Andres v Crown G.R. No.

L-10874 January 28, 1958

J. J.B.L. Reyes
Facts:
Andres and his wife applied for a policy for Php 5,000. Premiums were paid semiannually, and the amount of P165.15 was paid for two semesters. The third wasnt.
The company to Andres advising them that the policy lapsed and reinstatement was
in 60 days. The policy was allowed to lapse.
Andres and his wife applied for reinstatement. He mailed 100. There was a balance of
65 pesos.
The company assented on the condition that he pay the 65 pesos. He paid.
The wife passed away. The insurance company, however, didnt pay indemnity. They
enclosed a Death Claim Discharge but the plaintiff refused to sign. The company
returned Php 165. Andres returned it as well.
Andres filed a complaint in the CFI against Crown Life Insurance Company for the
recovery of the amount of P5,000, as the face value of a joint 20year endowment insurance policy. Andres presented his death claim as survivorbeneficiary. Payment having been denied, this case was instituted.
The court rendered decision absolving the defendant from any liability on the ground
that the policy having lapsed, it was not reinstated at the time the plaintiffs wife died.
Not satisfied with the decision, plaintiff appealed to the Court of Appeals, but the
appeal was later certified to this Court.
Issue: Whether or not the lapsed policy has been validly and completely reinstated
after said date.
Held: No. Petition dismissed.
Ratio:
The subsequent reinstatement of the policy was provided for in the contract itself in
the following terms:
If this policy lapses, it may be reinstated upon application made within three years
from the date of lapse, and upon production of evidence of the good health of the
injured, and such other evidence of insurability at the date of application for
reinstatement as would then satisfy the Company to issue a new Policy on the same
terms as this Policy, and upon payment of all overdue premiums and other
indebtedness in respect of this Policy, together with interest at six per cent,
compounded annually, and provided also that no change has taken place in such
good health and insurability subsequent to the date of such application and before
this Policy is reinstated.
As stated by the lower court, the conditions set forth in the policy for reinstatement
are the following: (a) application shall be made within three years from the date
of lapse; (b) there should be a production of evidence of the good health of
theinsured: (c) if the rate of premium depends upon the age of the Beneficiary, there
should likewise be a production of evidence of his or her good health; (d) there should
be presented such other evidence of insurability at the date of application for
reinstatement; (e) there should be no change which has taken place in such good
health and insurability subsequent to the date of such application and before the
policy is reinstated; and (f) all overdue premiums and other indebtedness in
respect of the policy, together with interest at six per cent, compounded
annually, should first be paid.

The plaintiff-appellant did not comply with the last condition; for he only paid P100
before his wifes death; and, despite the Companys reminders, he only remitted
the balance 2 days after his wife died. The company had the right to treat the contract
as lapsed and refuse payment of the policy.
Appellant, however, contends that the condition regarding payment of the premium
was waived by the insurance Company by its letters to appellant:
If you can not pay the full amount immediately, send as large an amount as possible
and advise us how soon you expect to be able to pay the balance. Every
consideration will be given to your request consistent with the companys regulations
If you are unable to cover this amount in full, send us as big an amount as you are
able and we will work out an adjustment most beneficial to you.
Nothing in these expressions that would indicate an intention on the insurers part to
waive the full payment of the overdue premium. A waiver must be clear and positive,
and intent to waive shown clearly and convincingly. The statements to the
insured were so vague and indefinite as to require further negotiations between the
parties, for their criteria might differ as to what would be the most beneficial
arrangement.
Upon the other hand, the subsequent letters of the insurance Company indicated that
the Company insisted on the full payment of the premium before the policy was
reinstated.
We may now reinstate your policy if you will kindly remit to us the balance of P65.15
due on your semi-annual premium for November, 1950. Please send us this amount
by return mail and upon its receipt we will in turn send the Certificate of
Reinstatement of your policy, thus rendering it once again in full force and effect.
The company did not consider the partial payment as sufficient consideration for the
reinstatement. Appellants failure to remit the balance before the death of his wife
operated to deprive him of any right to waive the policy and recover the face value.
James McGuire vs. The Manufacturers Life Insurance Co- The stipulation in a
life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by
the mere filing of an application. The Company has the right to deny the
reinstatement if it is not satisfied as to the insurability of the insured and if the latter
does no pay all overdue premium and all other indebtedness to the Company. After
the death of the insured the insurance Company cannot be compelled to entertain
an application for reinstatement of the policy because the conditions precedent to
reinstatement can no longer be determined and satisfied.
PEREZ V. CA- PERFECTION OF THE CONTRACT OF INSURANCE
323 SCRA 613 (2000)
Facts:
> Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since
1980 for P20,000.00.
> In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and
convinced him to apply for additional insurance coverage of P50,000.00, to avail of
the ongoing promotional discount of P400.00 if the premium were paid annually.
> Primitivo B. Perez accomplished an application form for the additional insurance
coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by
Lalog indicated the amount received was a "deposit."

> Unfortunately, Lalog lost the application form accomplished by Perez and so on
October 28, 1987, he asked the latter to fill up another application form. On
November 1, 1987, Perez was made to undergo the required medical examination,
which he passed.
> Lalog forwarded the application for additional insurance of Perez, together with all
its supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon
which office was supposed to forward the papers to the Manila office.
> On November 25, 1987, Perez died while he was riding a banca which capsized
during a storm.
> At the time of his death, his application papers for the additional insurance were
still with the Quezon office. Lalog testified that when he went to follow up the papers,
he found them still in the Quezon office and so he personally brought the papers to
the Manila office of BF Lifeman Insurance Corporation. It was only on November 27,
1987 that said papers were received in Manila.
> Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance
Corporation approved the application and issued the corresponding policy for the
P50,000.00 on December 2, 1987
> Virginia went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00
(double indemnity in case of accident) but the insurance company refused to pay the
claim under the additional policy coverage of P50,000.00, the proceeds of which
amount to P150,000.00 in view of a triple indemnity rider on the insurance policy.
> In its letter of January 29, 1988 to Virginia A. Perez, the insurance company
maintained that the insurance for P50,000.00 had not been perfected at the time of
the death of Primitivo Perez. Consequently, the insurance company refunded the
amount of P2,075.00 which Virginia Perez had paid
> Lifeman filed for the rescission and the declaration of nullity. Perez, on the other
hand, averred that the deceased had fulfilled all his prestations under the contractl
and all the elements of a valid contract are present.
> RTC ruled in favor of Perez. CA reversed.
Issue:
Whether or not there was a perfected additional insurance contract.
Held:
The contract was not perfected.
Insurance is a contract whereby, for a stipulated consideration, one party undertakes
to compensate the other for loss on a specified subject by specified perils. A contract,
on the other hand, is a meeting of the minds between two persons whereby one binds
himself, with respect to the other to give something or to render some service.
Consent must be manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain

and the acceptance absolute. When Primitivo filed an application for insurance, paid
P2,075.00 and submitted the results of his medical examination, his application was
subject to the acceptance of private respondent BF Lifeman Insurance Corporation.
The perfection of the contract of insurance between the deceased and respondent
corporation was further conditioned upon compliance with the following requisites
stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has been
paid and the policy delivered to and accepted by me/us in person while I/We, am/are
in good health."
The assent of private respondent BF Lifeman Insurance Corporation therefore was
not given when it merely received the application form and all the requisite supporting
papers of the applicant. Its assent was given when it issues a corresponding policy to
the applicant. Under the abovementioned provision, it 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.
It is not disputed, however, that when Primitivo died on November 25, 1987, his
application papers for additional insurance coverage were still with the branch office
of respondent corporation in Gumaca and it was only two days later, or on November
27, 1987, when Lalog personally delivered the application papers to the head office in
Manila. Consequently, there was absolutely no way the acceptance of the application
could have been communicated to the applicant for the latter to accept inasmuch as
the applicant at the time was already dead.

TIBAY, ET. AL V COURT OF APPEALS GR No. 119655, 24

May 1996
Bellosillo, [J.]

consideration is the premium, which must be paid at the time,

way and manner as stated in the policy, and if not so paid as in
this case, the policy is therefore forfeited by its own terms. In
this case, the policy taken out by the petitioner provides for
payment of premium in full. Since the petitioner only made
partial payment with the remaining balance paid only after the
fire or peril insured against has occurred, the insurance contract
therefore did not take effect barring the insured from claiming or
collecting from the loss of her building.

Facts:
1.

In January 22 1987, the Petitioner Violeta Tibay (and Nicolas

Roralso) obtained a fire insurance policy for their 2-storey from
the Private Respondent Fortune Life Insurance Co. The said
policy covers the period from January 23, 1987 until January 23,
1988 or one year for P600, 000 and at the agreed premium of
P2, 983.50. On January 23 or the next day, petitioner made a
partial payment of the premium with P600.

2.

Unfortunately, on March 8 1987, the said building was burned

to the ground. It was only two days after the fire that Petitioner
Violeta advanced the full payment of the policy premium which
was accepted by the insurer. On this same day, petitioner
likewise filed the claim that was then referred to the insurer's
adjuster. Investigation of the cause of fire commenced and the
petitioner submitted the required proof of loss.

3.

Despite that, the private respondent Fortune refused to pay

the insurance claim saying it as not liable due to the nonpayment by petitioner of the full amount of the premium as
stated in the policy.

4.

The petitioner then brought the matter to the Insurance

Commission but nothing good came out. Hence this case filed.

2.

Under Section 77 of the Insurance Code (Philippine), it

provides therein that "An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or
an industrial life policy whenever the grace period provision
applies." Herein case, the controversy is on the payment of the
premium. It cannot be disputed that premium is the elixir vitae
of the insurance business because the insurer is required by law
to maintain a reserve fund to meet its contingent obligations to
the public. Due to this, it is imperative that the premium is paid
fully and promptly. To allow the possibility of paying the
premium even after the peril has ensued will surely undermine
the foundation of the insurance business.
Tibay v CA G.R. No. 119655. May 24, 1996
J. Bellosillo:

5.

The trial court rule in favor of the petitioner. Upon appeal, the
Court of Appeals reversed the lower court's decision and held
that Fortune is not liable but ordered it to return the premium
paid with interest to the petitioner. Hence, this petition for
review.

Issue: W/N the partial payment of the premium rendered

the insurance policy ineffective?
1.

YES.
Insurance is a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. The

Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential
building at Zobel Street, Makati City. The insurance was for P600,000.00 covering the
period from January 23, 1987 to January 23, 1988. On January 23 1987, Tibay only
paid P600.00 of 3,000 peso premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance.
On the same day, she filed a claim on the policy. Her claim was accordingly referred
to the adjuster, Goodwill, which immediately wrote Violeta requesting her to furnish it
with the necessary documents for the investigation and processing of her claim.
Petitioner complied, and she signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages
in the amount of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the
insured building and personal properties. The Court of Appeals reversed the court by
removing liability from Fortune after returning the premium.

Hence this petition for review.

The petitioner contended that Fortune remained liable under the subject fire
insurance policy in spite of the failure of petitioners to pay their premium in full.
Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial
payment of premium?
Held: No. Petition dismissed.
Ratio:
The pertinent provisions read:
2. This policy including any renewal thereof and/or any endorsement thereon is not in
force until the premium has been fully paid to and duly receipted by the Company in
the manner provided herein.
This policy shall be deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly acknowledged in a
receipt signed by any authorized official of the company
Where the premium has only been partially paid and the balance paid only after the
peril insured against has occurred, the insurance contract did not take effect and the
insured cannot collect at all on the policy. The Insurance Code which says that no
policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium has been paid.
What does unless and until the premium thereof has been paid mean?
Escosura v. San Miguel- the legislative practice was to interpret with pay in
accordance to the intention of distinguish between full and partial payment, where the
modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the
premium made the policy effective during the whole period of the policy.
The SC didnt consider the 1967 Phoenix case as persuasive due to the different
factual scenario.
In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid
in installments, hence, this Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested 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.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In
this case however, there was no waiver. There was a stipulation that the policy wasnt
in force until the premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium.
The insurance contract itself expressly provided that the policy would be effective only
when the premium was paid in full.
Verily, it is elemental law that the payment of premium is requisite to keep the policy
of insurance in force. If the premium is not paid in the manner prescribed in the policy
as intended by the parties the policy is ineffective. Partial payment even when
accepted as a partial payment will not keep the policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These are when in
case the insurance coverage relates to life or insurance when a grace period applies,
and when the insurer makes a written acknowledgment of the receipt of premium to
be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured
cannot collect on the proceeds of the policy.

The terms of the insurance policy constitute the measure of the insurers liability. In
the absence of statutory prohibition to the contrary, insurance companies have the
same rights as individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
Dissent:
J. Vitug
All the calculations of the company are based on the hypothesis of prompt payments.
They not only calculate on the receipt of the premiums when due, but on the
compounding interest upon them. It is on this basis that they are enabled to offer
assurance at the favorable rates they do.
The failure of appellants to fully pay their premium prevented the contract of
insurance from becoming binding an Fortune. This series of acts is tainted with
misrepresentation and violates the uberrimae fidae principle of insurance contracts.
Tibay had entered into a "Non-Waiver Agreement" with the adjuster which permitted
Fortune to claim non-payment of premium as a defense.
The law neither requires, nor measures the strength of the vinculum juris by any
specific amount of premium payment. Payment on the premium, partly or in full, is
made by the insured which the insurer accepts. In fine, it is either that a juridical tie
exists (by such payment) or that it is not extant at all (by an absence thereof). Once
the juridical relation comes into being, the full efficacy follows. This is a partially
performed contract.
The non-payment of the balance shouldnt result in an automatic cancellation of the
contract; otherwise, the right to decide the effectivity of the contract would become
potestative.
Instead, the parties should be able to demand from each other the performance of
whatever obligations they had assumed or, if desired, sue timely for the rescission of
the contract.
In the meanwhile, the contract endures, and an occurrence of the risk insured riggers
the insurer's liability. Also, legal compensation arises where insurer's liability to the
insured would simply be reduced by the balance of the premium.
It must here be noted that the insured had made, and the insurer had accepted partial
premium payment on the policy weeks before the risk insured against took place. An
insurance is an aleatory contract effective upon its perfection although the occurrence
of a condition or event may later dictate the demandability of certain obligations.
Fortunes stipulation that insurance shall not "be . . . in force until the premium has
been fully paid," and that it "shall be deemed effective, valid and binding upon the
company only when the premiums therefor have actually been paid in full and duly
acknowledged," override the efficaciousness of the insurance contract despite the
payment and acceptance.
Article 78 of the Insurance Code An acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid
Even if a portion was paid in the premium, the insurance coverage becomes effective
and binding, any stipulation in the policy to the contrary notwithstanding.

Philippine Phoenix Surety & Insurance Co. v. Woodworks Inc (1979)

G.R.
No.
L-25317 August
6,
1979
Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Section 77 of the Insurance Code
FACTS:
1.
July 21, 1960: Woodworks, Inc. was issued a fire policy for its
building machinery and equipment by Philippine Phoenix Surety &
Insurance Co. for P500K covering July 21, 1960 to July 21, 1961.
Woodworks did not pay the premium totalling to P10,593.36.
2.
April 19, 1961: It was alleged that Woodworks notified Philippine
Phoenix the
cancellation
of
the
Policy
so Philippine
Phoenix credited P3,110.25 for the unexpired period of 94 days
and demanded in writing the payment of P7,483.11
3.
Woodworks refused stating that it need not pay premium "because
the Insurer did not stand liable for any indemnity during the period
the premiums were not paid."
4.
Philippine Phoenix filed with the CFI to recover its earned premium
of P7,483.11
1.
Woodworks: to pay the premium after the issuance of the
policy put an end to the insurance contract and rendered
the policy unenforceable
5.
CFI: favored Philippine Phoenix
ISSUE: W/N there was a valid insurance contract despite no premium
payment was paid
HELD: NO. Reversed
1
Policy provides for pre-payment of premium. To constitute an
extension of credit there must be a clear and express agreement
therefor and there nust be acceptance of the extension - none here
2
Since the premium had not been paid, the policy must be deemed
to have lapsed.
3
failure to make a payment of a premium or assessment at the time
provided for, the policy shall become void or forfeited, or the
obligation of the insurer shall cease, or words to like effect,
because the contract so prescribes and because such a stipulation
is a material and essential part of the contract. This is true, for
instance, in the case of life, health and accident, fire and hail
insurance policies
4
Explicit in the Policy itself is plaintiff's agreement to indemnify
defendant
for
loss
by
fire
only
"after
payment
of
premium" Compliance by the insured with the terms of the
contract is a condition precedent to the right of recovery.
5
The burden is on an insured to keep a policy in force by the
payment of premiums, rather than on the insurer to exert every
effort to prevent the insured from allowing a policy to elapse
through a failure to make premium payments.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide
Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision[1] of the 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
Respondents 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 courts declaration that three of the policies were in force from August 1991 to
August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10%
of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992,
Masaganas properties were razed by fire. On July 13, 1992, plaintiff tendered five
checks for P225,753.45 as renewal premium payments. A receipt was issued. On
July 14, 1992, Masagana made its formal demand for indemnification for the burned
insured properties. UCPB then rejected Masaganas claims under the argument that
the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPBs argument that Masaganas 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
Masagana, which had procured insurance coverage from UCPB 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. Most of the
premiums have been paid for more than 60 days after the issuance. Also, no timely
notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of 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 risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that 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 Masagana. Also, the premiums were paid
within the grace period.
Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to
Petitioners advantage despite its practice of granting a 60- to 90-day credit term for
the payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof
has been paid
An exception to this section is Section 78 which provides: 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.
Makati Tuscany v Court of Appeals- 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.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the
policy binding despite the fact that premium is actually unpaid. Section 77 does not
expressly prohibit an agreement granting credit extension. At the very least, both
parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may
grant credit extension for the payment of the premium. If the insurer has granted the
insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the
premium is paid after 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.
It would be unjust 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. Estoppel bars it from taking refuge since Masagana relied in good faith on
such practice. Estoppel then is the fifth exception

CAPITAL INSURANCE & SURETY CO. INC. V. PLASTIC ERA CO. INC (1975)
G.R.No. L-22375 July 18, 1975
Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Article 1249 of the New Civil Code
FACTS:

December 17, 1960: Capital Insurance & Surety Co.,

Inc. delivered to the respondent Plastic Era Manufacturing Co.,
Inc. its open Fire Policy insuring its building, equipments, raw
materials, products and accessories located at Sheridan Street,
Mandaluyong, Rizal between December 15, 1960 1 pm
- December 15, 1961 1 pm up to P100,000 but Plastic Era did
not pay the premium

January 8, 1961: Plastic Era delivered to Capital Insurance its

partial payment through check P1,000 postdated January 16, 1961

February 20, 1961: Capital Insurance tried to deposit the check

but it was dishonored due to lack of funds. According to the

records, on January 19, 1961 Plastic Era has had a bank balance
of P1,193.41

January 18, 1961: Plastic Era's properties were destroyed by

fire amounting to a loss of P283,875. The property was also
insured to Philamgen Insurance Company for P200K.

Capital Insurance refused Plastic Era's claim for failing to pay the
insurance premium

CFI: favored Capital Insurance

CA: affirmed
ISSUE: W/N there was a valid insurance contract because there
was an extention of credit despite failing to encash the check
payment
HELD: YES. Affirmed

Article 1249 of the New Civil Code

1.
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

Capital Insurance accepted the promise of Plastic Era to pay

the insurance premium within 30 days from the effective
date of policy. 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.

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.

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

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.

SOUTH SEA SURETY AND INSURANCE CO., INC. V. CA (1995)

G.R.
No.
102253
June
2,
Lessons Applicable:
Authority to Receive Payment/Effect of Payment (Insurance)
Binding Effect of Payment (Insurance)

1995

Laws Applicable: Section 77,Section 301, Section 306 of the Insurance

Code
FACTS:

Valenzuela Hardwood and Industrial Supply, Inc. shipped

with Seven Brothers' vessel M/V Seven Ambassador lauan round
logs numbering 940 at the port of Maconacon, Isabela for
shipment to Manila

Valenzuela insured the logs against loss and/or, damage with

South Sea Surety and Insurance Co., Inc. for P2,000,000 issuing
a Marine Cargo Insurance Policy

January 24 1984: Valenzuela gave the check in payment of the

premium on the insurance policy to Mr. Victorio Chua

January 25 1984: M/V Seven Ambassador sank

January 30 1984: The check was tendered to South Sea but it

refused. Instead it cancelled the insurance policy for non-payment
of the premium

RTC: favored Valenzuela against South Sea and Seven Brothers

CA: Absolved Seven Brothers

1.
stipulation in the charter party that the ship owner would
be exempted from liability in case of loss

South Sea contends that it is cancelled and that Mr. Chua is not
authorized

ISSUE: W/N Mr. Chua is an authorized representative to receive

the payment

HELD: YES. petition is DENIED

payment of the premium is a condition precedent to, and essential

for, the efficaciousness of the contract.
1.
The only two statutorily provided exceptions are
1.
(a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace
period applies and
2.
(b)
when
the
insurer
makes
a
written
acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then
conclusive evidence of the premium payment

South Sea Surety and Insurance Co., Inc. delivered to him the
policy on 21 January 1984 at his office to be delivered to the
Valenzuela - deemed to have been authorized by the South Sea
Surety and Insurance Co., Inc. to receive the premium

Insurance Case Digest: Malayan Insurance Co., Inc. v. Arnaldo (1987)

G.R. No. L-67835 October 12, 1987

Lessons Applicable: Authority to Receive Payment/Effect of Payment

(Insurance)

Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the
Insurance Code

FACTS:

June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion

Pinca, Fire Insurance Policy for her property effective July 22, 1981, until
July 22, 1982

October 15,1981: MICO allegedly cancelled the policy for non-payment, of

the premium and sent the corresponding notice to Pinca

December 24, 1981: payment of the premium for Pinca was received by
Domingo Adora, agent of MICO

January 15, 1982: Adora remitted this payment to MICO,together with other
payments

January 18, 1982: Pinca's property was completely burned

6.
February 5, 1982: Pinca's payment was returned by MICO to Adora on the
ground that her policy had been cancelled earlier but Adora refused to
accept it and instead demanded for payment
7.
Under Section 416 of the Insurance Code, the period for appeal is thirty days
from notice of the decision of the Insurance Commission. The petitioner filed
its motion for reconsideration on April 25, 1981, or fifteen days such notice,
and the reglementary period began to run again after June 13, 1981, date of
its receipt of notice of the denial of the said motion for reconsideration. As
the herein petition was filed on July 2, 1981, or nineteen days later, there is
no question that it is tardy by four days.
8.
Insurance Commission: favored Pinca
9.
MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was authorized to
receive it
HELD: YES. petition is DENIED
6
SEC. 77. An insurer is entitled to 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.
7
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance broker a
policy or contract of insurance shall be demmed 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.
1
Payment to an agent having authority to receive or collect payment is
equivalent to payment to the principal himself; such payment is complete
when the money delivered is into the agent's hands and is a discharge of the
indebtedness owing to the principal.
2
SEC. 64. No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice of

cancellation shall be effective unless it is based on the occurrence, after the

effective date of the policy, of one or more of the following:
(a)

non-payment of premium;

(b)

conviction of a crime arising out of acts increasing the hazard insured against;

(c)

discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard

insured against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or
(f)
a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
1

2
(1)

SEC. 65. All notices of cancellation mentioned in the preceding section

shall be in writing, mailed or delivered to the named insured at the address
shown in the policy, and shall state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the cancellation is
based.
A valid cancellation must, therefore, require concurrence of the following
conditions:
There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured,
(c) at the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and
(b) that upon written request of the insured, the insurer will furnish the facts on which
the cancellation is based.
1
All MICO's offers to show that the cancellation was communicated to the
insured is its employee's testimony that the said cancellation was sent "by
mail through our mailing section." without more
2
It stands to reason that if Pinca had really received the said notice, she
would not have made payment on the original policy on December 24,
1981. Instead, she would have asked for a new insurance, effective on that
date and until one year later, and so taken advantage of the extended
period.
3
Incidentally, Adora had not been informed of the cancellation either and saw
no reason not to accept the said payment
4
Although Pinca's payment was remitted to MICO's by its agent on January
15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it

presumably had learned of the occurrence of the loss insured against on

January 18, 1982 make the motives of MICO highly suspicious

AMERICAN HOME V CHUA G.R. NO. 130421. JUNE 28, 1999

C.J. Davide
Facts:
Chua obtained from American Home a fire insurance covering the stock-in-trade of
his business. The insurance was due to expire on March 25, 1990.
On April 5, 1990, Chua issued a check for P2,983.50 to American Homes agent,
James Uy, as payment for the renewal of the policy. The official receipt was issued on
April 10. In turn, the latter a renewal certificate. A new insurance policy was issued
where petitioner undertook to indemnify respondent for any damage or loss arising
from fire up to P200,000 March 20, 1990 to March 25, 1991.
On April 6, 1990, the business was completely razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000. Respondent filed an insurance claim with
petitioner and four other co-insurers, namely, Pioneer Insurance, Prudential
Guarantee, Filipino Merchants and Domestic Insurance. Petitioner refused to honor
the claim hence, the respondent filed an action in the trial court.
American Home claimed there was no existing contract because respondent did not
pay the premium. Even with a contract, they contended that he was ineligible bacue
of his fraudulent tax returns, his failure to establish the actual loss and his failure to
notify to petitioner of any insurance already effected. The trial court ruled in favor of
respondent because the respondent paid by way of check a day before the fire
occurred and that the other insurance companies promptly paid the claims. American
homes was made to pay 750,000 in damages.
The Court of Appeals found that respondents claim was substantially proved and
petitioners unjustified refusal to pay the claim entitled respondent to the award of
damages.
American Home filed the petition reiterating its stand that there was no existing
insurance contract between the parties. It invoked Section 77 of the Insurance Code,
which provides that no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid and
the case of Arce v. Capital Insurance that until the premium is paid there is no
insurance.
Issues:
1. Whether there was a valid payment of premium, considering that respondents
check was cashed after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts
3. Whether respondent is entitled to the award of damages.
Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.
Ratio:
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid
check payment by respondent to petitioner. The court respected this.
The renewal certificate issued to respondent contained the acknowledgment that
premium had been paid.

In the instant case, the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for the payment. It is, as well,
bound by its agents acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is
actually paid.
2. Submission of the alleged fraudulent documents pertained to respondents income
tax returns for 1987 to 1989. Respondent, however, presented a BIR certification that
he had paid the proper taxes for the said years. Since this is a question of fact, the
finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of
existing co-insurers, non-disclosure is a violation that entitles the insurer to avoid the
policy. The purpose for the inclusion of this clause is to prevent an increase in the
moral hazard. The relevant provision is Section 75, which provides that:
A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.
Respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from invoking this argument due to
the loss adjusters admission of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latters nondisclosure of the other insurance contracts when petitioner actually had prior
knowledge thereof. The loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other insurance contracts binds
petitioner.
3. Petitioner is liable to pay the loss. But there is merit in petitioners grievance
against the damages and attorneys fees awarded. There was no basis for an award
for loss of profit. This cannot be shouldered by petitioner whose obligation is limited to
the object of insurance.
There was no fraud to justify moral damages. Exemplary damages cant be awarded
because the defendant never acted in a reckless manner to claim insurance.
Attorneys fees cant be recovered as part of damages because no premium should
be placed on the right to litigate

AREOLA V. CA (1994) G.R. No. 95641 September 22, 1994

Lessons Applicable: Binding Effect of Payment (Insurance)

Laws Applicable: Art. 1910,Article 1191
FACTS:

December 17, 1984: Prudential Guarantee And Assurance, Inc. issued

collector's provisional receipt amounting to P1,609.65

June 29, 1985: 7 months after the issuance of petitioner Santos

Areola's Personal Accident Insurance Policy, Prudential Guarantee And
Assurance, Inc. unilaterally cancelled it for failing to pay his premiums
through its manager Teofilo M. Malapit

Shocked by the cancellation of the policy, Santos approached Carlito

Ang, agent of Prudential and demanded the issuance of an official

receipt. Ang told Santos that it was a mistake and assured its
rectification.
July 15, 1985: Santos demanded the same terms and same rate
increase as when he paid the provincial receipt but Malapit insisted
that the partial payment he made was exhausted and that he should
pay the balance or his policy will cease to operate
July 25, 1985 : Assistant Vice-President Mariano M. Ampil III
apologized
August 6, 1985 had filed a complaint for breach of contract with
damages before the lower court
August 13, 1985: Santos received through Carlito Ang the leeter
of Assistant Vice-President Mariano M. Ampil III finding error on their
part since premiums were not remitted Malapit, proposed to extend its
lifetime to December 17, 1985
RTC: favored Santos - Prudential in Bad Faith
CA: Reversed - not motivated by negligence, malice or bad faith in
cancelling subject policy
ISSUE: W/N the Areolas can file against damages despite the effort to
rectify the cancellation
HELD: YES. RTC reinstated
Malapit's fraudulent act of misappropriating the premiums paid is
beyond doubt directly imputable to Prudential
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Subsequent reinstatement could not possibly absolve Prudential there
being an obvious breach of contract
a contract of insurance creates reciprocal obligations for both insurer
and insured
Article 1191
o choice between fulfillment or rescission of the obligation in
case one of the obligors fails to comply with what is incumbent
upon him
o entitles the injured party to payment of damages, regardless
of whether he demands fulfillment or rescission of the
obligation
Nominal damages are "recoverable where a legal right is technically
violated and must be vindicated against an invasion that has produced
no actual present loss of any kind, or where there has been a breach
of contract and no substantial injury or actual damages whatsoever
have been or can be shown.