Insurance for JULY 29

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FOR JULY 29, 2013

POLICY

FIRST DIVISION

G.R. No. L-25317 August 6, 1979

PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY,Plaintiff-Appellee, vs.

WOODWORKS, INC.,Defendant-Appellant.

Zosimo Rivas for appellant.chanrobles virtual law library

Manuel O. Chan for appellee.

MELENCIO-HERRERA, J.:

This case was certified to this Tribunal by the Court of Appeals in its Resolution of October 4,

1965 on a pure question of law and "because the issues raised are practically the same as those inCA-G.R. No. 32017-R" between the same parties, which case had been forwarded to us on April

1, 1964. The latter case, "Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc.,"

docketed in this Court as L-22684, was decided on August 31, 1967 and has been reported in 20SCRA 1270.chanroblesvirtualawlibrarychanrobles virtual law library

Specifically, this action is for recovery of unpaid premium on a fire insurance policy issued by

plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of defendant Woodworks,

Inc.chanroblesvirtualawlibrarychanrobles virtual law library

The following are the established facts: chanrobles virtual law library

On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance Policy

No. 9749 for P500,000.00 whereby plaintiff insured defendant's building, machinery and

equipment for a term of one year from July 21, 1960 to July 21, 1961 against loss by fire. Thepremium and other charges including the margin fee surcharge of P590.76 and the documentary

stamps in the amount of P156.60 affixed on the Policy, amounted to

P10,593.36.chanroblesvirtualawlibrarychanrobles virtual law library

It is undisputed that defendant did not pay the premium stipulated in the Policy when it was

issued nor at any time thereafter.chanroblesvirtualawlibrarychanrobles virtual law library

On April 19, 1961, or before the expiration of the one-year term, plaintiff notified defendant,

through its Indorsement No. F-6963/61, of the cancellation of the Policy allegedly upon request

of defendant. 1 The latter has denied having made such a request. In said Indorsement, plaintiffcredited defendant with the amount of P3,110.25 for the unexpired period of 94 days, and

claimed the balance of P7,483.11 representing ,learned premium from July 21, 1960 to 18th

April 1961 or, say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment ofsaid amount. 2 Defendant, through counsel, disclaimed any liability in its reply- letter of August

15, 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand

liable for any indemnity during the period the premiums were not paid." 3chanrobles virtual law

library

On January 30, 1962, plaintiff commenced action in the Court of First Instance of Manila,

Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as "earned premium."

Defendant controverted basically on the theory that its failure "to pay the premium after theissuance of the policy put an end to the insurance contract and rendered the policy

unenforceable." 4chanrobles virtual law library


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On September 13, 1962, judgment was rendered in plaintiff's favor "ordering defendant to pay

plaintiff the sum of P7,483.11, with interest thereon at the rate of 6%, per annum from January

30, 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's feesof the plaintiff, and the costs of the suit." From this adverse Decision, defendant appealed to the

Court of Appeals which, as heretofore stated, certified the case to us on a question of

law.chanroblesvirtualawlibrarychanrobles virtual law library

The errors assigned read:

1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding

contract even if the premium stated in the policy has not been paid.chanroblesvirtualawlibrary

chanrobles virtual law library

2. That the lower court erred in sustaining that the premium in Insurance Policy, Exhibit B,became an obligation which was demandable even after the period in the Policy has

expired.chanroblesvirtualawlibrarychanrobles virtual law library

3. The lower court erred in not deciding that a premium not paid is not a debt enforceable by

action of the insurer.

We find the appeal meritorious.chanroblesvirtualawlibrarychanrobles virtual law library

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." 5 The consideration is the

"premium". "The premium must be paid at the time and in the way and manner specified in thepolicy and, if not so paid, the policy will lapse and be forfeited by its own terms." 6chanrobles

virtual law library

The provisions on premium in the subject Policy read:

THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of - MESSRS.

WOODWORKS, INC. - hereinafter called the Insured,payingto the PHILIPPINE PHOENIXSURETY AND INSURANCE, INC., hereinafter called the Company, the sum of - PESOS

NINE THOUSAND EIGHT HUNDRED FORTY SIX ONLY - the Premium for the first period

hereinafter mentioned. ...chanroblesvirtualawlibrarychanrobles virtual law library

xxx xxx xxxchanrobles virtual law library

THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described,or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of

Premium, at any time between 4:00 o'clock in the afternoon of the TWENTY FIRST day ofJULY One Thousand Nine Hundred and SIXTY and 4:00 o'clock in the afternoon of the

TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis

supplied)

Paragraph "2" of the Policy further contained the following condition:

2. No payment in respect of any premium shall be deemed to be payment to the Company unlessa 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.

Paragraph "10" of the Policy also provided:

10. This insurance may be terminated at any time at the request of the Insured, in which case theCompany will retain the customary short period rate for the time the policy has been in force.

This insurance may also at any time be terminated at the option of the Company, on notice to

that effect being given to the Insured, in which case the Company shall be liable to repay on


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demand a ratable proportion of the premium for the unexpired term from the date of the

cancelment.

Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the policy istendered the insured must pay the premium unless credit is given or there is a waiver, or some

agreement obviating the necessity for prepayment."7

To constitute an extension of credit theremust be a clear and express agreement therefor." 8chanrobles virtual law library

From the Policy provisions, we fail to find any clear agreement that a credit extension wasaccorded defendant. And even if it were to be presumed that plaintiff had extended credit from

the circumstances of the unconditional delivery of the Policy without prepayment of the

premium, yet it is obvious that defendant had not accepted the insurer's offer to extend credit,which is essential for the validity of such agreement.

An acceptance of an offer to allow credit, if one was made, is as essential to make a valid

agreement for credit, to change a conditional delivery of an insurance policy to an unconditional

delivery, as it is to make any other contract. Such an acceptance could not be merely a mental actor state of mind, but would require a promise to pay made known in some manner to defendant. 9

In this respect, the instant case differs from that involving the same parties entitledPhilippine

Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., 10 where recovery of the balance of the

unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract ofinsurance but a partially performed one as far as the payment of the agreed premium was

concerned." This is not the situation obtaining here where no partial payment of premiums has

been made whatsoever.chanroblesvirtualawlibrarychanrobles virtual law library

Since the premium had not been paid, the policy must be deemed to have lapsed.

The non-payment of premiums does not merely suspend but put, an end to an insurance contract,since the time of the payment is peculiarly of the essence of the contract. 11chanrobles virtual

law library

... the rule is that under policy provisions that upon the failure to make a payment of a premiumor 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. 12

In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a validdefense against recovery under the Policy it had issued. Explicit in the Policy itself is plaintiff's

agreement to indemnify defendant for loss by fire only "after payment of premium," supra.

Compliance by the insured with the terms of the contract is a condition precedent to the right ofrecovery.

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 afailure to make premium payments. The continuance of the insurer's obligation is conditional

upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the

contractual relation between the parties having ceased. 13

Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums andinvalid for the purpose of indemnity." 14chanrobles virtual law library

The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree

No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance

issued by an insurance company is valid and binding unless and until the premium thereof has


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been paid, notwithstanding any agreement to the contrary.chanroblesvirtualawlibrarychanrobles

virtual law library

WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint herebydismissed.

Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ.,

concur.chanroblesvirtualawlibrarychanrobles virtual law library

Makasiar, J., is on leave.

PREMIUM

FIRST DIVISION 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 asCapital Insurance) delivered to the respondent Plastic Era Manufacturing Co., Inc., (hereinafter

referred to as Plastic Era) its open Fire Policy No. 22760 1 wherein the former undertook to

insure the latter's building, equipments, raw materials, products and accessories located at

Sheridan Street, Mandaluyong, Rizal. The policy expressly provides that if the property insuredwould 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 December1961, the insurance company shall make good all such loss or damage in an amount notexceeding 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 2 for the amount of P1,000.00 postdated January 16, 1961 payable to

the order of the latter and drawn against the Bank of America. However, Capital Insurance triedto 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.


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

by Plastic Era was estimated by the Manila Adjustment Company to be P283,875. However,

according to the records the same property has been insured by Plastic Era with the PhilamgenInsurance Company for P200,000.00.

In less than a month Plastic Era demanded from Capital Insurance the payment of the sum ofP100,000.00 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 ofthe 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 readsas 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 thecosts.

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 PLASTICERA 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 HAVEINSTITUTED 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 THECOMPLAINT, 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 CapitalInsurance & 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 hereinafterappears, the Property hereinafter described and contained, or described herein and not elsewhere,

in the several sums following namely: PESOS ONE HUNDRED THOUSAND ONLY,


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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 destroyedor 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 anysubsequent 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, theCompany 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 PlasticEra 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 receiptPlastic 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 beforeJanuary 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 notimmediately 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. 5 Tender of draft or check in order to effect payment that would extinguish the

debtor's liability should be actually cashed. 6 If the delivery of the check of Plastic Era to CapitalInsurance 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 theprovision 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 thepremium. This rendered the policy immediately operative on the date it was delivered. The view

taken in most cases in the United States:


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... 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 notesreceived 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 tothat 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 therights 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 anindependent 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 puttingPlastic 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, CapitalInsurance 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 dishonoredlater.

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 thepolicy, 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.


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WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm the

same in toto. Costs against the petitioner.

SO ORDERED

Insurance Case Digest: Capital Insurance & Surety Co. Inc. v. Plastic Era Co. Inc (1975)

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

o 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 issilent 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 hadbeen dishonored later.
http://www.philippinelegalguide.com/2011/12/jurisprudence-gr-no-l-22375_9600.htmlhttp://www.philippinelegalguide.com/2011/12/jurisprudence-gr-no-l-22375_9600.html


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PREMIUM

SECOND DIVISION

[G.R. No. 113899. October 13, 1999]

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS

AND MEDARDA V. LEUTERIO, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision[1] dated May

17, 1993, of the Court of Appeals and its Resolution[2] dated January 4, 1994 in CA-G.R. CV

No. 18341. The appellate court affirmed in toto the judgment of the Misamis Oriental RegionalTrial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific

Life Assurance Co. The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE

ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation toCertification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE

PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX

THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages,

attorneys fees and litigation expenses in the complaint and counterclaim, with costs against thedefendant and dismissing the complaint in respect to the plaintiffs, other than the widow-

beneficiary, for lack of cause of action.[3]

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life AssuranceCorporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP).

Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP appliedfor membership in the group life insurance plan. In an application form, Dr. Leuterio answered

questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,

cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?

Answer: No. If so give details ___________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [ x ] Yes [ ] No.[4]

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two

hundred (P86,200.00) pesos.

On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently,

DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio

was not physically healthy when he applied for an insurance coverage on November 15, 1983.Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension,


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which caused his death. Allegedly, such non-disclosure constituted concealment that justified

the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed

a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for

Specific Performance with Damages.[5] During the trial, Dr. Hernando Mejia, who issued thedeath certificate, was called to testify. Dr. Mejias findings, based partly from the information

given by the respondent widow, stated that Dr. Leuterio complained of headaches presumably

due to high blood pressure. The inference was not conclusive because Dr. Leuterio was notautopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and

against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial courts decision.Hence, the present petition. Petitioners interposed the following assigned errors:

"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO

THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TOTHE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION

INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO LEUTERIO ONEOF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST

DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF

JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER THE

PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO

DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW

HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCEWITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.

4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO

CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF WILFREDO

LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE

INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCECLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6]

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a

group life insurance contract from a complaint filed by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had

hypertension, which would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six

thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage

payable by the mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real

party in interest, hence the trial court acquired no jurisdiction over the case. It argues that whenthe Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the

proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in

the suit.


11/28

To resolve the issue, we must consider the insurable interest in mortgaged properties and the

parties to this type of contract. The rationale of a group insurance policy of mortgagors,

otherwise known as the mortgage redemption insurance, is a device for the protection of boththe mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of

contract so that in the event of the unexpected demise of the mortgagor during the subsistence of

the mortgage contract, the proceeds from such insurance will be applied to the payment of themortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.[7] In a

similar vein, ample protection is given to the mortgagor under such a concept so that in the event

of death; the mortgage obligation will be extinguished by the application of the insuranceproceeds to the mortgage indebtedness.[8] Consequently, where the mortgagor pays the

insurance premium under the group insurance policy, making the loss payable to the mortgagee,

the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the

contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurancefund, such loss-payable clause does not make the mortgagee a party to the contract.[9]

Section 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name

providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to amortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease

to be a party to the original contract, and any act of his, prior to the loss, which would otherwise

avoid the insurance, will have the same effect, although the property is in the hands of themortgagee, but any act which, under the contract of insurance, is to be performed by the

mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had

been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the

insurance, the policy stating that: In the event of the debtors death before his indebtedness

with the Creditor [DBP] shall have been fully paid, an amount to pay the outstandingindebtedness shall first be paid to the creditor and the balance of sum assured, if there is any,

shall then be paid to the beneficiary/ies designated by the debtor.[10] When DBP submitted the

insurance claim against petitioner, the latter denied payment thereof, interposing the defense ofconcealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor

and took the necessary action of foreclosure on the residential lot of private respondent.[11] In

Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:

Insured, being the person with whom the contract was made, is primarily the proper person to

bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy

is taken wholly or in part for the benefit of another person named or unnamed, and although it isexpressly made payable to another as his interest may appear or otherwise. * * * Although a

policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to

him, yet the mortgagor may sue thereon in his own name, especially where the mortgageesinterest is less than the full amount recoverable under the policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the

purpose of collection, or has assigned as collateral security any judgment he may obtain.[13]

And since a policy of insurance upon life or health may pass by transfer, will or succession to

any person, whether he has an insurable interest or not, and such person may recover it whatever

the insured might have recovered,[14] the widow of the decedent Dr. Leuterio may file the suitagainst the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as itsdefense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose

that he had hypertension, which might have caused his death. Concealment exists where the


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assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing

requires that he should communicate it to the assured, but he designedly and intentionally

withholds the same.[15]

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as

supported by the information given by the widow of the decedent. Grepalife asserts that Dr.Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital

record, and that the widows declaration that her husband had possible hypertension several

years ago should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an

autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no

knowledge of Dr. Leuterios any previous hospital confinement.[16] Dr. Leuterios deathcertificate stated that hypertension was only the possible cause of death. The private

respondents statement, as to the medical history of her husband, was due to her unreliable

recollection of events. Hence, the statement of the physician was properly considered by the trial

court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health

and that he had not consulted a doctor or any of the enumerated ailments, includinghypertension; when he died the attending physician had certified in the death certificate that the

former died of cerebral hemorrhage, probably secondary to hypertension. From this report, the

appellant insurance company refused to pay the insurance claim. Appellant alleged that the

insured had concealed the fact that he had hypertension.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered

from hypertension. Aside from the statement of the insureds widow who was not even sure ifthe medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor

produced any witness who could attest to Dr. Leuterios medical history...

x x x

Appellant insurance company had failed to establish that there was concealment made by the

insured, hence, it cannot refuse payment of the claim.[17]

The fraudulent intent on the part of the insured must be established to entitle the insurer to

rescind the contract.[18] Misrepresentation as a defense of the insurer to avoid liability is anaffirmative defense and the duty to establish such defense by satisfactory and convincing

evidence rests upon the insurer.[19] In the case at bar, the petitioner failed to clearly and

satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there

was no evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time

of the mortgagors death. Hence, for private respondents failure to establish the same, theaction for specific performance should be dismissed. Petitioners claim is without merit. A life

insurance policy is a valued policy.[20] Unless the interest of a person insured is susceptible of

exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life orhealth is the sum fixed in the policy.[21] The mortgagor paid the premium according to the

coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtors death during the terms of this

insurance, a death benefit in the amount of P86,200.00 shall be paid.

In the event of the debtors death before his indebtedness with the creditor shall have been fully

paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the


13/28

balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by

the debtor.[22] (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In

private respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in

satisfaction of mortgagors outstanding loan. Considering this supervening event, the insuranceproceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity

dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius

detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosedon the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his

widow, herein private respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court ofAppeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is

ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred

(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon

presentation of proof of prior settlement of mortgagors indebtedness to Development Bank ofthe Philippines. Costs against petitioner.

SO ORDERED.

Mendoza, Buena, and De Leon Jr., JJ., concur.

Bellosillo, (Chairman), J., on official leave.

PREMIUM

FIRST DIVISION

[G.R. No. 103576. August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs.

HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and

REGIONAL SHERIFF OF CALOOCAN CITY, respondents.

D E C I S I O N

VITUG, J.:

Would it be valid and effective to have a clause in a chattel mortgage that purports to likewiseextend its coverage to obligations yet to be contracted or incurred? This question is the core

issue in the instant petition for review on certiorari.

Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber &

Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel

mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage stoodby way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A

provision in the chattel mortgage agreement was to this effect -


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"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the

full obligation or obligations above-stated according to the terms thereof, then this mortgage

shall be null and void. x x x.

"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of

the former note, as an extension thereof, or as a new loan, or is given any other kind ofaccommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases

of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the

payment of the said promissory note or notes and/or accommodations without the necessity ofexecuting a new contract and this mortgage shall have the same force and effect as if the said

promissory note or notes and/or accommodations were existing on the date thereof. This

mortgage shall also stand as security for said obligations and any and all other obligations of the

MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligationshave been contracted before, during or after the constitution of this mortgage."[1]

In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in

1981, it obtained from respondent bank additional financial accommodations totallingP2,700,000.00.[2] These borrowings were on due date also fully paid.

On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one

million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to

financial constraints, the loan was not settled at maturity.[3] Respondent bank thereupon appliedfor an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of

Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with

damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of

Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the complaint andordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the

stipulations, aforequoted, of the chattel mortgage.

Petitioner corporation appealed to the Court of Appeals[4] which, on 14 August 1991, affirmed,

"in all respects," the decision of the court a quo. The motion for reconsideration was denied on

24 January 1992.

The instant petition interposed by petitioner corporation was initially denied on 04 March 1992

by this Court for having been insufficient in form and substance. Private respondent filed a

motion to dismiss the petition while petitioner corporation filed a compliance and an oppositionto private respondent's motion to dismiss. The Court denied petitioner's first motion for

reconsideration but granted a second motion for reconsideration, thereby reinstating the petition

and requiring private respondent to comment thereon.[5]

Except in criminal cases where the penalty of reclusion perpetua or death is imposed[6] which

the Court so reviews as a matter of course, an appeal from judgments of lower courts is not amatter of right but of sound judicial discretion. The circulars of the Court prescribing technical

and other procedural requirements are meant to weed out unmeritorious petitions that can

unnecessarily clog the docket and needlessly consume the time of the Court. These technical and

procedural rules, however, are intended to help secure, not suppress, substantial justice. Adeviation from the rigid enforcement of the rules may thus be allowed to attain the prime

objective for, after all, the dispensation of justice is the core reason for the existence of courts.

In this instance, once again, the Court is constrained to relax the rules in order to give way to anduphold the paramount and overriding interest of justice.

Contracts of security are either personal or real. In contracts of personal security, such as aguaranty or a suretyship, the faithful performance of the obligation by the principal debtor is

secured by the personal commitment of another (the guarantor or surety). In contracts of real

security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by anencumbrance of property - in pledge, the placing of movable property in the possession of the

creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the


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form prescribed by law; in real estate mortgage, by the execution of a public instrument

encumbering the real property covered thereby; and in antichresis, by a written instrument

granting to the creditor the right to receive the fruits of an immovable property with theobligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal

of his credit - upon the essential condition that if the principal obligation becomes due and the

debtor defaults, then the property encumbered can be alienated for the payment of the obligation,[7] but that should the obligation be duly paid, then the contract is automatically extinguished

proceeding from the accessory character[8] of the agreement. As the law so puts it, once the

obligation is complied with, then the contract of security becomes, ipso facto, null and void.[9]

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred

obligations so long as these future debts are accurately described,[10] a chattel mortgage,

however, can only cover obligations existing at the time the mortgage is constituted. Although apromise expressed in a chattel mortgage to include debts that are yet to be contracted can be a

binding commitment that can be compelled upon, the security itself, however, does not come

into existence or arise until after a chattel mortgage agreement covering the newly contracted

debt is executed either by concluding a fresh chattel mortgage or by amending the old contractconformably with the form prescribed by the Chattel Mortgage Law.[11] Refusal on the part of

the borrower to execute the agreement so as to cover the after-incurred obligation can constitutean act of default on the part of the borrower of the financing agreement whereon the promise is

written but, of course, the remedy of foreclosure can only cover the debts extant at the time of

constitution and during the life of the chattel mortgage sought to be foreclosed.

A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form

prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is

an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to theagreement, the chattel mortgage would still be valid between the parties (not against third

persons acting in good faith[12]), the fact, however, that the statute has provided that the parties

to the contract must execute an oath that -

"x x x (the) mortgage is made for the purpose of securing the obligation specified in the

conditions thereof, and for no other purpose, and that the same is a just and valid obligation, andone not entered into for the purpose of fraud."[13]

makes it obvious that the debt referred to in the law is a current, not an obligation that is yet

merely contemplated. In the chattel mortgage here involved, the only obligation specified in thechattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully

paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation

automatically rendered the chattel mortgage void or terminated. In Belgian CatholicMissionaries, Inc., vs. Magallanes Press, Inc., et al.,[14] the Court said -

"x x x A mortgage that contains a stipulation in regard to future advances in the credit will takeeffect only from the date the same are made and not from the date of the mortgage."[15]

The significance of the ruling to the instant problem would be that since the 1978 chattel

mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00 loan,[16]there no longer was any chattel mortgage that could cover the new loans that were concluded

thereafter.

We find no merit in petitioner corporation's other prayer that the case should be remanded to the

trial court for a specific finding on the amount of damages it has sustained "as a result of the

unlawful action taken by respondent bank against it."[17] This prayer is not reflected in itscomplaint which has merely asked for the amount of P3,000,000.00 by way of moral damages.

[18] In LBC Express, Inc. vs. Court of Appeals,[19] we have said:

"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious

anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar


16/28

injury. A corporation, being an artificial person and having existence only in legal

contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical

suffering and mental anguish. Mental suffering can be experienced only by one having anervous system and it flows from real ills, sorrows, and griefs of life - all of which cannot be

suffered by respondent bank as an artificial person."[20]

While Chua Pac is included in the case, the complaint, however, clearly states that he has merely

been so named as a party in representation of petitioner corporation.

Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause.

It instead turned out to be, however, a source of disappointment for this Court to read in

petitioner's reply to private respondent's comment on the petition his so-called "One Final

Word;" viz:

"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of

Appeals should be required to justify its decision which completely disregarded the basic laws on

obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its explanation is wholly

unacceptable, this Honorable Court should impose appropriate sanctions on the erring justices.This is one positive step in ridding our courts of law of incompetent and dishonest magistrates

especially members of a superior court of appellate jurisdiction."[21] (Italics supplied.)

The statement is not called for. The Court invites counsel's attention to the admonition in

Guerrero vs. Villamor;[22] thus:

"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due tothe courts of justice and judicial officers and x x x (to) insist on similar conduct by others.' This

respectful attitude towards the court is to be observed, `not for the sake of the temporary

incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is`through a scrupulous preference for respectful language that a lawyer best demonstrates his

observance of the respect due to the courts and judicial officers x x x.'"[23]

The virtues of humility and of respect and concern for others must still live on even in an age of

materialism.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set asidewithout prejudice to the appropriate legal recourse by private respondent as may still be

warranted as an unsecured creditor. No costs.

Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with

the courts.

SO ORDERED.


17/28

PREMIUM

FIRST DIVISION

[G.R. No. 95546. November 6, 1992.]

MAKATI TUSCANY CONDOMINIUM CORPORATION,Petitioner, v. THE COURT OF

APPEALS, AMERICAN HOME ASSURANCE CO., represented by American

International Underwriters (Phils.), Inc.,Respondent.

Agcaoili & Associates forPetitioner.

Salonga & Associates forPrivate Respondent.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE POLICY, VALID EVEN IF PREMIUMS WERE

PAID ON INSTALLMENTS. We hold that the subject policies are valid even if the

premiums were paid on installments. The records clearly show that petitioner and privaterespondent 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 insurers intention to honor thepolicies 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.

2. ID.; ID.; PREMIUMS; REFUND THEREOF, WHEN NOT AVAILABLE; RULE. 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.

D E C I S I O N

BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums dueon 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:chanrobles.com:cralaw:red

"SECTION 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 thepremium thereof has been paid, except in the case of a life or an industrial life policy whenever

the grace period provision applies." cralaw virtua1aw library

Sometime in early 1982, private respondent American Home Assurance Co. (A H A C),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 latters building and premises, for a period beginning 1 March 1982 and ending1 March 1983, with a total premium of P466,103.05. The premium was paid on installments on


18/28

12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted

by privateRespondent.

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 1903 to

1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All

payments were likewise accepted by privateRespondent.

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:chanroblesvirtualawlibrary

"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." cralaw virtua1aw library

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 representingthe 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:jgc:chanrobles.com.ph

"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, itcould not be said, inspite of the reservations, that no risk attached under the policies.

Consequently, defendants counterclaim for refund is not justified.

"As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of thereservation 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 paythe same." 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appealsrendered a decision 2 modifying that of the trial court by ordering herein petitioner to pay the

balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest

until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained


19/28

"The obligation to pay premiums when due is ordinarily an 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 bindingbetween 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 insaid 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 voluntaryacceptance of partial payments, a result eschewed by 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 notmade in full, for the reason that it agreed to accept installment payments . . ." 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 occurring before payment of premiums.

It argues that where the premium 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 theInsurance Code. The absence of an express acknowledgment in the policies of such receipt of the

corresponding premium payments, and petitioners failure to pay said premiums on or before the

effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannotbe 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.chanrobles lawlibrary : red

We hold that the subject policies are valid even if the premiums were paid on installments. Therecords 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 insurers 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 acceptingthe premiums, although paid on installments, and later deny liability on the lame excuse that the

premiums were not prepaid in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findingsand 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 ofinsurance 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 ofpremium 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


20/28

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 allowinsured 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 v. Capital Surety and Insurance Co. 5 is unavailing because

the facts therein are substantially different from those in the case at bar. In Arce, no payment was

made by the insured at all despite the grace period given. In the case before Us, petitioner paidthe 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.chanrobles lawlibrary : rednad

It appearing from the peculiar circumstances that the parties actually intended to make the three

(3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on

its obligation to pay the balance of the premium after the expiration of the whole term of the

third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by theappellate 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 isAFFIRMED. Costs against petitioner.

SO ORDERED.

Makati Tuscany v CA G.R. No. 95546 November 6, 1992

J. Bellosillo

Facts:

American International Underwriters issued a policy in favor of Makati Tuscany CondominiumCorporation with a total premium of P466,103.05. The company issued a replacement policy.

Premium was again paid. In 1984, the policy was again renewed and private respondent issued to

petitioner another policy. The petitioner paid 152,000 pesos then refused to furnish the balance.

The company filed an action to recover the unpaid balance of P314,103.05.The condominium administration explained that it discontinued the payment of premiums

because the policy did not contain a credit clause in its favor and that the acceptance of

premiums didnt 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 prior topremium payment, loss wasnt covered.

Petitioner sought for a refund. The trial court dismissed the complaint and counterclaim owingto the argument that payment of the premiums of the policies were made during the lifetime or

term of said policies, so risk attached under the policies.

The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reasonthat it was part of an indivisible obligation.

Petitioner now asserts that its payment by installment of the premiums for the insurance policies

invalidated them because of the provisions of Sec. 77 of the Insurance Code disclaiming liability

for loss for occurring before payment of premiums.

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

Held: Judgment affirmed.

Ratio:

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


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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.Petitioner concluded 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 tothe 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. Therecords 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 speaksloudly of the insurer's intention to honor the policies it issued to petitioner.

Quoting the CA 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 makeinstallment 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 firstinstallment. 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. So is an understanding to allow insured to pay premiums

in installments not so proscribed.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. In Arce, no payment was

made by the insured at all despite the grace period given. Here, petitioner paid the initialinstallment 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. 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.


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PREMIUM

EN BANC [G.R. No. 137172. April 4, 2001]

UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART,

INC., respondent.

R E S O L U T I O N

DAVIDE, JR., C.J.:

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 therenewal 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 bythe 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


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(2) reduction of the award of the attorneys 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, plaintiff's properties located at 2410-2432 and

2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, anddefendant 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 Petitioners stand that Respondents 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 orelimination 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. 34661covering 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


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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, 1990was 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 toDecember 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 plaintiffs 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 thepolicies 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 plaintiffs

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) riskinsured 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[2]; South Sea Surety and Insurance

Co., Inc. v. Court of Appeals[3]; and Tibay v. Court of Appeals.[4] Accordingly, we reversedand set aside the decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges inthe 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 oflaw 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 theexpress 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 aprohibitive injunction but is merely designed for the protection of the parties to an insurance


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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 to90 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 ordamage in case the same occurred after payment of the premium.

Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both

the trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sentby ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy

thereof to Respondents 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, paymentof the premium due on the effective date of renewal should first be made. Respondents

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 motionfor reconsideration. The following facts, as found by the trial court and the Court of Appeals, are

indeed dul

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