR's denial of Angelita's claim confirm that Master Policy
No. GCL-878 includes said benefits.92 ATR never denied the inclusion of Dwight's Timeplan in
Master Policy No. GCL-878. Thus, the RTC was correct in including the proceeds from those
benefits in computing the award of actual damages in the amount of P1,809,360 in favor of Angelita
computed as follows:

  

Group Creditors Life Insurance P599.760.00

(outstanding balance net of the first installment
paid)
 Group Yearly Renewable Term 604,800.00
Life (the gross contract price)
Accidental Death Benefit 604,800.00
(the gross contract price)

TOTAL P1,809,360.00

The CA committed error in deleting

the award of moral damages, exemplary damages,
and attorney's fees.

Moral Damages

The RTC awarded moral damages to Loyola and Angelita after finding that ATR acted in bad faith in
bringing a baseless suit against Loyola and Angelita.93 However, the CA deleted the award in its
decision. The Court finds that an award of moral damages in the amount of P50,000.00 is
commensurate to the anxiety and inconvenience Angelita suffered for ATR's callous treatment of her
claim for death benefits. Indeed, ATR reneged on its obligation to pay the proceeds from the policy
Angelita is entitled to receive and intentionally delayed the procedure to claim through its
unsubstantiated assertion that Dwight was murdered. It also did not escape the Court's attention that
ATR belatedly assailed the genuineness of the Timeplan application of Dwight 18 months after his
death. For the Court, these acts collectively show the intention of ATR to unduly prolong the process
of claiming the benefits, thus justifying the award of moral damages in favor of Angelita.

Exemplary Damages

Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship,
exemplary damages may be awarded only if the defendant had acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.94 Article 2234 of the Civil Code further requires that, to
be entitled to exemplary damages, the claimant must show that he is entitled to moral, temperate, or
compensatory damages.95

ATR undertook to insure Loyola's planholders upon the fulfillment of any of the instances
enumerated in the "Date of Effectivity of Individual Insurance" clause of Master Policy No. GCL-878.
Considering that ATR refused to honor the insurance coverage of Dwight's Timeplan, and unduly
prolonged the procedure for claiming the benefits under the policy, the Court finds that the award of
exemplary damages in the amount of P50,000.00 in favor of Angelita reasonable.

Attorney's Fees

The instances when attorney's fees may be awarded are enumerated in Article 2208 of the Civil
Code which reads:

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

 (2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;

xxxx

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;

xxxx

(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.96

The RTC was correct in awarding attorney's fees because exemplary damages were awarded and
due to the length of the proceedings. In addition, the Court finds the civil action initiated by ATR
unfounded and that its continued refusal to honor the insurance claim of Angelita under Master
Policy No. GCL-878 justifies the award of attorney's fees in the amount of P50,000.00 in her favor.

Similarly, the Court finds that an award of attorney's fees in the amount of P50,000.00 in favor of
Loyola and Angelita is proper due to the unfounded suit ATR filed against it and the length of the
proceedings.

Interest

Lastly, award of interest in accordance with the Court's ruling in the case of Nacar v. Gallery
Frames97 is proper.  In Nacar, the Court modified the imposable interest rates on the basis of
ℒαwρhi ৷

Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, which took effect on July 1, 2013,
thus:

xxxx

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,  i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6%  per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
 but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

And in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.98 (Emphasis and italics in the original; citations omitted)

Applying the guidelines in Nacar to the present case, 12% interest rate per annum shall be imposed
on the principal amount due from the time of judicial demand, i.e., from the time of the filing of the
complaint, until June 30, 2013. Thereafter, from July 1, 2013, until full satisfaction of the monetary
award, the interest rate shall be 6% per annum.

WHEREFORE, premises considered, the Decision dated February 4, 2016 and the Resolution dated
November 17, 2016 of the Court of Appeals in CA-G.R. CV No. 97528 are MODIFIED. ATR
Professional Life Insurance Corporation, now Asian Life and General Assurance Corporation,
is ORDERED to:

a. Pay Angelita Lumiqued actual damages in the amount of P1,809,360.00;

b. Pay Angelita Lumiqued moral damages in the amount of P50,000.00;

c. Pay Angelita Lumiqued exemplary damages in the amount of P50,000.00; and

d. Pay Loyola Plans Inc. and Angelita Lumiqued attorney's fees in the amount of P50,000.00
each.

In addition, ATR Professional Life Insurance Corporation, now Asian Life and General Assurance
Corporation, is DIRECTED to pay interest of twelve percent (12%) per annum on the monetary
award computed from the time of the filing of the complaint until June 30, 2013 and six percent
(6%) per annum from July 1, 2013 until full satisfaction thereof.

SO ORDERED.

Leonen, (Chairperson), Gesmundo, Zalameda, and Gaerlan, JJ., concur.

NOTICE OF JUDGMENT

Sirs / Mesdames:
Please take notice that on August 26, 2020 a Decision, copy attached hereto, was rendered by the
Supreme Court in the above-entitled case, the original of which was received by this Office on
February 4, 2021 at 3:30 p.m.

Very truly yours,

(SGD.) MISAEL DOMINGO C. BATTUNG III

Division Clerk of Court

March 04, 2019

G.R. No. 201116

PHILAM INSURANCE CO., INC., now CHARTIS PHILIPPINES INSURANCE, INC., Petitioner

vs.
PARC CHATEAU CONDOMINIUM UNIT OWNERS ASSOCIATION INC., and/or EDUARDO B.
COLET, Respondents

DECISION

REYES, J. JR., J.:

The Facts

On October 7, 2003, petitioner Philam Insurance Co., Inc. (Philam) [now Chartis Philippines
Insurance, Inc.] submitted a proposal to respondent Parc Chateau Condominium Unit Owners
Association, Inc. (Parc Association) to cover fire and comprehensive general liability insurance of its
condominium building, Parc Chateau Condominium. 1

Respondent Eduardo B. Colet (Colet), as Parc Association's president, informed Philam, through a
letter dated November 24, 2003, that Parc Association's board of directors selected it, among
various insurance companies, to provide the insurance requirements of the condominium. 2

After Philam appraised the condominium, it issued Fire and Lightning Insurance Policy No.
0601502995 for ₱900 million and Comprehensive General Liability Insurance Policy No.
0301003155 for ₱1 Million, both covering the period from November 30, 2003 to November 30,
2004. The parties negotiated for a 90-day payment term of the insurance premium, worth
₱791,427.50 including taxes. This payment term was embodied in a Jumbo Risk Provision, which
further provided that the premium installment payments were due on November 30, 2003, December
30, 2003, and January 30, 2004. The Jumbo Risk Provision also stated that if any of the scheduled
payments are not received in full on or before said dates, the insurance shall be deemed to have
ceased at 4 p.m. of such date, and the policy shall automatically become void and ineffective. 3

Parc Association's board of directors found the terms unacceptable and did not pursue the
transaction. Parc Association verbally informed Philam, through its insurance agent, of the board's
decision. Since no premiums were paid, Philam made oral and written demands upon Parc
Association, who refused to do so alleging that the insurance agent had been informed of its
decision not to take up the insurance coverage. Philam sent demand letters with statement of
account claiming ₱363,215.21 unpaid premium based on Short Scale Rate Period. Philam also
cancelled the policies.
4

On June 3, 2005, Philam filed a complaint against Parc Association and Colet for recovery of
₱363,215.21 unpaid premium, plus attorney's fees and costs of suit in the Metropolitan Trial Court
(MeTC) of Makati, Branch 65. 5

The Metropolitan Trial Court's Decision

On October 30, 2007, the MeTC dismissed the case. The MeTC determined that since Philam
admitted that Parc Association did not pay its premium, one of the elements of an insurance contract
was lacking, that is, the insured must pay a premium. The MeTC explained that payment of premium
is a condition precedent for the effectivity of an insurance contract. Non-payment of premium
prevents an insurance contract from becoming binding even if there was an acceptance of the
application or issuance of a policy, unless payment of premium was waived. With one of the
elements missing, there is no insurance contract to speak of and Philam has no right to recover from
defendant Parc Association.6

The Regional Trial Court's Decision

Philam appealed to the Regional Trial Court (RTC) of Makati, Branch 137, which partly affirmed the
MeTC decision, except as to attorney's fees, in its June 3, 2008 Decision. The RTC pronounced that
there was no valid insurance contract between the parties because of non-payment of premium, and
there was no express waiver of full payment of premiums. 7

The RTC did not accept Philam's argument that the Jumbo Risk Provision is an implied waiver of
premium payment. The RTC elucidated that the Jumbo Risk Provision specifically requires full
payment of premium within the given period, and in case of default, the policy automatically
becomes void and ineffective. 8

Philam averred that Parc Association's newsletter and treasurer's report confirmed that there was a
perfected insurance contract. The RTC held that Parc Association's newsletter and treasurer's
report, informing the condominium unit owners that the building was insured, is not proof of a
perfected insurance contract. The newsletter stated that negotiations were ongoing to try to lower
the insurance premium per square meter, while the treasurer's report did not categorically mention
that there was a perfected and effective insurance contract. Hence, the RTC affirmed in part the
MeTC decision. 9

Philam moved for reconsideration, which the RTC denied in a Resolution dated September 17,
2009.10

The Court of Appeals' Decision

Unconvinced, Philam elevated the case before the Court of Appeals (CA) through a petition for
review under Rule 42 of the Rules of Court, as amended. 11

On July 29, 2011, the CA rendered a Decision  denying Philam's petition and affirming the June 3,
12

2008 RTC Decision and September 17, 2009 Resolution. The CA discussed that based on Section
77 of Presidential Decree 612 or the Insurance Code of the Philippines, the general rule is that no
insurance contract issued by an insurance company is valid and binding unless and until the
premium has been paid. Although there are exceptions laid down in UCPB General Insurance Co.,
Inc. v. Masagana Telamart, Inc.,  the CA determined that none of these exceptions were applicable
13

to the case at hand.14

The first exception is in Section 77 of the Insurance Code, that is, "in the case of a life or an
industrial life policy whenever the grace period provision applies." This exception does not apply to
this case because the policies involved here are fire and comprehensive general liability insurance. 15

The second exception is in Section 78 of the Insurance Code, which states that "an acknowledgment
in a policy or contract of insurance or 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."
16

The exception in Section 78 is inapplicable in this case, because there was no acknowledgment of
receipt of premium in the policy or insurance contract, and in fact, no premium was ever paid. 17

The third exception is taken from the case of Makati Tuscany Condominium Corporation v. Court of
Appeals,  wherein the Court ruled that the general rule in Section 77 may not apply if the parties
18

agreed to the payment of premium in installment and partial payment has been made at the time of
loss. Here, the parties agreed to a payment by installment, but no actual payment was made. Thus,
the third exception has no application in this case.
19

The Makati Tuscany case also provided the fourth exception, that is, if the insurer has granted the
insured a credit term for the payment of the premium, then the general rule may not apply.  Philam
20

argues that the 90-day payment term is a credit extension. However, the CA emphasized that the
Jumbo Risk Provision is clear that failure to pay each installment on the due date automatically voids
the insurance policy. Here, Parc Association did not pay any premium, which resulted in a void
insurance policy. Hence, the fourth exception finds no application.21

The fifth and last exception, taken from the UCPB case, is estoppel in instances when the insurer
had consistently granted a credit term for the payment of premium despite full awareness of Section
77. The insurer cannot deny recovery by the insured by citing the general rule in Section 77,
because the insured had relied in good faith on the credit term granted.22

The CA held that the factual circumstances of the UCPB case differ from this case. In the UCPB
case, the insurer granted a credit extension for several years and the insured relied in good faith on
such practice. Here, the fire and lightning insurance policy and comprehensive general insurance
policy were the only policies issued by Philam, and there were no other policy/ies issued to Parc
Association in the past granting credit extension. Thus, the last exception is inapplicable.
23

After establishing that none of the exceptions are applicable, the CA concluded that the general rule
applies, that is, no insurance contract or policy is valid and binding unless and until the premium has
been paid. Since Parc Association did not pay any premium, then there was no insurance contract to
speak of.24

Moreover, the CA pointed out that the Jumbo Risk Provision clearly stated that failure to pay in full
any of the scheduled installments on or before the due date, shall render the insurance policy void
and ineffective as of 4 p.m. of such date. Parc Association's failure to pay on the first due date,
November 30, 2003, resulted in a void and ineffective policy as of 4 p.m. of November 30, 2003. As
a consequence, Philam cannot collect ₱3 63,215.21 unpaid premiums of void insurance policies. 25
Philam moved for reconsideration, which the CA denied in its March 14, 2012
Resolution.  Undeterred, Philam filed a Petition for Review on Certiorari  under Rule 45 of the Rules
26 27

of Court, as amended, before the Court.

The Issues Presented

In its petition, Philam assigned the following errors:

THE COURT OF APPEALS GROSSLY ERRED IN NOT FINDING THAT RESPONDENTS'

REQUEST FOR TERMS OF PAYMENT OF PREMIUM AFTER THE POLICIES WERE ISSUED
AND PETITIONER'S GRANT OF SAID REQUEST CONSTITUTE THE INTENTION OF THE
PARTIES TO BE BOUND BY THE INSURANCE CONTRACT.

II.

THE APPELLATE COURT GROSSLY ERRED IN RULING THAT THE FOURTH EXCEPTION
PROVIDED FOR UNDER SECTION 77 OF THE INSURANCE CODE OF THE PHILIPPINES DOES
NOT APPLY IN THE INSTANT CASE.

III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT FINDING THAT THE NEGOTIATIONS
WHICH THE PARTIES HAD WERE WITH RESPECT TO THE TERMS OF PAYMENT OF
PREMIUM ALREADY AGREED UPON AND NOT ON THE REDUCTION OF THE AMOUNT
THEREOF AS TO NEGATE THE EXISTENCE OF A PERFECTED CONTRACT OF INSURANCE
BETWEEN THEM. 28

In its Comment,  Parc Association alleged that Philam did not raise new issues before the Court,
29

and the issues presented had been resolved by the MeTC and RTC.  Parc Association averred that
30

Philam's proposal was accepted for consideration of the board of directors, who later disapproved
the terms and conditions. As such, there was no meeting of the minds of the parties, and there was
no insurance contract initiated. 31

Parc Association further argued that non-payment of premium means no juridical tie was created
between the insured and the insurer, and the insured was not exposed to the insurable risk for lack
of consideration. Parc Association asserted that it would be unjust to allow Philam to recover
premiums on an insurance contract that was never effective and despite not having been exposed to
any risk at all. 32

In its Reply,  Philam insisted that there was a perfected insurance contract, and Parc Association's
33

request for terms of payment indicate its intention to be bound by the insurance contract.
34

In sum, the sole issue to be resolved is whether or not the CA committed a reversible error in
affirming the RTC decision and ruling that Philam has no right to recover the unpaid premium based
on void and ineffective insurance policies.

The Court's Ruling

The petition is denied.

Rule 45 of the Rules of Court, as amended, states that only questions of law shall be raised in a
petition for review on certiorari. While the rule has exceptions, they are irrelevant in this case, as
Philam did not properly plead and substantiate the applicability of the exceptions. Thus, the Court
applies the general rule.
35

In resolving whether the CA was correct in affirming the RTC decision, the Court considered the
following simplified alleged errors as presented by Philam:

1. Whether or not respondents' request for terms of payment of premium after the policies were
issued and the grant of said request by petitioner constitute the parties' intention to be bound by the
insurance contract;

2. Whether or not the fourth exception provided for under Section 77 of the Insurance Code of the
Philippines applies in the instant case; and

3. Whether or not the negotiations which the parties had were with respect to the terms of payment
of premium already agreed upon by the parties and not on the lowering of the amount of premium as
to negate the existence of a perfected contract of insurance. 36

The first and third alleged errors refer to the request for the terms of payment. Does Parc
Association's request and Philam's subsequent grant of the request constitute their intention to be
bound by the insurance contract? Does the negotiation refer to the terms of payment or to the
lowering of the premium?

In arriving at the answers to the questions, the Court has to determine the intention of the parties. In
doing so, the Court has to read the transcript of stenographic notes of the witnesses, and review the
language or tenor of some of the documentary evidence, such as: Philam's proposal on October 7,
2003, Colet's acceptance letter dated November 24, 2003, the Jumbo Risk Provision, and the written
communications between Philam and Parc Association.

In short, the Court has to re-evaluate the evidence on record. Evaluation of evidence is an indication
that the question or issue posed before the Court is a question of fact or a factual issue.

In Century Iron Works, Inc. v. Biñas  the Court differentiated between question of law and question
37

of fact.

A question of law arises when there is doubt as to what the law is on a certain state of facts, while
there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the question must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. (Citation omitted)

Thus, the test of whether a question is one of law or of fact is not the appellation given to such
question by the party raising the same; rather, it is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case, it is a question of law;
otherwise it is a question of fact.  (Citation omitted)
38

Applying the test to this case, it is without a doubt that the questions/issues presented before the
Court are factual in nature, which are not proper subjects of a petition for review on certiorari under
Rule 45 of the Rules of Court, as amended. It has been repeatedly pronounced that the Court is not
a trier of facts. Evaluation of evidence is the function of the trial court.

As for the second alleged error, Philam avers that this case falls under the fourth exception as
explained in the Makati Tuscany case. The Makati Tuscany case provides that if the insurer has
granted the insured a credit term for the payment of the premium, it is an exception to the general
rule that premium must first be paid before the effectivity of an insurance contract. Philam argues
that the 90-day payment term is a credit extension and should be considered as an exception to the
general rule.

However, the CA correctly determined that the Jumbo Risk Provision clearly indicates that failure to
pay in full any of the scheduled installments on or before the due date shall render the insurance
policy void and ineffective as of 4 p.m. of such date. Parc Association's failure to pay on the first due
date (November 30, 2003), resulted in a void and ineffective policy as of 4 p.m. of November 30,
2003. Hence, there is no credit extension to consider as the Jumbo Risk Provision itself expressly
cuts off the inception of the insurance policy in case of default.

The Court resolves to deny the petition after finding that the CA did not commit any reversible error
in the assailed decision and resolution. The CA had exhaustively explained the law and
jurisprudence, which are the bases of its decision and resolution. Both trial courts and the appellate
court are consistent in its findings of fact that there is no perfected insurance contract, because of
the absence of one of the elements, that is, payment of premium. As a consequence, Philam cannot
collect P363,215.21 unpaid premiums of void insurance policies.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
July 29, 2011 and Resolution dated March 14, 2012 in CA-G.R. SP No. 110980 are AFFIRMED.

SO ORDERED.

Carpio, Senior Associate Justice, (Chairperson), Caguioa, and Hernando,  JJ., concur.
*

Perlas-Bernabe, J., on wellness leave.

G.R. No. 130421 June 28, 1999

AMERICAN HOME ASSURANCE COMPANY, petitioner,

vs.
ANTONIO CHUA, respondent.

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner
seeks the reversal of the decision  of the Court of Appeals in CA-G.R. CV No. 40751, which
1

affirmed in toto the decision of the Regional Trial Court, Makati City, Branch 150 (hereafter trial
court), in Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990,

respondent obtained from petitioner a fire insurance covering the stock-in-trade of his business,
Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March
1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to
petitioner's agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered
Renewal Certificate No. 00099047 to respondent. The check was drawn against a Manila bank and
deposited in petitioner's bank account in Cagayan de Oro City. The corresponding official receipt
was issued on 10 April. Subsequently, a new insurance policy, Policy No. 206-4234498-7, was
issued, whereby petitioner undertook to indemnify respondent for any damage or loss arising from
fire up to P200,000 for the period 25 March 1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises 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 and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the
Philippines. Petitioner refused to honor the claim notwithstanding several demands by respondent,
thus, the latter filed an action against petitioner before the trial court.

In its defense, petitioner claimed there was no existing insurance contract when the fire occurred
since respondent did not pay the premium. It also alleged that even assuming there was a contract,
respondent violated several conditions of the policy, particularly: (1) his submission of fraudulent
income tax return and financial statements; (2) his failure to establish the actual loss, which
petitioner assessed at P70,000; and (3) his failure to notify to petitioner of any insurance already
effected to cover the insured goods. These violations, petitioner insisted, justified the denial of the
claim.

The trial court ruled in favor of respondent. It found that respondent paid by way of check a day
before the fire occurred. The check, which was deposited in petitioner's bank account, was even
acknowledged in the renewal certificate issued by petitioner's agent. It declared that the alleged
fraudulent documents were limited to the disparity between the official receipts issued by the Bureau
of Internal Revenue (BIR) and the income tax returns for the years 1987 to 1989. All the other
documents were found to be genuine. Nonetheless, it gave credence to the BIR certification that
respondent paid the corresponding taxes due for the questioned years.

As to respondent's failure to notify petitioner of the other insurance contracts covering the same
goods, the trial court held that petitioner failed to show that such omission was intentional and
fraudulent. Finally, it noted that petitioner's investigation of respondent's claim was done in
collaboration with the representatives of other insurance companies who found no irregularity
therein. In fact, Pioneer Insurance and Surety Corporation and Prudential Guarantee and
Assurance, Inc. promptly paid the claims filed by respondent.

The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the

[petitioner] ordering the latter to pay the former the following:

1. P200,000.00, representing the amount of the insurance, plus legal

interest from the date of filing of this case;

2. P200,000.00 as moral damages;

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary damages;

5. P50,000.00 as attorney's fees; and

6. Cost of suit.

On appeal, the assailed decision was affirmed in toto by the Court of Appeals. 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.

Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this
case. Petitioner reiterates its stand that there was no existing insurance contract between the
parties. It invokes Section 77 of the Insurance Code, which provides:
 An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of life
or an industrial life policy whenever the grace period provision applies.

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,  where we ruled that
2

unless and until the premium is paid there is no insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet
subsisting pursuant to Article 1249  of the Civil Code, which recognizes that a check can only effect
3

payment once it has been cashed. Although respondent testified that he gave the check on 5 April to
a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro
City bank, could not have been cleared by 6 April, the date of the fire. In fact, the official receipt
issued for respondent's check payment was dated 10 April 1990, four days after the fire occurred.

Citing jurisprudence,  petitioner also contends that respondent's non-disclosure of the other
4

insurance contracts rendered the policy void. It underscores the trial court's neglect in considering
the Commission on Audit's certification that the BIR receipts submitted by respondent were, in effect,
fake since they were issued to other persons. Finally, petitioner argues that the award of damages
was excessive and unreasonable considering that it did not act in bad faith in denying respondent's
claim.

Respondent counters that the issue of non-payment of premium is a question of fact which can no
longer be assailed. The trial court's finding on the matter, which was affirmed by the Court of
Appeals, is conclusive.

Respondent refutes the reason for petitioner's denial of his claim. As found by the trial court,
petitioner's loss adjuster admitted prior knowledge of respondent's existing insurance contracts with
the other insurance companies. Nonetheless, the loss adjuster recommended the denial of the
claim, not because of the said contracts, but because he was suspicious of the authenticity of certain
documents which respondent submitted in filing his claim.

To bolster his argument, respondent cites Section 66 of the Insurance Code,  which requires the
5

insurer to give a notice to the insured of its intention to terminate the policy forty-five days before the
policy period ends. In the instant case, petitioner opted not to terminate the policy. Instead, it
renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon
delivery of his check payment for the renewal of premium. At this precise moment the contract of
insurance was executed and already in effect. Respondent also claims that it is standard operating
procedure in the provinces to pay insurance premiums by check when collected by insurance
agents.

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He
cites numerous trips he had to make from Cagayan de Oro City to Manila to follow up his rightful
claim. He imputes bad faith on petitioner who made enforcement of his claim difficult in the hope that
he would eventually abandon it. He further emphasizes that the adjusters of the other insurance
companies recommended payment of his claim, and they complied therewith.

In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial
court and the Court of Appeals.
Petitioner invokes respondent's admission that his check for the renewal of the policy was received
only on 10 April 1990, taking into account that the policy period was 25 March 1990 to 25 March
1991. The official receipt was dated 10 April 1990. Anent respondent's testimony that the check was
given to petitioner's agent, a certain James Uy, the latter points out that even respondent was not
sure if Uy was indeed its agent. It faults respondent for not producing Uy as his witness and not
taking any receipt from him upon presentment of the check. Even assuming that the check was
received a day before the concurrence of the fire, there still could not have been payment until the
check was cleared.

Moreover, petitioner denies respondent's allegation that it intended a renewal of the contract for the
renewal certificate clearly specified the following conditions:

Subject to the payment by the assured of the amount due prior to renewal date, the
policy shall be renewed for the period stated.

Any payment tendered other than in cash is received subject to actual cash
collection.

Subject to no loss prior to premium and payment. If there be any loss, is not covered
[sic].

Petitioner asserts that an insurance contract can only be enforced upon the payment of the
premium, which should have been made before the renewal period.

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy
in issue was limited to a liability of P200,000; but the trial court granted the following monetary
awards: P200,000 as actual damages; P200,000 as moral damages; P100,000 as exemplary
damages; and P50,000 as attorney's fees.

The following issues must be resolved: first, whether there was a valid payment of premium,
considering that respondent's check was cashed after the occurrence of the fire; second, whether
respondent violated the policy by his submission of fraudulent documents and non-disclosure of the
other existing insurance contracts; and finally, whether respondent is entitled to the award of
damages.

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid
and binding. The only exceptions are life and industrial life insurance.  Whether payment was indeed
6

made is a question of fact which is best determined by the trial court. The trial court found, as
affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner.
Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of
Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence
of any clear showing that the trial court overlooked certain facts or circumstances which would
substantially affect the disposition of the case.  We see no reason to depart from this ruling.
7

According to the trial court the renewal certificate issued to respondent contained the
acknowledgment that premium had been paid. It is not disputed that the check drawn by respondent
in favor of petitioner and delivered to its agent was honored when presented and petitioner forthwith
issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides
that any insurance company which delivers a policy or contract of insurance to an insurance agent or
insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy or contract of insurance at the time of its
issuance or delivery or which becomes due thereon.  In the instant case, the best evidence of such
8
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.

Sec. 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.

This Section establishes a legal fiction of payment and should be interpreted as an exception
to Section 77. 9

Is respondent guilty of the policy violations imputed against him? We are not convinced by
petitioner's arguments. The 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. The trial court and the Court of
Appeals gave credence to the certification and it being a question of fact, we hold that said finding is
conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers,
non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is
common in fire insurance policies and is known as the "other insurance clause." The purpose for the
inclusion of this clause is to prevent an increase in the moral hazard. We have ruled on its validity
and the case of Geagonia v. Court of Appeals   clearly illustrates such principle. However, we see
10

an exception in the instant case.

Citing Section 29   of the Insurance Code, the trial court reasoned that respondent's failure to
11

disclose was not intentional and fraudulent. The application of Section 29 is misplaced. Section 29
concerns concealment which is intentional. 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.

To constitute a violation the other existing insurance contracts must be upon the same subject
matter and with the same interest and risk.   Indeed, respondent acquired several co-insurers and
12

he failed to disclose this information to petitioner. Nonetheless, petitioner is estopped from must
invoking this argument. The trial court cited the testimony of petitioner's loss adjuster who admitted
previous knowledge of the co-insurers. Thus,

COURT:

Q The matter of additional insurance of other companies, was that

ever discussed in your investigation?

A Yes, sir.

Q In other words, from the start, you were aware the insured was
insured with other companies like Pioneer and so on?

A Yes, Your Honor.

 Q But in your report you never recommended the denial of the claim
simply because of the non-disclosure of other insurance? [sic]

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you

recommended the denial of the claim, you found three documents to
be spurious. That is your only basis?

A Yes, Your Honor.  13

 [Emphasis supplied]

Indubitably, 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.
Petitioner's loss adjuster had known all along of the other existing insurance contracts, yet, he did
not use that as basis for his recommendation of denial. The loss adjuster, being an employee of
petitioner, is deemed a representative of the latter whose awareness of the other insurance
contracts binds petitioner. We, therefore, hold that there was no violation of the "other insurance"
clause by respondent.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct
in awarding P200,000 for this. There is, however, merit in petitioner's grievance against the damages
and attorney's fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied
that the fire totally gutted respondent's business; thus, respondent no longer had any business to
operate. His loss of profit cannot be shouldered by petitioner whose obligation is limited to the object
of insurance, which was the stock-in-trade, and not the expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is
petitioner's alleged breach of its obligation under a contract of insurance. Under Article 2220 of the
Civil Code, moral damages may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral
damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. Such
damages are awarded only to enable the injured party to obtain means, diversion or amusements
that will serve to obviate the moral suffering he has undergone, by reason of the defendant's
culpable action. Its award is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and it must be proportional to the suffering inflicted.   When awarded, moral
14

damages must not be palpably and scandalously excessive as to indicate that it was the result of
passion, prejudice or corruption on the part of the trial court judge.  15

The law   is likewise clear that in contracts and quasi-contracts the court may award exemplary
16

damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Nothing thereof can be attributed to petitioner which merely tried to resist what it claimed to be an
unfounded claim for enforcement of the fire insurance policy.

As to attorney's fees, the general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate.   In short, the grant of
17

attorney's fees as part of damages is the exception rather than the rule; counsel's fees are not
awarded every time a party prevails in a suit. It can be awarded only in the cases enumerated in
Article 2208 of the Civil Code, and in all cases it must be reasonable.   Thereunder, the trial court
18

may award attorney's fees where it deems just and equitable that it be so granted. While we respect
the trial court's exercise of its discretion in this case, the award of P50,000 is unreasonable and
excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. No. 40751 is hereby MODIFIED by a) deleting the awards of P200,000 for loss
of profit, P200,000 as moral damages and P100,000 as exemplary damages, and b) reducing the
award of attorney's fees from P50,000 to P10,000.

No pronouncement as to costs.

Melo, Kapunan, Pardo and Santiago, JJ., concur.

February 27, 2017

G.R. No. 190702

JAIME T. GAISANO, Petitioner
vs.
DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari  seeking to nullify the Court of Appeals' (CA) September 11,
1

2009 Decision  and November 24, 2009 Resolution  in CA-G.R. CV No. 81225. The CA reversed the
2 3

September 24, 2003 Decision  of the Regional Trial Court (RTC) in Civil Case No. 97-85464. The
4

RTC granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive
commercial vehicle policy issued by Development Insurance and Surety Corporation
(respondent), viz.:

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-
appellant ordered to pay the plaintiff-appellee the sum of ₱55,620.60 with interest at 6 percent per
annum from the date of the denial of the claim on October 9, 1996 until payment.
SO ORDERED. 5

The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with
plate number GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the
insurance business.  On September 27, 1996, respondent issued a comprehensive commercial
6

vehicle policy  to petitioner in the amount of ₱1,500,000.00 over the vehicle for a period of one year
7

commencing on September 27, 1996 up to September 27, 1997.  Respondent also issued two other
8

commercial vehicle policies to petitioner covering two other motor vehicles for the same period. 9

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, Noah's
Ark Merchandising (Noah's Ark).  Noah's Ark immediately processed the payments and issued a Far
10

East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day.  The check
11

bearing the amount of ₱140,893.50 represents payment for the three insurance policies, with
₱55,620.60 for the premium and other charges over the vehicle.  However, nobody from Trans-
12

Pacific picked up the check that day (September 27) because its president and general manager,
Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its
messenger would get the check the next day, September 28. 13

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the
vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
National Police Traffic Management Command at Camp Crame in Quezon City.  Despite search and
14

retrieval efforts, the vehicle was not recovered.

15

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of
₱55,620.60 for the premium and other charges over the vehicle.  The check issued to Trans-Pacific
16

for ₱140,893.50 was deposited with Metrobank for encashment on October 1, 1996. 17

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner
reported the loss and filed a claim with respondent for the insurance proceeds of
₱1,500,000.00.  After investigation, respondent denied petitioner's claim on the ground that there
18

was no insurance contract.  Petitioner, through counsel, sent a final demand on July 7,
19

1997.  Respondent, however, refused to pay the insurance proceeds or return the premium paid on
20

the vehicle.

On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages  with21

the RTC where it sought . to collect the insurance proceeds from respondent. In its
Answer,  respondent asserted that the non-payment of the premium rendered the policy ineffective.
22

The premium was received by the respondent only on October 2, 1996, and there was no known
loss covered by the policy to which the payment could be applied. 23

In its Decision  dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the
24

premium paid as of September 27, even if the check was received only on September 28 because
(1) respondent's agent, Trans-Pacific, acknowledged payment of the premium on that date,
September 27, and (2) the check that petitioner issued was honored by respondent in
acknowledgment of the authority of the agent to receive it.  Instead of returning the premium,
25

respondent sent a checklist of requirements to petitioner and assigned an underwriter to investigate

the claim.  The RTC ruled that it would be unjust and inequitable not to allow a recovery on the
26
policy while allowing respondent to retain the premium paid.  Thus, petitioner was awarded an
27

indemnity of ₱l,500,000.00 and attorney's fees of ₱50,000.00. 28

After respondent's motion for reconsideration was denied,  it filed a Notice of Appeal.  Records were
29 30

forwarded to the CA. 31

The CA granted respondent's appeal.  The CA upheld respondent's position that an insurance
32

contract becomes valid and binding only after the premium is paid pursuant to Section 77 of the
Insurance Code (Presidential Decree No. 612, as amended by Republic Act No. 10607).  It found 33

that the premium was not yet paid at the time of the loss on September 27, but only a day after or on
September 28, 1996, when the check was picked up by Trans-Pacific.  It also found that none of the
34

exceptions to Section 77 obtains in this case.  Nevertheless, the CA ordered respondent to return
35

the premium it received in the amount of ₱55,620.60, with interest at the rate of 6% per annum from
the date of the denial of the claim on October 9, 1996 until payment. 36

Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract
between him and respondent.  He submits that it comes within the exceptions to the rule in Section
37

77 of the Insurance Code that no contract of insurance becomes binding unless and until the
premium thereof has been paid. The prohibitive tenor of Section 77 does not apply because the
parties stipulated for the payment of premiums.  The parties intended the contract of insurance to be
38

immediately effective upon issuance, despite non-payment of the premium, because respondent
trusted petitioner.  He adds that respondent waived its right to a pre-payment in full of the terms of
39

the policy, and is in estoppel. 40

Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the
return of the premiums paid, then he should be able to recover the full amount of ₱140,893.50, and
not merely ₱55,620.60.  The insurance policy covered three vehicles yet respondent's intention was
41

merely to disregard the contract for only the lost vehicle.  According to petitioner, the principle of
42

mutuality of contracts is violated, at his expense, if respondent is allowed to be excused from

performance on the insurance contract only for one vehicle, but not as to the two others, just
because no loss is suffered as to the two. To allow this "would be to place exclusively in the hands of
one of the contracting parties the right to decide whether the contract should stand or not x x x. " 43

For failure of respondent to file its comment to the petition, we declared respondent to have waived
its right to file a comment in our June 15, 2011 Resolution. 44

The lone issue here is whether there is a binding insurance contract between petitioner and
respondent.

II

We deny the petition.

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.  Just like any other contract, it
45

requires a cause or consideration. The consideration is the premium, which must be paid at the time
and in the way and manner specified in the policy.  If not so paid, the policy will lapse and be
46

forfeited by its own terms. 47

The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.  Section 77 of the Insurance Code, applicable at the time
48

of the issuance of the policy, 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.

In Tibay v. Court of Appeals,  we emphasized the importance of this rule. We explained that in an
49

insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured,
a member of a group exposed to a particular peril, who contributes premiums under the risk of
receiving nothing in return in case the contingency does not happen; on the other, there is the
insurer, who undertakes to pay the entire sum agreed upon in case the contingency happens. This
risk-distributing mechanism operates under a system where, by prompt payment of the premiums,
the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its
contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the
insurance business:

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.
For what could prevent the insurance applicant from deliberately or willfully holding back full
premium payment and wait for the risk insured against to transpire and then conveniently pass on
the balance of the premium to be deducted from the proceeds of the insurance? x x x

xxx

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to
the public, hence, the imperative need for its prompt payment and full satisfaction. It must be
emphasized here that all actuarial calculations and various tabulations of probabilities of losses
under the risks insured against are based on the sound hypothesis of prompt payment of premiums.
Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at
favorable rates. x x x  (Citations omitted.)
50

Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time
of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was
informed that the check was ready for pick-up on September 27, 1996, the notice of the availability
of the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could
not be considered in delay in accepting the check because when it informed petitioner that it will only
be able to pick-up the check the next day, petitioner did not protest to this, but instead allowed
Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium
is paid. In UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.,  we said:
51

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting
an agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any 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 premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals, wherein we ruled that 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 loss. We said
therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners 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 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.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of
Appeals in its Resolution denying the motion for reconsideration of 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, p.
175). 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.
By the approval of the aforequoted findings and conclusion of the Court of Appeals,  Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a credit term
for the payment of the premium and loss occurs before the expiration of the tem1, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit term.

xxx

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, 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 said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.  (Citations omitted.)
52

In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section
77 itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt
of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself;
(3) where the parties agreed that premium payment shall be in installments and partial payment has
been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of
Appeals; (4) where the insurer granted the insured a credit term for the payment of the premium,
53

and loss occurs before the expiration of the term, as held in Makati Tuscany Condominium
Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day
credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid out in  UCPB
General Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not
contain an acknowledgment of the receipt of premium but merely a statement of account on its
face;  and (3) no payment of an installment was made at the time of loss on September 27.
54

Petitioner argues that his case falls under the fourth and fifth exceptions because the parties
intended the contract of insurance to be immediately effective upon issuance, despite non-payment
of the premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.

We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the
premium. Here, however, petitioner failed to establish the fact of a grant by respondent of a credit
term in his favor, or that the grant has been consistent. While there was mention of a credit
agreement between Trans-Pacific and respondent, such arrangement was not proven and was
internal between agent and principal.  Under the principle of relativity of contracts, contracts bind the
55

parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the
contract and has acted with knowledge. 56

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is
immediately effective upon issuance despite nonpayment of the premiums.  Even if there is a waiver
1âwphi1

of pre-payment of premiums, that in itself does not become an exception to Section 77, unless the
insured clearly gave a credit term or extension. This is the clear import of the fourth exception in
the UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the requirement in
Section 77 that "[n]otwithstanding 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, x x x." Moreover, the policy itself states:

WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the
basis of this Contract and deemed incorporated herein, has applied to the company for the
insurance hereinafter contained, subject to the payment of the Premium as consideration for such
insurance.  (Emphasis supplied.)
57

The policy states that the insured's application for the insurance is subject to the payment of the
premium.  There is no waiver of pre-payment, in full or in installment, of the premiums under the
1âwphi1

policy. Consequently, respondent cannot be placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment.

The consequence of this declaration is that petitioner is entitled to a return of the premium paid for
the vehicle in the amount of ₱55,620.60 under the principle of unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience.  Petitioner cannot claim the full amount of ₱140,893.50, which includes the payment of
58

premiums for the two other vehicles. These two policies are not affected by our ruling on the policy
subject of this case because they were issued as separate and independent contracts of
insurance.  We, however, find that the award shall earn legal interest of 6% from the time of extra
59

judicial demand on July 7, 1997.60

WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009
and the Resolution dated November 24, 2009 are AFFIRMED with the MODIFICATION that
respondent should return the amount of P55,620.60 with the legal interest computed at the rate of
6% per annum reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total amount
shall earn interest at the rate of 6% per annum from the finality of this judgment until its full
satisfaction.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice

WE CONCUR:

LUCAS P. BERSAMIN
Associate Justice
Acting Chairperson
 (On Official Leave)
MARIANO C. DEL CASTILLO *

BIENVENIDO L. REYES **

Associate Justice
Associate Justice

ALFREDO BENJAMIN S. caguioa ***

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LUCAS P. BERSAMIN
Associate Justice
Acting Chairperson, Third Division

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Acting Chairperson’s
attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Acting Chief Justice

G.R. No. L-22375 July 18, 1975

THE CAPITAL INSURANCE & SURETY CO., INC., petitioner,

vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS, respondents.

Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner.

K.V. Faylona for Private respondent.

MARTIN, J.:

Petition for review of a decision of the Court of Appeals affirming the decision of the Court of First
Instance of Manila in Civil Case No. 47934 entitled "Plastic Era Manufacturing Co., Inc. versus The
Capital Insurance and Surety Co., Inc."
On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. (hereinafter referred to as
Capital Insurance) delivered to the respondent Plastic Era Manufacturing Co., Inc., (hereinafter
referred to as Plastic Era) its open Fire Policy No. 22760  wherein the former undertook to insure the
1

latter's building, equipments, raw materials, products and accessories located at Sheridan Street,
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 anytime 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. However, through its
duly authorized representative, it executed the following acknowledgment receipt:

This acknowledged receipt of Fire Policy) NO. 22760 Premium

x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date ---------------------
(Date)

On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to Capital
Insurance, a check  for the amount of P1,000.00 postdated January 16, 1961 payable to the order of
2

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.

On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to 5:00
o'clock in the morning, the property insured by Plastic Era was destroyed by fire. In due time, the
latter notified Capital Insurance of the loss of the insured property by fire  and accordingly filed its
3

claim for indemnity thru the Manila Adjustment Company.  The loss and/or damage suffered by
4

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.

In less than a month Plastic Era demanded from Capital Insurance the payment of the sum of
P100,000.00 as indemnity for the loss of the insured property under Policy No. 22760 but the latter
refused for the reason that, among others, Plastic Era failed to pay the insurance premium.

On August 25, 1961, 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.

On November 15, 1961, the trial court rendered judgment, the dispositive portion of which reads as
follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendant for the sum of P88,325.63 with interest at the legal rate from the filing of
the complaint and to pay the costs.

From said decision, Capital Insurance appealed to the Court of Appeals.

On December 5, 1963, the Court of Appeals rendered its decision affirming that of the trial court.
Hence, this petition for review by certiorari to this Court.
Assailing the decision of the Court of Appeals petitioner assigns the following errors, to wit:

1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER TO PAY

PLASTIC ERA THE SUM OF P88,325.63 PLUS INTEREST, AND COST OF SUIT,
ALTHOUGH PLASTIC ERA NEVER PAID PETITIONER THE INSURANCE
PREMIUM OF P2,220.88.

2. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD

HAVE INSTITUTED AN ACTION FOR RESCISSION OF THE INSURANCE
CONTRACT ENTERED INTO BETWEEN IT AND PLASTIC ERA BEFORE
PETITIONER COULD BE RELIEVED OF RESPONSIBILITY UNDER ITS FIRE
INSURANCE POLICY.

3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS

UNWARRANTED AND THAT THE PETITIONER SHOULD HAVE BEEN
ABSOLVED FROM THE COMPLAINT, AND CONSEQUENTLY, THE LOWER
COURT SHOULD HAVE AWARDED PETITIONER A REASONABLE SUM AND AS
ATTORNEY'S FEES P25,000.00.

The pivotal issue in this petition is whether or not a contract of insurance has been duly perfected
between the petitioner, Capital Insurance, and respondent Plastic Era. Necessarily, the issue calls
for a correct interpretation of the insurance policy which states:

This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA

MANUFACTURING COMPANY, INC. hereinafter called the Insured, paying to the
Capital Insurance & Surety Co., Inc., hereinafter called the Company, the sum of
PESOS TWO THOUSAND ONE HUNDRED EIGHTY EIGHT the premium for the
first period hereinafter mentioned, for insuring against Loss or Damage by only Fire
or Lightning, as hereinafter appears, the Property hereinafter described and
contained, or described herein and not elsewhere, in the several sums following
namely: PESOS ONE HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; ...
THE COMPANY HEREBY AGREES with the Insured but subject to the terms and
conditions endorsed or otherwise expressed hereon, which are to be taken as part of
this Policy), that if the Property described, or any part thereof, shall be destroyed or
damaged by Fire or Lightning after payment of the Premiums, at anytime between
the 15th day of December One Thousand Nine Hundred and Sixty and 1 'clock in the
afternoon of the 15th day of December One Thousand Nine Hundred and Sixty-One
of the last day of any subsequent period in respect of which the insured, or a
successor in interest to whom the insurance is by an endorsement hereon declared
to be or is otherwise continued, shall pay to the Company and the Company shall
accept the sum required for the renewal of this Policy, the Company will pay or make
good all such loss or Damage, to an amount not exceeding during any one period of
the insurance in respect of the several matters specified, the sum; set opposite
thereto respectively, and not exceeding the whole sum of PESOS, ONE HUNDRED
THOUSAND ONLY, PHIL. CUR....

In clear and unequivocal terms the insurance policy provides that it is only upon payment of the
premiums by Plastic Era that Capital Insurance agrees to insure the properties of the former against
loss or damage in an amount not exceeding P100,000.00.

The crux of the problem then is whether at the time the insurance policy was delivered to Plastic Era
on December 17, 1960, the latter was able to pay the stipulated premium. It appears on record that
on the day the insurance policy was delivered, Plastic Era did not pay the Capital Insurance, but
instead executed an acknowledgment receipt of Policy No. 22760. In said receipt Plastic Era
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. What then is the effect of accepting such
acknowledgment receipt from the Plastic Era? Did the Capital Insurance mean to agree to make
good its undertaking under the policy if the premium could be paid on or before January 16, 1961?
And what would be the effect of the delivery to Capital Insurance on January 8, 1961 of a postdated
check (January 16, 1961) in the amount of P1,000.00, payable to the order of the latter? Could not
this have been considered a valid payment of the insurance premium? Pursuant to Article 1249 of
the New Civil Code:

xxx xxx xxx

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

xxx xxx xxx

In the meantime, the action derived from the original obligation shall be held in
abeyance.

Under this provision the mere delivery of a bill of exchange in payment of a debt does not
immediately effect payment. It simply suspends the action arising from the original obligation in
satisfaction of which it was delivered, until payment is accomplished either actually or
presumptively.  Tender of draft or check in order to effect payment that would extinguish the debtor's
5

liability should be actually cashed.  If the delivery of the check of Plastic Era to Capital Insurance
6

were to be viewed in the light of the foregoing, no payment of the premium had been effected, for it
is only when the check is cashed that it is said to effect payment.

Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay
the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has
implicitly agreed to modify the tenor of the insurance policy and in effect, waived the provision
therein that it would only pay for the loss or damage in case the same occurs after the payment of
the premium. Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered. The view taken in most
cases in the United States:

... is that although one of conditions of an insurance policy is that "it shall not be valid
or binding until the first premium is paid", if it is silent as to the mode of payment,
promissory notes received by the company must be deemed to have been accepted
in payment of the premium. In other words, a requirement for the payment of the first
or initial premium in advance or actual cash may be waived by acceptance of a
promissory note ... 7

Precisely, this was what actually happened when the Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium within thirty (30)
days from December 17, 1960. Hence, when the damage or loss of the insured property occurred,
the insurance policy was in full force and effect. The fact that the check issued by Plastic Era in
partial payment of the promissory note 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. 8

... If the check is accepted as payment of the premium even though it turns out to be
worthless, there is payment which will prevent forfeiture.  9

By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy — December 17, 1960
Capital Insurance had in effect extended credit to Plastic Era. 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. It could just deduct the premium due and
unpaid upon the satisfaction of the loss under the policy. 10 It did not have the right to cancel the policy for nonpayment of the premium
except by putting Plastic Era in default and giving it personal notice to that effect. This Capital Insurance failed to do.

... Where credit is given by an insurance company for the payment of the premium it
has no right to cancel the policy for nonpayment except by putting the insured in
default and giving him personal notice....  11

On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic Era in partial
payment of the premium on the insurance policy. Although the check was due for payment on
January 16, 1961 and Plastic Era had sufficient funds to cover it as of January 19, 1961, Capital
Insurance decided to hold the same for thirty-five (35) days before presenting it for payment. 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. 1äwphï1.ñët

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.  12

Finally, it is submitted by petitioner that:

We are here concerned with a case of reciprocal obligations, and respondent having
failed to comply with its obligation to pay the insurance premium due on the policy
within thirty days from December 17, 1960, petitioner was relieved of its obligation to
pay anything under the policy, without the necessity of first instituting an action for
rescission of the contract of insurance entered into by the parties.

But precisely in this case, 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.

WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm the
same in toto. Costs against the petitioner.

SO ORDERED.

Castro, Makasiar, Esguerra and Muñoz Palma, JJ., concur.

Teehankee, J., is on leave.

G.R. No. 137172            April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.

RESOLUTION

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision  of the
1 

Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of
the five insurance policies on Respondent's properties; (b) declaring the replacement-renewal
policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-
replacement policies. The modification consisted in the (1) deletion of the trial court's declaration that
three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award
of the attorney's fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the
Court of Appeals in its assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance
policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila]
....

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to
4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at 2410-2432 and
2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered,
and defendant accepted, five (5) Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No.
62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana
made its formal demand for indemnification for the burned insured properties. On the same
day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R" / "8",
Record, p. 192) that it was rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier;
and

c) The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond
the effective date of renewal as provided under Policy Condition No. 26, which states:

26. Renewal Clause. — Unless the company at least forty five days in advance of the end of
the policy period mails or delivers to the assured at the address shown in the policy notice of
its intention not to renew the policy or to condition its renewal upon reduction of limits or
elimination of coverages, the assured shall be entitled to renew the policy upon payment of
the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which
had procured insurance coverage from Petitioner for a number of years, had been granted a 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. Thus:
 Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May
7, 1990 but premium was paid more than 90 days later on August 31, 1990 under O.R. No.
4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance Risk Coverage
from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was
collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487
(Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657
covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium
therefor was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire
Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued
on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs.
"X" and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990
to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990
under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover
insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but
premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA"
and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to
January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated
December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R.
No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22,
1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance
coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance
Policy No. 29127 was issued on May 22, 1989 but premium was paid only on July 17, 1989
under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990
(Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15,
1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance
coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy
No. 26303 was issued on November 22, 1988 but premium therefor was collected only on
March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December 15,
1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant
proof that no timely notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from
Ultramar Reinsurance Brokers that plaintiff's reinsurance facility had been confirmed up to
67.5% only on April 15, 1992 as indicated on Exhibit "11". Apparently, the notice of non-
renewal (Exhibit "7," Record, p. 320) was sent not earlier than said date, or within 45 days
from the expiry dates of the policies as provided under Policy Condition No. 26; (2)
Defendant insurer unconditionally accepted, and issued an official receipt for, the premium
payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk
despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban
Adjusters and Valuers to investigate plaintiff's claim as shown by the letter dated July 17,
1992 (Exhibit "11", Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies
issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 . . .
had been extended or renewed by an implied credit arrangement though actual payment of premium
was tendered on a later date and after the occurrence of the (fire) risk insured against." We resolved
this issue in the negative in view of Section 77 of the Insurance Code and our decisions
in Valenzuela v. Court of Appeals;  South Sea Surety and Insurance Co., Inc. v. Court of
2 

Appeals;  and Tibay v. Court of Appeals.  Accordingly, we reversed and set aside the decision of the
3  4 

Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the
motion that we had made in the decision our own findings of facts, which are not in accord with
those of the trial court and the Court of Appeals. The courts below correctly found that no notice of
non-renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire
insurance policies. Thus, the policies in question were renewed by operation of law and were
effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the
60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly
on the extension of credit or time to pay the premium nor consider a policy binding before actual
payment. It urges the Court to take judicial notice of the fact that despite the express provision of
Section 77 of the Insurance Code, extension of credit terms in premium payment has been the
prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend
credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely
designed for the protection of the parties to an insurance contract. The Code itself, in Section 78,
authorizes the validity of a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of
Section 77 Petitioner persuaded and induced Respondent to believe that payment of premium on
the 60- to 90-day credit term was perfectly alright; in fact it accepted payments within 60 to 90 days
after the due dates. By extending credit and habitually accepting payments 60 to 90 days from the
effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and
in effect waived the provision therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.

Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that both the
trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by
ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy thereof to
Respondent's broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully aware
of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in
order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on
the effective date of renewal should first be made. Respondent's argument that Section 77 is not a
prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for
reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion for
reconsideration. The following facts, as found by the trial court and the Court of Appeals, are indeed
duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies
were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay
the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at
all that the notice sent by ordinary mail was received by Respondent, and the copy thereof
allegedly sent to Zuellig was ever transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were
paid by Respondent within the 60- to 90-day credit term and were duly accepted and
received by Petitioner's cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of
1978 (P.D. No. 1460) must be strictly applied to Petitioner's advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

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 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.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on
18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise
known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:

SECTION 72. An insurer is entitled to payment of 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. (Italic supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting
an agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SECTION 78. Any 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 premium is actually
paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have agreed to the payment
in installments of the premium and partial payment has been made at the time of loss. We said
therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments.
The records clearly show that the petitioners 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 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.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of
Appeals in its Resolution denying the motion for reconsideration of 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, p. 175).
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.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that 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 the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties. Article 1306 of
the Civil Code provides:

ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, 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 said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET
ASIDE, and a new one is hereby entered DENYING the instant petition for failure of
Petitioner to sufficiently show that a reversible error was committed by the Court of Appeals
in its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost.

SO ORDERED.

Bellosillo, Kapunan, Mendoza, Panganiban, Buena, Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr.

and Sandoval-Gutierrez, JJ ., concur.
Melo, J., I join the dissents of Justice Vitug and Pardo.
Vitug, J., Please see separate opinion.
Pardo, J., I dissent. See attached.

Separate Opinions

VITUG, J .:

An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract

where the rights and obligations of the parties correlate and mutually correspond. The insurer
assumes the risk of loss which an insured might suffer in consideration of premium payments under
a risk-distributing device. Such assumption of risk is a component of a general scheme to distribute
actual losses among a group of persons, bearing similar risks, who make ratable contributions to a
fund from which the losses incurred due to exposures to the peril insured against are assured and
compensated.

It is generally recognized that the business of insurance is one imbued with public interest.  For the
1 

general good and mutual protection of all the parties, it is aptly subjected to regulation and control by
the State by virtue of an exercise of its police power.  The State may regulate in various respects the
2 

relations between the insurer and the insured, including the internal affairs of an insurance company,
without being violative of due process.  3

A requirement imposed by way of State regulation upon insurers is the maintenance of an adequate
legal reserve in favor of those claiming under their policies.  The law generally mandates that
4 

insurance companies should retain an amount sufficient to guarantee the security of its policyholders
in the remote future, as well as the present, and to cover any contingencies that may arise or may be
fairly anticipated. The integrity of this legal reserve is threatened and undermined if a credit
arrangement on the payment of premium were to be sanctioned. Calculations and estimations of
liabilities under the risk insured against are predicated on the basis of the payment of premiums, the
vital element that establishes the juridical relation between the insured and the insurer. By legislative
fiat, any agreement to the contrary notwithstanding, the payment of premium is a condition
precedent to, and essential for, the efficaciousness of the insurance contract, except (a) in case of
life or industrial life insurance where a grace period applies, or (b) in case of a written
acknowledgment by the insurer of the receipt of premium, such as by a deposit receipt, the written
acknowledgment being conclusive evidence of the premium payment so far as to make the policy
binding. 5

Section 77 of the Insurance Code provides:

"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 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."

This provision amended Section 72 of the then Insurance Act by deleting the phrase, "unless there is
a clear agreement to grant the insured credit extension of the premium due," and adding at the
beginning of the second sentence the phrase, "[n]otwithstanding any agreement to the contrary."
Commenting on the new provision, Dean Hernando B. Perez states:
 "Under the former rule, whenever the insured was granted credit extension of the premium
due or given a period of time to pay the premium on the policy issued, such policy was
binding although premiums had not been paid (Section 72, Insurance Act; 6 Couch 2d. 67).
This rule was changed when the present provision eliminated the portion concerning credit
agreement, and added the phrase 'notwithstanding any agreement to the contrary' which
precludes the parties from stipulating that the policy is valid even if premiums are not paid.
Hence, under the present law, the policy is not valid and binding unless and until the
premium is paid (Arce vs. Capital Insurance & Surety Co., Inc., 117 SCRA 63). If the insurer
wants to favor the insured by making the policy binding notwithstanding the non-payment of
premium, a mere credit agreement would not be sufficient. The remedy would be for the
insurer to acknowledge in the policy that premiums were paid although they were not, in
which case the policy becomes binding because such acknowledgment is a conclusive
evidence of payment of premium (Section 78). Thus, the Supreme Court took note that under
the present law, Section 77 of the Insurance Code of 1978 has deleted the clause 'unless
there is a clear agreement to grant the insured credit extension of the premium due' (Velasco
vs. Apostol, 173 SCRA 228)." 6

By weight of authority, estoppel cannot create a contract of insurance, 7 neither can it be successfully

invoked to create a primary liability, 8 nor can it give validity to what the law so proscribes as a matter
of public policy. 9 So essential is the premium payment to the creation of the vinculum juris between
the insured and the insurer that it would be doubtful to have that payment validly excused even for a
fortuitous event. 
10

The law, however, neither requires for the establishment of the juridical tie, nor measures the
strength of such tie by, any specific amount of premium payment. A part payment of the premium, if
accepted by the insurer, can thus perfect the contract and bring the parties into an obligatory
relation.  Such a payment puts the contract into full binding force, not merely pro tanto, thereby
11 

entitling and obligating the parties by their agreement. Hence, in case of loss, full recovery less the
unpaid portion of the premium (by the operative act of legal compensation), can be had by the
insured and, correlatively, if no loss occurs the insurer can demand the payment of the unpaid
balance of the premium.  12

In the instant case, no juridical tie appears to have been established under any of the situations
hereinabove discussed.

WHEREFORE, I vote to deny the motion for reconsideration.

Melo, J ., concurs.

PARDO, J ., dissenting:

The majority resolved to grant respondent's motion for reconsideration of the Court's decision
promulgated on June 15, 1999. By this somersault, petitioner must now pay respondent's claim for
insurance proceeds amounting to P18,645,000.00, exclusive of interests, plus 25% of the amount
due as attorney's fees, P25,000.00 as litigation expenses, and costs of suit, covering its Pasay City
property razed by fire. What an undeserved largess! Indeed, an unjust enrichment at the expense of
petitioner; even the award of attorney's fees is bloated to 25% of the amount due.
We cannot give our concurrence. We beg to dissent. We find respondent's claim to be fraudulent:

First: Respondent Masagana surreptitiously tried to pay the overdue premiums before giving written
notice to petitioner of the occurrence of the fire that razed the subject property. This failure to give
notice of the fire immediately upon its occurrence blatantly showed the fraudulent character of its
claim. The fire totally destroyed the property on June 13, 1992; the written notice of loss was given
only more than a month later, on July 14, 1992, the day after respondent surreptitiously paid the
overdue premiums. Respondent very well knew that the policy was not renewed on time. Hence, the
surreptitious attempt to pay overdue premiums. Such act revealed a reprehensible disregard of the
principle that insurance is a contract uberrima fides, the most abundant good faith.  Respondent is
1 

required by law and by express terms of the policy to give immediate written notice of loss. This
must be complied with in the utmost good faith.

Another badge of fraud is that respondent deviated from its previous practice of coursing its premium
payments through its brokers. This time, respondent Masagana went directly to petitioner and paid
through its cashier with manager's checks. Naturally, the cashier routinely accepted the premium
payment because he had no written notice of the occurrence of the fire. Such fact was concealed by
the insured and not revealed to petitioner at the time of payment.

Indeed, if as contended by respondent, there was a clear agreement regarding the grant of a credit
extension, respondent would have given immediate written notice of the fire that razed the property.
This clearly showed respondent's attempt to deceive petitioner into believing that the subject
property still existed and the risk insured against had not happened.

Second: The claim for insurance benefits must fall as well because the failure to give timely written
notice of the fire was a material misrepresentation affecting the risk insured against.

Section 1 of the policy provides:

"All benefits under the policy shall be forfeited if the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devices are used by the insured or
any one acting on his behalf to obtain any benefit under the policy."  2

In the factual milieu, the purported practice of giving 60 to 90-day credit extension for payment of
premiums was a disputed fact. But it is a given fact that the written notice of loss was not
immediately given. It was given only the day after the attempt to pay the delayed premiums.

At any rate, the purported credit was a mere verbal understanding of the respondent Masagana of
an agreement between the insurance company (petitioner) and the insurance brokers of respondent
Masagana. The president of respondent Masagana admitted that the insurance policy did
not contain any proviso pertaining to the grant of credit within which to pay the premiums.
Respondent Masagana merely deduced that a credit agreement existed based on previous years'
practice that they had of delayed payments accepted by the insurer as reflected on the face of the
receipts issued by UCPB evidencing the payment of premiums.

"Q:         You also claim that you have 60 to 90 days credit arrangement with UCPB; is that
correct?,

A:         Yes, ma'am.
 Q:         I'm showing to you the policy which had previously been marked in evidence as
Exhibit "A", "B", "C", "D", & "E"' for the plaintiff and likewise, marked as exhibits "1", "2", "3",
"4", & "5" for the defendant. Could you show us, Mr. witness where in these policies does it
show that you are actually given 60 to 90 days credit arrangement with UCPB?

A:         Well, it's verbal with your company, and Ansons Insurance Brokerage. It is not
written.

Q:         It is not written in the policy?

A:         Yes.

Q:         You merely have verbal agreement with Ansons Insurance Brokerage?

A:         Yes; as shown in our mode of payment; in our vouchers and the receipts issued by
the insurance company."  3

It must be stressed that a verbal understanding of respondent Masagana cannot amend an

insurance policy. In insurance practice, amendments or even corrections to a policy are done by
written endorsements or tickets appended to the policy.

However, the date on the face of the receipts does not refer to the date of actual remittance by
respondent Masagana to UCPB of the premium payments, but merely to the date of remittance to
UCPB of the premium payments by the insurance brokers of respondent Masagana.

"Q: You also identified several receipts; here; official receipts issued by UCPB General
Insurance Company, Inc., which has been previously marked as Exhibits "F", "G", "H", "I",
and "J" for the plaintiff; is that correct?

A:         Yes.

Q:         And, you would agree with me that the dates indicated in these particular Official
Receipts (O. R.), merely indicated the dates when UCPB General Insurance Company
issued these receipts? Do you admit that, Mr. Witness?

A:         That was written in the receipts.

Q:         But, you would also agree that this did not necessarily show the dates when you
actually forwarded the checks to your broker, Anson Insurance Agency, for payment to
UCPB General Insurance Co. Inc., isn't it?

A:         The actual support of this would be the cash voucher of the company, Masagana
Telamart Inc., the date when they picked up the check from the company.

Q:         And are these cash voucher with you?

A:         I don't know if it is in the folder or in our folder, now.

Q:         So, you are not certain, whether or not you actually delivered the checks covered by
these Official Receipts to UCPB General Insurance, on the dates indicated?
 A:         I would suppose it is few days earlier, when they picked up the payment in our
office." 
4

Hence, what has been established was the grant of credit to the insurance brokers, not to the
assured. The insurance company recognized the payment to the insurance brokers as payment to
itself, though the actual remittance of the premium payments to the principal might be made later.
Once payment of premiums is made to the insurance broker, the assured would be covered by a
valid and binding insurance policy, provided the loss occurred after payment to the broker has been
made.

Assuming arguendo that the 60 to 90 day-credit-term has been agreed between the parties,
respondent could not still invoke estoppel to back up its claim. "Estoppel is unavailing in this
case," 5 thus spoke the Supreme Court through the pen of Justice Hilario G. Davide, Jr., now Chief
Justice. Mutatis mutandi, he may well be speaking of this case. He added that "[E]stoppel can not
give validity to an act that is prohibited by law or against public policy." 6 The actual payment of
premiums is a condition precedent to the validity of an insurance contract other than life insurance
policy. 7 Any agreement to the contrary is void as against the law and public policy. Section 77 of the
Insurance Code provides:

"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]

An incisive reading of the afore-cited provision would show that the emphasis was on the
conclusiveness of the acknowledgment in the policy of the receipt of premium, notwithstanding the
absence of actual payment of premium, because of estoppel. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon. "A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them." 8

This is the only case of estoppel which the law considers a valid exception to the mandatory
requirement of pre-payment of premium. The law recognized that the contracting parties, in entering
a contract of insurance, are free to enter into stipulations and make personal undertakings so long
as they are not contrary to law or public policy. However, the law is clear in providing that the
acknowledgment must be contained in the policy or contract of insurance. Anything short of it would
not fall under the exception so provided in Section 78.

Hence, because of respondent's failure to pay the premiums 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. The fire took place on June 13, 1992, twenty-two (22) days after the expiration of the
policy of fire insurance. The tender of payment of premiums was made only thirty (30) days after the
occurrence of the fire, or on July 13, 1992. Respondent Masagana did not give immediate notice to
petitioner of the fire as it occurred as required in the insurance policy. Respondent Masagana tried to
tender payment of the premiums overdue surreptitiously before giving notice of the occurrence of the
fire. More importantly, the parties themselves expressly stipulated that the insurance policy would
not be binding on the insurer unless the premiums thereon had been paid in full. Section 2 of the
policy provides:
 "2. This policy including any renewal and/or endorsement thereon is not in force until the
premium has been fully paid and duly receipted by the Company in the manner provided
therein.

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

"No payment in respect of any premium shall be deemed to be payment to the Company
unless a printed form of receipt for the same signed by an Official or duly appointed Agent of
the Company shall have been given to the Insured, except when such printed receipt is not
available at the time of payment and the company or its representative accepts the premium
in which case a temporary receipt other than the printed form may be issued in lieu thereof.
"Except only on those specific cases where corresponding rules and regulations which now
we are or may hereafter be in force provide for the payment of the stipulated premiums in
periodic installments at fixed percentages, it is hereby declared, agreed and warranted that
this policy shall be deemed effective valid and binding upon the Company when the
premiums thereof 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." 9 [emphasis supplied]

Thus, the insurance policy, including any renewal thereof or any endorsements thereon shall not
come in force until the premiums have been fully paid and duly received by the insurance Company.
No payment in respect of any premiums shall be deemed to be payment to the Insurance Company
unless a printed form of receipt for the same signed by an Official or duly appointed Agent of the
Company shall be given to the insured.

The case of Tibay v. Court of Appeals  is in point. The issue raised therein was: "May a fire
10 

insurance policy be valid, binding and enforceable upon mere partial payment of premium?" In the
said case, Fortune Life and General Insurance Co., Inc. issued Fire Insurance Policy No. 136171 in
favor of Violeta R. Tibay and/or Nicolas Roraldo, on a two-storey residential building located at 5855
Zobel Street, Makati City, together with all the 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, Violeta Tibay only paid P600.00, thus leaving a substantial
balance unpaid. On March 8, 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 for the proceeds of the fire insurance policy.

In denying the claim of insurance, the Court ruled that "by express agreement of the parties,
no vinculum juris or bond of law was to be established until full payment was effected prior to the
occurrence of the risk insured against.  As expressly stipulated in the contract, full payment must be
11 

made before the risk occurs for the policy to be considered effective and in force. "No vinculum
juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from
the fractional payment of premium." 12

The majority cited the case of Makati Tuscany Condominium Corp. vs. Court of Appeals  to support
13 

the contention that the insurance policies subject of the instant case were valid and effective.
However, the factual situation in that case was different from the case at bar.

In Tuscany, the Court held that the insurance policies were valid and binding because there was
partial payment of the premiums and a clear understanding between the parties that they had
intended the insurance policies to be binding and effective notwithstanding the staggered payment of
the premiums. On the basis of equity and fairness, the Court ruled that there was a perfected
contract of insurance upon the partial payment of the premiums, notwithstanding the provisions of
Section 77 to the contrary. The Court 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.

There is no dispute that like in any other contract, the parties to a contract of insurance enjoy the
freedom to stipulate on the terms and conditions that will govern their agreement so long as they are
not contrary to law, morals, good customs, public order or public policy. However, the agreement
containing such terms and conditions must be clear and definite.

In the case at bar, there was no clear and definite agreement between petitioner and respondent on
the grant of a credit extension; neither was there partial payment of premiums for petitioner to invoke
the exceptional doctrine in Tuscany.

Hence, the circumstances in the above cited case are totally different from the case at bar, and
consequently, not applicable herein.

Insurance is an aleatory 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
14 

the premium, which must be paid at the time and in the manner specified in the policy, and if not so
paid, the policy will lapse and be forfeited by its own terms. 
15

With regard to the contention that the absence of notice of non-renewal of the policy resulted to the
automatic renewal of the insurance policy, we find the contention untenable. As above discussed,
the law provides that only upon payment of the insurance premium will the insurance policy bind the
insurer to the peril insured against and hold it liable under the policy in case of loss.

Even in the absence of notice of non-renewal, the assured would be bound by the law that a non life
insurance policy takes effect only on the date payment of the premium was made.

Verily, it is elemental law that the payment of premium is a mandatory requisite to make the policy of
insurance effective. If the premium is not paid in the manner prescribed in the policy as intended by
the parties, the policy is void and ineffective. 
16

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer.  17

IN VIEW WHEREOF, I vote to DENY the respondent's motion for reconsideration, for lack of merit.

Melo, Puno and Quisumbing, JJ ., concur.

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.

BELLOSILLO, J.:

This case involves a purely legal question: 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, otherwise
known as the Insurance Code, as amended, which provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing 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.

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 (TUSCANY) Insurance Policy No. AH-CPP-9210452 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 No. AH-CPP-
9210596, 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 No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this
renewed policy, petitioner made two installment payments, both accepted by private respondent, the
first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for
Insurance Policy No. AH-CPP-9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-
9210651. 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. 1

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
2

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 is 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.

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.   is unavailing because the facts therein are substantially different from those in the case at bar.
5

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.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED.
Costs against petitioner.

SO ORDERED.

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.