[G.R. No. 124520.

August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.
DECISION
PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to set aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a
lease contract with private respondent CKS Development Corporation
(hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; x x x[1]
3. Notwithstanding the above stipulation in the lease contract, the Cha
spouses insured against loss by fire their merchandise inside the leased
premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc. (hereinafter United) without the written consent of private
respondents CKS.
4. On the day that the lease contract was to expire, fire broke out inside the
leased premises.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a

decision* ordering therein defendant United to pay CKS the amount of
P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary
damages, P20,000.00 as attorneys fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered
a decision** dated 11 January 1996, affirming the trial court decision,
deleting however the awards for exemplary damages and attorneys fees. A
motion for reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the
Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT
THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE
CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY
IN CONTRAVENTION OF THE INSURANCE LAW
IV

5. When CKS learned of the insurance earlier procured by the Cha spouses
(without its consent), it wrote the insurer (United) a demand letter asking
that the proceeds of the insurance contract (between the Cha spouses and
United) be paid directly to CKS, based on its lease contract with Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the
Cha spouses and United.

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR
BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON
THE WILL OF THE RESPONDENT CORPORATION.[2]
The core issue to be resolved in this case is whether or not the aforequoted
paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid insofar as it provides that any fire insurance policy obtained

by the lessee (Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor (CKS) if said policy
is obtained without the prior written of the latter.

Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a
person (CKS) who has no insurable interest in the property insured.

It is, of course, basic in the law on contracts that the stipulations contained in
a contract cannot be contrary to law, morals, good customs, public order or
public policy.[3]

The liability of the Cha spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue
which we do not resolve in this case.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the
property insured.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is

SET ASIDE and a new decision is hereby entered, awarding the proceeds of
the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

A non-life insurance policy such as the fire insurance policy taken by

petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time
the insurance takes effect and at the time the loss occurs.[4] The basis of
such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on
property upon which he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In such a case, the contract of
insurance is a mere wager which is void under Section 25 of the Insurance
Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of
loss, whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in
the goods and merchandise inside the leased premises under the provisions
of Section 17 of the Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law
be validly a beneficiary of the fire insurance policy taken by the petitionerspouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The
proceeds of the fire insurance policy thus rightfully belong to the spouses

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?
[G.R. No. 113899. October 13, 1999]
Answer: [ x ] Yes [ ] No.[4]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF
APPEALS AND MEDARDA V. LEUTERIO, respondents.
DECISION
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 Regional Trial 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 to Certification 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 the
defendant and dismissing the complaint in respect to the plaintiffs, other
than the widow-beneficiary, for lack of cause of action.[3]

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,
which caused his death. Allegedly, such non-disclosure constituted
concealment that justified the denial of the claim.

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

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 the death
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 not autopsied, hence,
other causes were not ruled out.

A contract of group life insurance was executed between petitioner Great

Pacific Life Assurance Corporation (hereinafter Grepalife) and Development
Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives
of eligible housing loan mortgagors of DBP.

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:

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing

debtor of DBP applied for membership in the group life insurance plan. In an

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

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

REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO

LEUTERIO ONE OF 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
ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANTAPPELLANT.
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 INSURANCE
CLAIM 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?

insurance policy of mortgagors, otherwise known as the mortgage

redemption insurance, is a device for the protection of both the 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 the mortgage 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 insurance proceeds 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 insurance fund, 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 a mortgagee, 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 the mortgagee, 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.

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 when the 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.

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 outstanding indebtedness 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 of concealment 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:

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

Insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. * * * Subject to some exceptions, insured

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.

may thus sue, although the policy is taken wholly or in part for the benefit of
another person named or unnamed, and although it is expressly 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 mortgagees interest 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 suit against the insurer,
Grepalife.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense 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 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 death certificate 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, including hypertension; 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 if the 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...
xxx
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 an affirmative 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, the action 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 or health 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 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 insurance
proceeds 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 foreclosed on 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 of Appeals 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 of the
Philippines. Costs against petitioner.

Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso
Yap, Virginia King Yap and their children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian
to insure its school building. Although at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed
to insure the same for P500,000 for which Harvardian paid an annual
premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance
policy. On March 12, 1980, (39 days before I was born hehehehe )during
the effectivity of said insurance policy, the insured property was totally
burned rendering it a total loss.

> A claim was made by plaintiff upon defendant but defendant denied it
contending that plaintiff had no insurable interest over the building
constructed on the piece of land in the name of the late Ildefonso Yap as
owner.
> It was contended that both the lot and the building were owned by
Ildefonso Yap and NOT by the Harvardian Colleges.
Issue:
Whether or not Harvardian colleges has a right to the proceeds.

SO ORDERED.
Held:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have
title to the property insured, the contract of fire insurance should still be
upheld if his interest in or his relation to the property is such that he will be
benefited in its continued existence or suffer a direct pecuniary loss from its
destruction or injury. The test in determining insurable interest in property is
whether one will derive pecuniary benefit or advantage from its preservation,
or will suffer pecuniary loss or damage from its destruction, termination or
injury by the happening of the event insured against.
Harvardian Colleges v. Country Bankers Insurance Corp. CA
1 CARA 2

Here Harvardian was not only in possession of the building but was in fact
using the same for several years with the knowledge and consent of
Ildefonso Yap. It is reasonably fair to assume that had the building not been
burned, Harvardian would have been allowed the continued use of the same
as the site of its operation as an educational institution.
Harvardian
therefore would have been directly benefited by the preservation of the
property, and certainly suffered a pecuniary loss by its being burned.
Ang Ka Yu v. Phoenix Assurance - Insurable Interest
1 CARA 704

G.R. No. 147839

June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

Facts:
> Ang Ka Yu had a piece of property in his possession. He insured it with
Phoenix.
> The property was lost, so Ang Ka Yu sought to claim the proceeds.
> Phoenix denied liability on the ground that Ang was not the owner but a
mere possessor and as such, had no insurable interest over the property.
Issue:
Whether or not a mere possessor has insurable interest over the property.
Held:
Yes.
A person having a mere right or possession of property may insure it to its
full value and in his own name, even when he is not responsible for its
safekeeping. The reason is that even if a person is NOT interested in the
safety and preservation of material in his possession because they belong to
3rd parties, said person still has insurable interest, because he stands either
to benefit from their continued existence or to be prejudiced by their
destruction.

Before the Court is a petition for review on certiorari of the Decision1 dated
October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which
set aside the Decision dated August 31, 1998 of the Regional Trial Court,
Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of
action for damages of Insurance Company of North America (respondent)
against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.
Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained
from respondent fire insurance policies with book debt endorsements. The
insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."2 The
policies defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months from
the date of the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their books
of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x4

xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and
delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims
under their respective fire insurance policies with book debt endorsements;
that as of February 25, 1991, the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC
and LSPI and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for payment upon
petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that
it could not be held liable because the property covered by the insurance
policies were destroyed due to fortuities event or force majeure; that
respondent's right of subrogation has no basis inasmuch as there was no
breach of contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never communicated to it
that they insured their properties; that it never consented to paying the
claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's
complaint.8 It held that the fire was purely accidental; that the cause of the
fire was not attributable to the negligence of the petitioner; that it has not
been established that petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA
rendered its decision setting aside the decision of the RTC. The dispositive
portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED

and SET ASIDE and a new one is entered ordering defendant-appellee
Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus
legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiffappellant to the insured Levi Strauss Phil., Inc., plus legal interest from the
time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss of the
goods in the fire must be borne by petitioner since the proviso contained in
the sales invoices is an exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous event, the risk is borne
by the owner of the thing at the time the loss under the principle of res perit
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the
lost goods but the payment of its unpaid account and as such the obligation
to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in
its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER
UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC

SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present
case cannot be deemed to be over credit since an insurance "on credit"
belies not only the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since respondent paid on the
occasion of the loss of the insured goods to fire and not because of the nonpayment by petitioner of any obligation; that, even if the insurance is
deemed as one over credit, there was no loss as the accounts were not yet
due since no prior demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from respondent only after
it had already paid IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured
fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation
in favor of respondent as no valid insurance could be maintained thereon by
IMC and LSPI since all risk had transferred to petitioner upon delivery of the
goods; that petitioner was not privy to the insurance contract or the payment
between respondent and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the
insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made
clothing materials was transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors who stand to suffer
direct pecuniary loss from its destruction by fire; that petitioner is liable for
loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire
was caused through petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property because electric
wires do not usually short circuit unless there are defects in their installation
or when there is lack of proper maintenance and supervision of the property;
that petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for contracted
lawyer's fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases
brought before it from the CA is limited to reviewing questions of law which

involves no examination of the probative value of the evidence presented by

the litigants or any of them.18 The Supreme Court is not a trier of facts; it is
not its function to analyze or weigh evidence all over again.19 Accordingly,
findings of fact of the appellate court are generally conclusive on the
Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the findings
are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6)
when in making its findings the CA went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.21
Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy on
book debts as one covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing materials sold and
delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the questioned
insurance policies provide coverage for "book debts in connection with
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."23 ; and
defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this
Policy."24 Nowhere is it provided in the questioned insurance policies that
the subject of the insurance is the goods sold and delivered to the customers
and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do
not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices that "[i]t
is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee
for the buyer, in pursuance of the contract and the ownership in the goods
has been retained by the seller merely to secure performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay
its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears
the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest
in property, whether real or personal, or any relation thereto, or liability in

respect thereof, of such nature that a contemplated peril might directly

damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter of
the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured.29 Anyone has an
insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.30 Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein,
in other words, so long as he would suffer by its destruction, as where he has
a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain
to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event
under Article 117432 of the Civil Code is misplaced. As held earlier,
petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his
liability.33 The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and
there is no stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic
thing, the loss or destruction of anything of the same kind does not
extinguish the obligation." If the obligation is generic in the sense that the
object thereof is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same
class, the loss or destruction of anything of the same kind even without the

debtor's fault and before he has incurred in delay will not have the effect of
extinguishing the obligation.35 This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan perit.36 An obligation to
pay money is generic; therefore, it is not excused by fortuitous loss of any
specific property of the debtor.37

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated

October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order
to pay the amount of P535,613.00 to respondent is DELETED for lack of
factual basis.

Thus, whether fire is a fortuitous event or petitioner was negligent are

matters immaterial to this case. What is relevant here is whether it has been
established that petitioner has outstanding accounts with IMC and LSPI.

No pronouncement as to costs.
SO ORDERED.

With respect to IMC, the respondent has adequately established its claim.
Exhibits "C" to "C-22"38 show that petitioner has an outstanding account
with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher
evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed
by IMC in favor of respondent upon receipt of the insurance proceeds. All
these documents have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and IMC as the insured, but
also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by
Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause
of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a
letter dated April 23, 1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's unpaid account with
LSPI. It only confirms the loss of Levi's products in the amount of
P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI;
no subrogation receipt was offered in evidence. Thus, there is no evidence
that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613.00.

G.R. No. L-67835

October 12, 1987

MALAYAN INSURANCE CO., INC. (MICO), petitioner,

vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE
COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J.:
When a person's house is razed, the fire usually burns down the efforts of a
lifetime and forecloses hope for the suddenly somber future. The vanished
abode becomes a charred and painful memory. Where once stood a home,
there is now, in the sighing wisps of smoke, only a gray desolation. The dying
embers leave ashes in the heart.
For peace of mind and as a hedge against possible loss, many people now
secure fire insurance. This is an aleatory contract. By such insurance, the
insured in effect wagers that his house will be burned, with the insurer
assuring him against the loss, for a fee. If the house does burn, the insured,
while losing his house, wins the wagers. The prize is the recompense to be
given by the insurer to make good the loss the insured has sustained.
It would be a pity then if, having lost his house, the insured were also to lose
the payment he expects to recover for such loss. Sometimes it is his fault
that he cannot collect, as where there is a defect imputable to him in the
insurance contract. Conversely, the reason may be an unjust refusal of the
insurer to acknowledge a just obligation, as has happened many times.
In the instant case the private respondent has been sustained by the
Insurance Commission in her claim for compensation for her burned property.
The petitioner is now before us to dispute the decision, 1 on the ground that
there was no valid insurance contract at the time of the loss.

On 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. 7
In due time, Pinca made the requisite demands for payment, which MICO
rejected. She then went to the Insurance Commission. It is because she was
ultimately sustained by the public respondent that the petitioner has come to
us for relief.
From the procedural viewpoint alone, the petition must be rejected. It is
stillborn.
The records show that notice of the decision of the public respondent dated
April 5, 1982, was received by MICO on April 10, 1982. 8 On April 25, 1982, it
filed a motion for reconsideration, which was denied on June 4, 1982. 9
Notice of this denial was received by MICO on June 13, 1982, as evidenced by
Annex "1" duly authenticated by the Insurance Commission. 10 The instant
petition was filed with this Court on July 2, 1982. 11
The position of the petition is that the petition is governed by Section 416 0f
the Insurance Code giving it thirty days wthin which to appeal by certiorari to
this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For
their part, the public and private respondents insist that the applicable law is
B.P. 129, which they say governs not only courts of justice but also quasijudicial bodies like the Insurance Commission. The period for appeal under
this law is also fifteen days, as under Rule 45.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the
private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212
on her property for the amount of P14,000.00 effective July 22, 1981, until
July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of
the premium and sent the corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by
DomingoAdora, agent of MICO. 4
On January 15, 1982, Adora remitted this payment to MICO,together with
other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6

The pivotal date is the date the notice of the denial of the motion for
reconsideration was received by MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12
which is a copy of the Order of June 14, 1982, with a signed rubber-stamped
notation on the upper left-hand corner that it was received on June 18, 1982,
by its legal department. It does not indicate from whom. At the bottom,
significantly, there is another signature under which are the ciphers "6-1382," for which no explanation has been given.
Against this document, the private respodent points in her Annex "1," 13 the
authenticated copy of the same Order with a rubber-stamped notation at the
bottom thereof indicating that it was received for the Malayan Insurance Co.,
Inc. by J. Gotladera on "6-13-82." The signature may or may not habe been
written by the same person who signed at the bottom of the petitioner's
Annex "B."

Between the two dates, the court chooses to believe June 13, 1982, not only
because the numbers "6-13-82" appear on both annexes but also because it
is the date authenticated by the administrative division of the Insurance
Commission. Annex "B" is at worst self-serving; at best, it might only indicate
that it was received on June 18, 1982, by the legal department of MICO, after
it had been received earlier by some other of its personnel on June 13, 1982.
Whatever the reason for the delay in transmitting it to the legal department
need not detain us here.
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.
Counted from June 13, the fifteen-day period prescribed under Rule 45,
assuming it is applicable, would end on June 28, 1982, or also four days from
July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for
reconsideration was filed on the fifteenth day after MICO received notice of
the decision, only one more day would have remained for it to appeal, to wit,
June 14, 1982. That would make the petition eighteen days late by July 2.

The petitioner relies heavily on Section 77 of the Insurance Code providing

that:
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.
The above provision is not applicable because payment of the premium was
in fact eventually made in this case. Notably, the premium invoice issued to
Pinca at the time of the delivery of the policy on June 7, 1981 was stamped
"Payment Received" of the amoung of P930.60 on "12-24-81" by Domingo
Adora. 14 This is important because it suggests an understanding between
MICO and the insured that such payment could be made later, as agent
Adora had assured Pinca. In any event, it is not denied that this payment was
actually made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occured on
January 18, 1982. One wonders: suppose the payment had been made and
accepted in, say, August 1981, would the commencement date of the policy
have been changed to the date of the payment, or would the payment have
retroacted to July 22, 1981? If MICO accepted the payment in December
1981 and the insured property had not been burned, would that policy not
have expired just the same on July 22, 1982, pursuant to its original terms,
and not on December 24, 1982?

Indeed, even if the applicable law were still R.A. 5434, governing appeals
from administrative bodies, the petition would still be tardy. The law provides
for a fixed period of ten days from notice of the denial of a seasonable
motion for reconsideration within which to appeal from the decision.
Accordingly, that ten-day period, counted from June 13, 1982, would have
ended on June 23, 1982, making the petition filed on July 2, 1982, nine days
late.

It would seem from MICO's own theory, that the policy would have become
effective only upon payment, if accepted and so would have been valid only
from December 24, 1981m but only up to July 22, 1981, according to the
original terms. In others words, the policy would have run for only eight
months although the premium paid was for one whole year.

Whichever law is applicable, therefore, the petition can and should be

dismissed for late filing.

It is not disputed that the preium was actually paid by Pinca to Adora on
December 24, 1981, who received it on behalf of MICO, to which it was
remitted on January 15, 1982. What is questioned is the validity of Pinca's
payment and of Adora's authority to receive it.

On the merits, it must also fail. MICO's arguments that there was no payment
of premium and that the policy had been cancelled before the occurence of
the loss are not acceptable. Its contention that the claim was allowed without
proof of loss is also untenable.

MICO's acknowledgment of Adora as its agent defeats its contention that he

was not authorized to receive the premium payment on its behalf. It is clearly
provided in Section 306 of the Insurance Code that:
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.

(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;

And it is a well-known principle under the law of agency that:

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. 15
There is the petitioner's argument, however, that Adora was not authorized
to accept the premium payment because six months had elapsed since the
issuance by the policy itself. It is argued that this prohibition was binding
upon Pinca, who made the payment to Adora at her own riskl as she was
bound to first check his authority to receive it. 16
MICO is taking an inconsistent stand. While contending that acceptance of
the premium payment was prohibited by the policy, it at the same time
insists that the policy never came into force because the premium had not
been paid. One surely, cannot have his cake and eat it too.
We do not share MICO's view that there was no existing insurance at the time
of the loss sustained by Pinca because her policy never became effective for
non-payment of premium. Payment was in fact made, rendering the policy
operative as of June 22, 1981, and removing it from the provisions of Article
77, Thereafter, the policy could be cancelled on any of the supervening
grounds enumerated in Article 64 (except "nonpayment of premium")
provided the cancellation was made in accordance therewith and with Article
65.
Section 64 reads as follows:
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;

(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:
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:
(1)

There must be prior notice of cancellation to the insured; 17

(2)
The notice must be based on the occurrence, after the effective date
of the policy, of one or more of the grounds mentioned;18
(3)
The notice must be (a) in writing, (b) mailed, or delivered to the
named insured, (c) at the address shown in the policy; 19
(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. 20
MICO's claims it cancelled the policy in question on October 15, 1981, for
non-payment of premium. To support this assertion, it presented one of its
employees, who testified that "the original of the endorsement and credit
memo" presumably meaning the alleged cancellation "were sent the
assured by mail through our mailing section" 21 However, there is no proof
that the notice, assuming it complied with the other requisites mentioned

above, was actually mailed to and received by Pinca. 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. The petitioner then says that its "stand is
enervated (sic) by the legal presumption of regularity and due performance
of duty." 22 (not realizing perhaps that "enervated" means "debilitated" not
"strengthened").
On the other hand, there is the flat denial of Pinca, who says she never
received the claimed cancellation and who, of course, did not have to prove
such denial Considering the strict language of Section 64 that no insurance
policy shall be cancelled except upon prior notice, it behooved MICO's to
make sure that the cancellation was actually sent to and received by the
insured. The presumption cited is unavailing against the positive duty
enjoined by Section 64 upon MICO and the flat denial made by the private
respondent that she had received notice of the claimed cancellation.
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. The
Court finds that if she did pay on that date, it was because she honestly
believed that the policy issued on June 7, 1981, was still in effect and she
was willing to make her payment retroact to July 22, 1981, its stipulated
commencement date. After all, agent Adora was very accomodating and had
earlier told her "to call him up any time" she was ready with her payment on
the policy earlier issued. She was obviously only reciprocating in kind when
she paid her premium for the period beginning July 22, 1981, and not
December 24, 1981.
MICO's suggests that Pinca knew the policy had already been cancelled and
that when she paid the premium on December 24, 1981, her purpose was "to
renew it." As this could not be done by the agent alone under the terms of
the original policy, the renewal thereof did not legally bind MICO. which had
not ratified it. To support this argument, MICO's cites the following exchange:
Q:
Now, Madam Witness, on December 25th you made the alleged
payment. Now, my question is that, did it not come to your mind that after
the lapse of six (6) months, your policy was cancelled?
A:
I have thought of that but the agent told me to call him up at
anytime.

Q:
So if you thought that your policy was already intended to revive
cancelled policy?
A:

Misleading, Your Honor.

Hearing Officer: The testimony of witness is that, she thought of that.

Q:
I will revise the question. Now, Mrs. Witness, you stated that you
thought the policy was cancelled. Now, when you made the payment of
December 24, 1981, your intention was to revive the policy if it was already
cancelled?
A:

Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the
policy if it had really been already cancelled but not if it was stffl effective. It
was all conditional. As it has not been shown that there was a valid
cancellation of the policy, there was consequently no need to renew it but to
pay the premium thereon. Payment was thus legally made on the original
transaction and it could be, and was, validly received on behalf of the insurer
by its agent Adora. Adora. incidentally, had not been informed of the
cancellation either and saw no reason not to accept the said payment.
The last point raised by the petitioner should not pose much difficulty. The
valuation fixed in fire insurance policy is conclusive in case of total loss in the
absence of fraud, 24 which is not shown here. Loss and its amount may be
determined on the basis of such proof as may be offered by the insured,
which need not be of such persuasiveness as is required in judicial
proceedings. 25 If, as in this case, the insured files notice and preliminary
proof of loss and the insurer fails to specify to the former all the defects
thereof and without unnecessary delay, all objections to notice and proof of
loss are deemed waived under Section 90 of the Insurance Code.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar,
as to the extent of Pinca's loss should be considered sufficient. Notably,MICO
submitted no evidence to the contrary nor did it even question the extent of
the loss in its answer before the Insurance Commission. It is also worth
observing that Pinca's property was not the only building bumed in the fire
that razed the commercial district of Lao-ang, Samar, on January 18, 1982.
27
There is nothing in the Insurance Code that makes the participation of an
adjuster in the assessment of the loss imperative or indespensable, as MICO

suggests. Section 325, which it cites, simply speaks of the licensing and
duties of adjusters.
We see in this cases an obvious design to evade or at least delay the
discharge of a just obligation through efforts bordering on bad faith if not
plain duplicity, We note that the motion for reconsideration was filed on the
fifteenth day from notice of the decision of the Insurance Commission and
that there was a feeble attempt to show that the notice of denial of the said
motion was not received on June 13, 1982, to further hinder the proceedings
and justify the filing of the petition with this Court fourteen days after June
18, 1982. We also look askance at the alleged cancellation, of which the
insured and MICO's agent himself had no knowledge, and the curious fact
that 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. These circumstances make the motives of the
petitioner highly suspect, to say the least, and cast serious doubts upon its
candor and bona fides.
WHEREFORE, the petition is DENIED. The decision of the Insurance
Commission dated April 10, 1981, and its Order of June 4, 1981, are
AFFIRMED in full, with costs against the petitioner. This decision is
immediately executory.
SO ORDERED.

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO.,
represented by American International Underwriters (Phils.), Inc.,
respondent.
BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment

of the premiums due on an insurance policy invalidates the contract of
insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance
Code, as amended, which provides:

Sec. 77.
An insurer is entitled to the payment of the premium as soon
as the thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and
premises, for a period beginning 1 March 1982 and ending 1 March 1983,
with a total premium of P466,103.05. The premium was paid on installments
on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of
which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance
Policy No. AH-CPP-9210596, which replaced and renewed the previous policy,
for a term covering 1 March 1983 to 1 March 1984. The premium in the
amount of P466,103.05 was again paid on installments on 13 April 1983, 13
July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All
payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent
issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1
March 1984 to 1 March 1985. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent, the first on 6
February 1984 for P52,000.00 and the second, on 6 June 1984 for
P100,000.00. Thereafter, petitioner refused to pay the balance of the
premium.
Consequently, private respondent filed an action to recover the unpaid
balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of
Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the
payment of premiums because the policy did not contain a credit clause in
its favor and the receipts for the installment payments covering the policy for

1984-85, as well as the two (2) previous policies, stated the following
reservations:
2.
Acceptance of this payment shall not waive any of the company
rights to deny liability on any claim under the policy arising before such
payments or after the expiration of the credit clause of the policy; and
3.
Subject to no loss prior to premium payment. If there be any loss
such is not covered.
Petitioner further claimed that the policy was never binding and valid, and no
risk attached to the policy. It then pleaded a counterclaim for P152,000.00
for the premiums already paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary
judgment.
On 8 October 1987, the trial court dismissed the complaint and the
counterclaim upon the following findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums
of the three aforementioned policies (being sought to be refunded) were
made during the lifetime or term of said policies, hence, it could not be said,
inspite of the reservations, that no risk attached under the policies.
Consequently, defendant's counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in
view of the reservation in the receipts ordinarily issued by the plaintiff on
premium payments the only plausible conclusion is that plaintiff has no right
to demand their payment after the lapse of the term of said policy on March
1, 1985. Therefore, the defendant was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the
Court of Appeals rendered a decision 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

The obligation to pay premiums when due is ordinarily as indivisible

obligation to pay the entire premium. Here, the parties herein agreed to

make the premiums payable in installments, and there is no pretense that

the parties never envisioned to make the insurance contract binding
between them. It was renewed for two succeeding years, the second and
third policies being a renewal/replacement for the previous one. And the
insured never informed the insurer that it was terminating the policy because
the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties
may not agree to make the insurance contract valid and binding without
payment of premiums, there is nothing in said section which suggests that
the parties may not agree to allow payment of the premiums in installment,
or to consider the contract as valid and binding upon payment of the first
premium. Otherwise, we would allow the insurer to renege on its liability
under the contract, had a loss incurred (sic) before completion of payment of
the entire premium, despite its voluntary acceptance of partial payments, a
result eschewed by a basic considerations of fairness and equity.
To our mind, the insurance contract became valid and binding upon payment
of the first premium, and the plaintiff could not have denied liability on the
ground that payment was not made in full, for the reason that it agreed to
accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for
the insurance policies for 1982, 1983 and 1984 invalidated said policies
because of the provisions of Sec. 77 of the Insurance Code, as amended, and
by the conditions stipulated by the insurer in its receipts, disclaiming liability
for loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy
would only be effective if there is an acknowledgment in the policy of the
receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence
of an express acknowledgment in the policies of such receipt of the
corresponding premium payments, and petitioner's failure to pay said
premiums on or before the effective dates of said policies rendered them
invalid. Petitioner thus concludes that there cannot be a perfected contract
of insurance upon mere partial payment of the premiums because under Sec.
77 of the Insurance Code, no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement
to the contrary. As a consequence, petitioner seeks a refund of all premium
payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that petitioner and private respondent
intended subject insurance policies to be binding and effective

notwithstanding the staggered payment of the premiums. The initial

insurance contract entered into in 1982 was renewed in 1983, then in 1984.
In those three (3) years, the insurer accepted all the installment payments.
Such acceptance of payments speaks loudly of the insurer's intention to
honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the
lame excuse that the premiums were not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the wellreasoned findings and conclusion of the appellate court contained in its
Resolution denying the motion to reconsider its Decision
While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared to
rule that the request to make installment payments duly approved by the
insurer, would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance
policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay
premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have
voluntarily accepted. 4

appellate court, where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the
same is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 102253

June 2, 1995

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner,

vs.
HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND
INDUSTRIAL SUPPLY, INC., respondents.
RESOLUTION
VITUG, J.:
Two issues on the subject of insurance are raised in this petition, that assails
the decision, that assails the decision of the Court of Appeals. (in CA-G.R. NO.
CV-20156), the first dealing on the requirement of premium payment and the
second relating to the agency relationship of parties under that contract.
The court litigation started when Valenzuela Hardwood and Industrial Supply,
Inc. ("Hardwood"), filed with the Regional, Trial Court of the National Capital
Judicial Region, Branch l71 in Valenzuela, Metro Manila, a complaint for the
recovery of the value of lost logs and freight charges from Seven Brothers
Shipping Corporation or, to the extent of its alleged insurance cover, from
South Sea Surety and insurance Company.

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

Co. 5 is unavailing because the facts therein are substantially different from
those in the case at bar. In Arce, no payment was made by the insured at all
despite the grace period given. In the case before Us, petitioner paid the
initial installment and thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the 1984 policy,
petitioner paid two (2) installments although it refused to pay the balance.

The factual backdrop is described briefly by the appellate court thusly:

It appearing from the peculiar circumstances that the parties actually

intended to make three (3) insurance contracts valid, effective and binding,
petitioner may not be allowed to renege on its obligation to pay the balance
of the premium after the expiration of the whole term of the third policy (No.
AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the

On 20 January 1984, plaintiff insured the logs, against loss and/or, damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
end the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.

It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and

Industrial Supply, Inc.] entered into an agreement with the defendant Seven
Brothers whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.

On 24 January 1984, the plaintiff gave the check in payment of the premium
on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January
1984 resulting in the loss of the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of
the premium and documentary stamps due on the policy was tendered to the
insurer but was not accepted. Instead, the South Sea Surety and Insurance
Co., Inc. cancelled the insurance policy it issued as of the date of inception
for non-payment of the premium due in accordance with Section 77 of the
Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety
and Insurance Co., Inc. the payment of the proceeds of the policy but the
latter denied liability under the policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping Corporation for the value of the lost
logs but the latter denied the claim. 1
In its decision, dated 11 May 1988, the trial court rendered judgment in favor
of plaintiff Hardwood.
On appeal perfected by both the shipping firm and the insurance company,
the Court of Appeals affirmed the judgment of the court a quo only against
the insurance corporation; in absolving the shipping entity from liability, the
appellate court ratiocinated:
The primary issue to be resolved before us is whether defendants shipping
corporation and the surety company are liable to the plaintiff for the latter's
lost logs.
It appears that there is a stipulation in the charter party that the ship owner
would be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The provisions
on common carriers should not be applied where the carrier is not acting as
such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a
special or chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for
the negligence of its agent is valid (Home Insurance Company, Inc. vs.
American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of
the logs. 2
In this petition for review on certiorari brought by South Sea Surety and
Insurance Co., Inc., petitioner argues that it likewise should have been freed
from any liability to Hardwood. It faults the appellate court (a) for having
Supposedly disregarded Section 77 of the insurance Code and (b) for holding
Victorio Chua to have been an authorized representative of the insurer.
Section 77 of the Insurance Code provides:
Sec. 77.
An insurer is entitled to payment of the premium as soon as
the thing insured is exposed to the peril insured against. Notwithstanding
any agreement to the contrary, no policy or contract of insurance issued by
an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
Undoubtedly, the payment of the premium is a condition precedent to, and
essential for, the efficaciousness of the contract. The only two statutorily
provided exceptions are (a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace period applies and (b) when
the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of
the premium payment (Secs. 77-78, Insurance Code). The appellate court,
contrary to what the petition suggests, did not make any pronouncement to
the contrary. Indeed, it has said:
Concerning the issue as to whether there is a valid contract of insurance
between plaintiff-appellee and defendant-appellant South Sea Surety and
Insurance Co., Inc., Section 77 of the Insurance Code explicitly provides that
notwithstanding any agreement to the contrary, no policy issued by an
insurance company is valid and binding unless and until premium thereof has
been paid. It is therefore important to determine whether at the time of the
loss, the premium was already paid. 3
No attempt becloud the issues can disguise the fact that the sole question
raised in the instant petition is really evidentiary in nature, i.e., whether or
not Victorio Chua, in receiving the check for the insurance premium prior to
the occurrence of the risk insured against has so acted as an agent of

petitioner. The appellate court, like the trial court, has found in the
affirmative. Said the appellate court:

logs was delivered to him on 21 January 1984 at his office to be delivered to

the plaintiff.

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was
issued by defendant insurance company on 20 January 1984. At the time the
vessel sank on 25 January 1984 resulting in the loss of the insured logs, the
insured had already delivered to Victorio Chua the check in payment of
premium. But, as Victorio Chua testified, it was only in the morning of 30
January 1984 or 5 days after the vessel sank when his messenger tendered
the check to defendant South Sea Surety and Insurance Co., Inc. (TSN, pp. 327, 16-17, 22 October 1985).

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr.
Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed
to have been authorized by the South Sea Surety and Insurance Co., Inc. to
receive the premium which is due on its behalf.

The pivotal issue to be resolved to determine the liability, of the surety

corporation is whether Mr. Chua acted as an agent of the surety company or
of the insured when he received the check for insurance premiums.
Appellant surety company insists that Mr. Chua is an administrative assistant
for the past ten years and an agent for less than ten years of the Columbia
Insurance Brokers, Ltd. He is paid a salary as a administrative assistant and a
commission as agent based on the premiums he turns over to the broker.
Appellant therefore argues that Mr. Chua, having received the insurance
premiums as an agent of the Columbia Insurance Broker, acted as an agent
of the insured under Section 301 of the Insurance Code which provides as
follows:

When therefore the insured logs were lost, the insured had already paid the
premium to an agent of the South Sea Surety and Insurance Co., Inc., which
is consequently liable to pay the insurance proceeds under the policy it
issued to the insured. 4
We see no valid reason to discard the factual conclusions of the appellate
court. Just as so correctly pointed out by private respondent, it is not the
function of this Court to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties particularly where,
such as here, the findings of both the trial court and the appellate court on
the matter coincide.
WHEREFORE, the resolution, dated 01 February 1993, granting due course to
the petition is RECALLED, and the petition is DENIED. Costs against
petitioner.
SO ORDERED.

Sec. 301.
Any person who for any compensation, commission or other
thing of value, acts, or aids in soliciting, negotiating or procuring the making
of any insurance contract or in placing risk or taking out insurance, on behalf
of an insured other than himself, shall be an insurance broker within the
intent of this Code, and shall thereby become liable to all the duties
requirements, liabilities and penalties to which an insurance broker is
subject.
The appellees, upon the other hand, claim that the second paragraph of
Section 306 of the Insurance Code provide as follows:
Sec. 306.
. . . Any insurance company which delivers to an insurance
agent or insurance broker a policy or contract of insurance shall be deemed
to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy of contract of insurance at the time
of its issuance or delivery or which becomes due thereon.
On cross-examination in behalf of South Sea Surety and Insurance Co., Inc.
Mr. Chua testified that the marine cargo insurance policy for the plaintiff's

[G.R. No. 119655. May 24, 1996]

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M.
RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA
M. RORALDO and ROSABELLA M. RORALDO, petitioners, vs. COURT
OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC.,
respondents.
D E C I S I O N*
BELLOSILLO, J.:
May a fire insurance policy be valid, binding and enforceable upon mere
partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance
Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of
Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential

building located at 5855 Zobel Street, Makati City, together with all their
personal effects therein. The insurance was for P600,000.00 covering the
period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the
total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus
leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two
days later or on 10 March 1987 Violeta Tibay paid the balance of the
premium. On the same day, she filed with FORTUNE a claim on the fire
insurance policy. Her claim was accordingly referred to its adjuster, Goodwill
Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting
her to furnish it with the necessary documents for the investigation and
processing of her claim. Petitioner forthwith complied. On 28 March 1987 she
signed a non-waiver agreement with GASI to the effect that any action taken
by the companies or their representatives in investigating the claim made by
the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on
March 8, 1987, or in the investigating or ascertainment of the amount of
actual cash value and loss, shall not waive or invalidate any condition of the
policies of such companies held by said claimant, nor the rights of either or
any of the parties to this agreement, and such action shall not be, or be
claimed to be, an admission of liability on the part of said companies or any
of them.[1]
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for
violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
Efforts to settle the case before the Insurance Commission proved futile. On
3 March 1988 Violeta and the other petitioners sued FORTUNE for damages
in the amount of P600,000.00 representing the total coverage of the fire
insurance policy plus 12% interest per annum, P 100,000.00 moral damages,
and attorneys fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE
liable for the total value of the insured building and personal properties in
the amount of P600,000.00 plus interest at the legal rate of 6% per annum
from the filing of the complaint until full payment, and attorneys fees
equivalent to 20% of the total amount claimed plus costs of suit.[2]
On 24 March 1995 the Court of Appeals reversed the court a quo by
declaring FORTUNE not to be liable to plaintiff-appellees therein but ordering
defendant-appellant to return to the former the premium of P2,983.50 plus
12% interest from 10 March 1987 until full payment.[3]
Hence this petition for review with petitioners contending mainly that
contrary to the conclusion of the appellate court, FORTUNE remains liable

under the subject fire insurance policy inspite of the failure of petitioners to
pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown
or contingent event.[4] The consideration is the premium, which must be
paid at the time and in the way and manner specified in the policy, and if not
so paid, the policy will lapse and be forfeited by its own terms.[5]
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the
Company in accordance with Policy Condition No. 2 of the total premiums by
the insured as stipulated above for the period aforementioned for insuring
against Loss or Damage by Fire or Lightning as herein appears, the Property
herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon
is not in force until the premium has been fully paid to and duly receipted by
the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by
agent, broker or Company official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and
regulations which are or may hereafter be in force provide for the payment of
the stipulated premiums in periodic installments at fixed percentage, it is
hereby declared, agreed and warranted that this policy shall be deemed
effective, valid and binding upon the Company only when the premiums
therefor have actually been paid in full and duly acknowledged in a receipt
signed by any authorized official or representative/agent of the Company in
such manner as provided herein, (Italics supplied).[6]
Clearly the Policy provides for payment of premium in full. Accordingly,
where the premium has only been partially paid and the balance paid only
after the peril insured against has occurred, the insurance contract did not
take effect and the insured cannot collect at all on the policy. This is fully
supported by Sec. 77 of the Insurance Code which provides

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

thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies (Italics supplied).
Apparently the crux of the controversy lies in the phrase unless and until the
premium thereof has been paid. This leads us to the manner of payment
envisioned by the law to make the insurance policy operative and binding.
For whatever judicial construction may be accorded the disputed phrase
must ultimately yield to the clear mandate of the law. The principle that
where the law does not distinguish the court should neither distinguish
assumes that the legislature made no qualification on the use of a general
word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court
through Mr. Justice Jesus G. Barrera, interpreting the phrase with pay used in
connection with leaves of absence with pay granted to employees, ruled x x x the legislative practice seems to be that when the intention is to
distinguish between full and partial payment, the modifying term is used x x
x
Citing C. A. No. 647 governing maternity leaves of married women in
government, R. A. No. 679 regulating employment of women and children,
R.A. No. 843 granting vacation and sick leaves to judges of municipal courts
and justices of the peace, and finally, Art. 1695 of the New Civil Code
providing that every househelp shall be allowed four (4) days vacation each
month, which laws simply stated with pay, the Court concluded that it was
undisputed that in all these laws the phrase with pay used without any
qualifying adjective meant that the employee was entitled to full
compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy
despite partial payment of the premium due and the express stipulation
thereof to the contrary, petitioners rely heavily on the 1967 case of
Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.[8] where the
Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial
court that partial payment of the premium made the policy effective during
the whole period of the policy. In that case, the insurance company
commenced action against the insured for the unpaid balance on a fire
insurance policy. In its defense the insured claimed that nonpayment of
premium produced the cancellation of the insurance contract. Ruling
otherwise the Court held

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was
issued by appellee and delivered to appellant, and that on September 22 of
the same year, the latter paid to the former the sum of P3,000.00 on account
of the total premium of P6,051.95 due thereon. There is, consequently, no
doubt at all that, as between the insurer and the insured, there was not only
a perfected contract of insurance but a partially performed one as far as the
payment of the agreed premium was concerned. Thereafter the obligation of
the insurer to pay the insured the amount, for which the policy was issued in
case the conditions therefor had been complied with, arose and became
binding upon it, while the obligation of the insured to pay the remainder of
the total amount of the premium due became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant
dispute. For one, the factual scenario is different. In Phoenix it was the
insurance company that sued for the balance of the premium, i.e., it
recognized and admitted the existence of an insurance contract with the
insured. In the case before us, there is, quite unlike in Phoenix, a specific
stipulation that (t)his policy xxx is not in force until the premium has been
fully paid and duly receipted by the Company x x x. Resultantly, it is correct
to say that in Phoenix a contract was perfected upon partial payment of the
premium since the parties had not otherwise stipulated that prepayment of
the premium in full was a condition precedent to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later
demanding the remainder of the premium without any other precondition to
its enforceability as in the instant case, the insurer in effect had shown its
intention to continue with the existing contract of insurance, as in fact it was
enforcing its right to collect premium, or exact specific performance from the
insured. This is not so here. By express agreement of the parties, no
vinculum juris or bond of law was to be established until full payment was
effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties
mutually agreed that the premiums could be paid in installments, which in
fact they did for three (3) years, hence, this Court refused to invalidate the
insurance policy. In giving effect to the policy, the Court quoted with approval
the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible
obligation to pay the entire premium. Here, the parties x x x agreed to make
the premiums payable in installments, and there is no pretense that the
parties never envisioned to make the insurance contract binding between
them. It was renewed for two succeeding years, the second and third policies
being a renewal/replacement for the previous one. And the insured never

informed the insurer that it was terminating the policy because the terms
were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties
may not agree to make the insurance contract valid and binding without
payment of premiums, there is nothing in said section which suggests that
the parties may not agree to allow payment of the premiums in installment,
or to consider the contract as valid and binding upon payment of the first
premium. Otherwise we would allow the insurer to renege on its liability
under the contract, had a loss incurred (sic) before completion of payment of
the entire premium, despite its voluntary acceptance of partial payments, a
result eschewed by basic considerations of fairness and equity x x x.
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the
waiver, either express or implied, of prepayment in full by the insurer:
impliedly, by suing for the balance of the premium as inPhoenix, and
expressly, by agreeing to make premiums payable in installments as in
Tuscany. But contrary to the stance taken by petitioners, there is no waiver
express or implied in the case at bench. Precisely, the insurer and the
insured expressly stipulated that (t)his policy including any renewal thereof
and/or any indorsement thereon is not in force until the premium has been
fully paid to and duly receipted by the Company x x x and that this policy
shall be deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly
acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in
conjunction with Sec. 77 of the Insurance Code the payment of partial
premium by the assured in this particular instance should not be considered
the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer
until such time that the full amount has been tendered and duly receipted
for. In other words, as expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to be considered effective
and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted from the fractional payment of
premium. The insurance contract itself expressly provided that the policy
would be effective only when the premium was paid in full. It would have
been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE under
the terms of its policy and they freely opted to adhere thereto.

Indeed, and far more importantly, the cardinal polestar in the construction of
an insurance contract is the intention of the parties as expressed in the
policy.[10] Courts have no other function but to enforce the same. The rule
that contracts of insurance will be construed in favor of the insured and most
strongly against the insurer should not be permitted to have the effect of
making a plain agreement ambiguous and then construe it in favor of the
insured.[11] Verily, it is elemental law that the payment of premium is
requisite to keep the policy of insurance in force. If the premium is not paid
in the manner prescribed in the policy as intended by the parties the policy is
ineffective. Partial payment even when accepted as a partial payment will
not keep the policy alive even for such fractional part of the year as the part
payment bears to the whole payment.[12]
Applying further the rules of statutory construction, the position maintained
by petitioners becomes even more untenable. The case of South Sea Surety
and Insurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2)
statutory exceptions to the requirement of payment of the entire premium as
a prerequisite to the validity of the insurance contract. These exceptions are:
(a) in case the insurance coverage relates to life or industrial life (health)
insurance when a grace period applies, and (b) when the insurer makes a
written acknowledgment of the receipt of premium, this acknowledgment
being declared by law to, be then conclusive evidence of the premium
payment.[14]
A maxim of recognized practicality is the rule that the expressed exception
or exemption excludes others. Exceptio firm at regulim in casibus non
exceptis. The express mention of exceptions operates to exclude other
exceptions; conversely, those which are not within the enumerated
exceptions are deemed included in the general rule. Thus, under Sec. 77, as
well as Sec. 78, until the premium is paid, and the law has not expressly
excepted partial payments, there is no valid and binding contract. Hence, in
the absence of clear waiver of prepayment in full by the insurer, the insured
cannot collect on the proceeds of the policy.
In the desire to safeguard the interest of the assured, itmust not be ignored
that the contract of insurance is primarily a risk-distributing device, a
mechanism by which all members of a group exposed to a particular risk
contribute premiums to an insurer. From these contributory funds are paid
whatever losses occur due to exposure to the peril insured against. Each
party therefore takes a risk: the insurer, that of being compelled upon the
happening of the contingency to pay the entire sum agreed upon, and the
insured, that of parting with the amount required as premium, without
receiving anything therefor in case the contingency does not happen. To
ensure payment for these losses, the law mandates all insurance companies

to maintain a legal reserve fund in favor of those claiming under their

policies.[15] It should be understood that the integrity of this fund cannot be
secured and maintained if by judicial fiat partial offerings of premiums were
to be construed as a legal nexus between the applicant and the insurer
despite an express agreement to the contrary. For what could prevent the
insurance applicant from deliberately or wilfully holding back full premium
payment and wait for the risk insured against to transpire and then
conveniently pass on the balance of the premium to be deducted from the
proceeds of the insurance? Worse, what if the insured makes an initial
payment of only 10%, or even 1%, of the required premium, and when the
risk occurs simply points to the proceeds from where to source the balance?
Can an insurance company then exist and survive upon the payment of 1%,
or even 10%, of the premium stipulated in the policy on the basis that, after
all, the insurer can deduct from the proceeds of the insurance should the risk
insured against occur?
Interpreting the contract of insurance stringently against the insurer but
liberally in favor of the insured despite clearly defined obligations of the
parties to the policy can be carried out to extremes that there is the danger
that we may, so to speak, kill the goose that lays the golden egg. We are well
aware of insurance companies falling into the despicable habit of collecting
premiums promptly yet resorting to all kinds of excuses to deny or delay
payment of just insurance claims. But, in this case, the law is manifestly on
the side of the insurer. For as long as the current Insurance Code remains
unchanged and partial payment of premiums is not mentioned at all as
among the exceptions provided in Secs. 77 and 78, no policy of insurance
can ever pretend to be efficacious or effective until premium has been fully
paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae
of the insurance business because by law the insurer must maintain a legal
reserve fund to meet its contingent obligations to the public, hence, the
imperative need for its prompt payment and full satisfaction.[16] It must be
emphasized here that all actuarial calculations and various tabulations of
probabilities of losses under the risks insured against are based on the sound
hypothesis of prompt payment of premiums. Upon this bedrock insurance
firms are enabled to offer the assurance of security to the public at favorable
rates. But once payment of premium is left to the whim and caprice of the
insured, as when the courts tolerate the payment of a mere P600.00 as
partial undertaking out of the stipulated total premium of P2,983.50 and the
balance to be paid even after the risk insured against has occurred, as
petitioners have done in this case, on the principle that the strength of the
vinculumjuris is not measured by any specific amount of premium payment,
we will surely wreak havoc on the business and set to naught what has taken

actuarians centuries to devise to arrive at a fair and equitable distribution of

risks and benefits between the insurer and the insured.
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.[17] The validity of these limitations is by law
passed upon by the Insurance Commissioner who is empowered to approve
all forms of policies, certificates or contracts of insurance which insurers
intend to issue or deliver. That the policy contract in the case at bench was
approved and allowed issuance simply reaffirms the validity of such policy,
particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals dated 24 March 1995 is AFFIRMED.
SO ORDERED.

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, and defendant accepted,
five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45
as renewal premium payments for which Official Receipt Direct Premium No.
62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14,
1992, Masagana made its formal demand for indemnification for the burned
insured properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it
was rejecting Masagana's claim on the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for another
term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
earlier; and
[G.R. No. 137172. April 4, 2001]
UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA
TELAMART, INC., respondent.
RESOLUTION
DAVIDE, JR., C.J.:

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.

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 replacementrenewal 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.

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 or elimination of
coverages, the assured shall be entitled to renew the policy upon payment of
the premium due on the effective date of renewal.

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

(1) Defendant-appellant received the confirmation (Exhibit 11, Record, p.

350) from Ultramar Reinsurance Brokers that 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 the policies as provided under Policy Condition No. 26; (2) Defendant
insurer unconditionally accepted, and issued an official receipt for, the
premium payment on July 1[3], 1992 which indicates defendant's willingness
to assume the risk despite only a 67.5% reinsurance cover[age]; and (3)
Defendant insurer appointed Esteban Adjusters and Valuers to investigate
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) risk insured
against. We resolved this issue in the negative in view of Section 77 of the
Insurance Code and our decisions in Valenzuela v. Court of Appeals[2]; South
Sea Surety and Insurance Co., Inc. v. Court of Appeals[3]; and Tibay v. Court
of Appeals.[4] Accordingly, we reversed and set aside the decision of the
Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that we had made in the decision our own
findings of facts, which are not in accord with those of the trial court and the
Court of Appeals. The courts below correctly found that no notice of nonrenewal was made within 45 days before 22 May 1992, or before the
expiration date of the fire insurance policies. Thus, the policies in question
were renewed by operation of law and were effective and valid on 30 June
1992 when the fire occurred, since the premiums were paid within the 60- to
90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree
expressly or impliedly on the extension of credit or time to pay the premium
nor consider a policy binding before actual payment. It urges the Court to
take judicial notice of the fact that despite the express provision of Section
77 of the Insurance Code, extension of credit terms in premium payment has
been the prevalent practice in the insurance industry. Most insurance
companies, including Petitioner, extend credit terms because Section 77 of
the Insurance Code is not a prohibitive injunction but is merely designed for
the protection of the parties to an insurance contract. The Code itself, in

Section 78, authorizes the validity of a policy notwithstanding non-payment

of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner.
Despite its awareness of Section 77 Petitioner persuaded and induced
Respondent to believe that payment of premium on the 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days
after the due dates. By extending credit and habitually accepting payments
60 to 90 days from the effective dates of the policies, it has implicitly agreed
to modify the tenor of the insurance policy and in effect waived the provision
therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.
Petitioner filed an opposition to the 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 sent by 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, payment of 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 motion for reconsideration. The
following facts, as found by the trial court and the Court of Appeals, are
indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and
these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term
within which to pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as
there is no proof at all that the notice sent by ordinary mail was received by
Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of
P225,753.95 were paid by Respondent within the 60- to 90-day credit term
and were duly accepted and received by Petitioners cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of
the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to
Petitioners advantage despite its practice of granting a 60- to 90-day credit
term for the payment of premiums.
Section 77 of the Insurance Code of 1978 provides:
SEC. 77. An insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance
Code) promulgated on 18 December 1974. In turn, this Section has its source
in Section 72 of Act No. 2427 otherwise known as the Insurance Act as
amended by R.A. No. 3540, approved on 21 June 1963, which read:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing
insured is exposed to the peril insured against, unless there is clear
agreement to grant the insured credit extension of the premium due. No
policy issued by an insurance company is valid and binding unless and until
the premium thereof has been paid. (Underscoring supplied)
It can be seen at once that Section 77 does not restate the portion of Section
72 expressly permitting an agreement to extend the period to pay the
premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a
life or industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which
provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make
the policy binding, notwithstanding any stipulation therein that it shall not be
binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation

vs. Court of Appeals,[5] wherein we ruled that Section 77 may not apply if
the parties have agreed to the payment in installments of the premium and
partial payment has been made at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984.
In those three years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the 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 accepting the
premiums, although paid on installments, and later deny liability on the lame
excuse that the premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the motion
for reconsideration of its decision:
While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared to
rule that the request to make installment payments duly approved by the
insurer would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance
policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that
the insurer may grant credit extension for the payment of the premium. This
simply means that if the insurer has granted the insured a credit term for the
payment of the premium and loss occurs before the expiration of the term,

recovery on the policy should be allowed even though the premium is paid
after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs,
public order or public policy. The agreement binds the parties. Article 1306 of
the Civil Code provides:
ART. 1306. The contracting parties may establish such stipulations clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on
the policy would not be permitted against Petitioner, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Respondent relied in good faith on such practice. Estoppel
then is the fifth exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED
and SET ASIDE, and a new one is hereby entered DENYING the instant
petition for failure of Petitioner to sufficiently show that a reversible error was
committed by the Court of Appeals in its challenged decision, which is
hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.

[G.R. No. 130421. June 28, 1999]

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO
CHUA, respondent.
DECISION
DAVIDE, JR. C.J.:
In this petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, petitioner seeks the reversal of the decision[1] of the Court
of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of
the Regional Trial Court, Makati City, Branch 150 (hereafter trial court), in
Civil Case No. 91-1009.
Petitioner is a domestic corporation engaged in the insurance business.
Sometime in 1990, respondent obtained from petitioner a fire insurance
covering the stock-in-trade of his business, Moonlight Enterprises, located at
Valencia, Bukidnon. The insurance was due to expire on 25 March 1990.
On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount
of P2,983.50 to petitioners agent, James Uy, as payment for the renewal of
the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to
respondent. The check was drawn against a Manila bank and deposited in
petitioners bank account in Cagayan de Oro City. The corresponding official
receipt was issued on 10 April. Subsequently, a new insurance policy, Policy
No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify
respondent for any damage or loss arising from fire up to P200,000 for the
period 25 March 1990 to 25 March 1991.
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total
loss was estimated between P4,000,000 and P5,000,000. Respondent filed
an insurance claim with petitioner and four other co-insurers, namely,
Pioneer Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance
Company of the Philippines. Petitioner refused to honor the claim
notwithstanding several demands by respondent, thus, the latter filed an
action against petitioner before the trial court.

In its defense, petitioner claimed there was no existing insurance contract

when the fire occurred since respondent did not pay the premium. It also
alleged that even assuming there was a contract, respondent violated
several conditions of the policy, particularly: (1) his submission of fraudulent
income tax return and financial statements; (2) his failure to establish the
actual loss, which petitioner assessed at P70,000; and (3) his failure to notify
to petitioner of any insurance already effected to cover the insured goods.
These violations, petitioner insisted, justified the denial of the claim.
The trial court ruled in favor of respondent. It found that respondent paid by
way of check a day before the fire occurred. The check, which was deposited
in petitioners bank account, was even acknowledged in the renewal
certificate issued by petitioners agent. It declared that the alleged fraudulent
documents were limited to the disparity between the official receipts issued
by the Bureau of Internal Revenue (BIR) and the income tax returns for the
years 1987 to 1989. All the other documents were found to be genuine.
Nonetheless, it gave credence to the BIR certification that respondent paid
the corresponding taxes due for the questioned years.
As to respondents failure to notify petitioner of the other insurance contracts
covering the same goods, the trial court held that petitioner failed to show
that such omission was intentional and fraudulent. Finally, it noted that
petitioners investigation of respondent's claim was done in collaboration with
the representatives of other insurance companies who found no irregularity
therein. In fact, Pioneer Insurance and Surety Corporation and Prudential
Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.
The trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of [respondent] and
against the [petitioner] ordering the latter to pay the former the following:
1. P200,000.00, representing the amount of the insurance, plus legal interest
from the date of filing of this case;
2. P200,000.00 as moral damages;

On appeal, the assailed

Appeals. The Court of
substantially proved and
entitled respondent to the

decision was affirmed in toto by the Court of

Appeals found that respondents claim was
petitioners unjustified refusal to pay the claim
award of damages.

Its motion for reconsideration of the judgment having been denied, petitioner
filed the petition in this case. Petitioner reiterates its stand that there was no
existing insurance contract between the parties. It invokes Section 77 of the
Insurance Code, which provides:
An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of life or an industrial life policy whenever
the grace period provision applies.
and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[2] where
we ruled that unless and until the premium is paid there is no insurance.
Petitioner emphasizes that when the fire occurred on 6 April 1990 the
insurance contract was not yet subsisting pursuant to Article 1249[3] of the
Civil Code, which recognizes that a check can only effect payment once it
has been cashed. Although respondent testified that he gave the check on 5
April to a certain James Uy, the check, drawn against a Manila bank and
deposited in a Cagayan de Oro City bank, could not have been cleared by 6
April, the date of the fire. In fact, the official receipt issued for respondents
check payment was dated 10 April 1990, four days after the fire occurred.
Citing jurisprudence,[4] petitioner also contends that respondents nondisclosure of the other insurance contracts rendered the policy void. It
underscores the trial courts neglect in considering the Commission on Audits
certification that the BIR receipts submitted by respondent were, in effect,
fake since they were issued to other persons. Finally, petitioner argues that
the award of damages was excessive and unreasonable considering that it
did not act in bad faith in denying respondents claim.

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary damages;

Respondent counters that the issue of non-payment of premium is a question

of fact which can no longer be assailed. The trial courts finding on the
matter, which was affirmed by the Court of Appeals, is conclusive.

5. P50,000.00 as attorneys fees; and

6. Cost of suit.

Respondent refutes the reason for petitioners denial of his claim. As found by
the trial court, petitioners loss adjuster admitted prior knowledge of

respondents existing insurance contracts with the other insurance

companies. Nonetheless, the loss adjuster recommended the denial of the
claim, not because of the said contracts, but because he was suspicious of
the authenticity of certain documents which respondent submitted in filing
his claim.

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

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

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

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

On the issue of damages, respondent maintains that the amounts awarded

were reasonable. He cites numerous trips he had to make from Cagayan de
Oro City to Manila to follow up his rightful claim. He imputes bad faith on
petitioner who made enforcement of his claim difficult in the hope that he
would eventually abandon it. He further emphasizes that the adjusters of the
other insurance companies recommended payment of his claim, and they
complied therewith.
In its reply, petitioner alleges that the petition questions the conclusions of
law made by the trial court and the Court of Appeals.
Petitioner invokes respondents admission that his check for the renewal of
the policy was received only on 10 April 1990, taking into account that the
policy period was 25 March 1990 to 25 March 1991. The official receipt was
dated 10 April 1990. Anent respondents testimony that the check was given
to petitioners agent, a certain James Uy, the latter points out that even
respondent was not sure if Uy was indeed its agent. It faults respondent for
not producing Uy as his witness and not taking any receipt from him upon
presentment of the check. Even assuming that the check was received a day
before the occurrence of the fire, there still could not have been any
payment until the check was cleared.
Moreover, petitioner denies respondents allegation that it intended a renewal
of the contract for the renewal certificate clearly specified the following
conditions:

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

Petitioner asserts that an insurance contract can only be enforced upon the
payment of the premium, which should have been made before the renewal
period.
Finally, in assailing the excessive damages awarded to respondent petitioner
stresses that the policy in issue was limited to a liability of P200,000; but the
trial court granted the following monetary awards: P200,000 as actual
damages; P200,000 as moral damages; P100,000 as exemplary damages;
and P50,000 as attorneys fees.
The following issues must be resolved: first, whether there was a valid
payment of premium, considering that respondents check was cashed after
the occurrence of the fire; second, whether respondent violated the policy by
his submission of fraudulent documents and non-disclosure of the other
existing insurance contracts; and finally, whether respondent is entitled to
the award of damages.
The general rule in insurance laws is that unless the premium is paid the
insurance policy is not valid and binding. The only exceptions are life and
industrial life insurance.[6] Whether payment was indeed made is a question
of fact which is best determined by the trial court. The trial court found, as
affirmed by the Court of Appeals, that there was a valid check payment by
respondent to petitioner. Well-settled is the rule that the factual findings and
conclusions of the trial court and the Court of Appeals are entitled to great
weight and respect, and will not be disturbed on appeal in the absence of
any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case.[7]
We see no reason to depart from this ruling.
According to the trial court the renewal certificate issued to respondent
contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by respondent in favor of petitioner and
delivered to its agent was honored when presented and petitioner forthwith
issued its official receipt to respondent on 10 April 1990. Section 306 of the
Insurance Code provides that any insurance company which delivers a policy

or contract of insurance to an insurance agent or insurance broker shall be

deemed to have authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due
thereon.[8] 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.

To constitute a violation the other existing insurance contracts must be upon

the same subject matter and with the same interest and risk.[12] Indeed,
respondent acquired several co-insurers and he failed to disclose this
information to petitioner. Nonetheless, petitioner is estopped from invoking
this argument. The trial court cited the testimony of petitioners loss adjuster
who admitted previous knowledge of the co-insurers. Thus,
COURT:

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

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

discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were aware the insured was insured
with other companies like Pioneer and so on?
A Yes, Your Honor.

Is respondent guilty of the policy violations imputed against him? We are not
convinced by petitioners arguments. The 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. The trial court and the Court of Appeals
gave credence to the certification and it being a question of fact, we hold
that said finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure
of existing co-insurers, non-disclosure thereof is a violation that entitles the
insurer to avoid the policy. This condition is common in fire insurance policies
and is known as the other insurance clause. The purpose for the inclusion of
this clause is to prevent an increase in the moral hazard. We have ruled on
its validity and the case of Geagonia v. Court of Appeals[10] clearly
illustrates such principle. However, we see an exception in the instant case.
Citing Section 29[11] of the Insurance Code, the trial court reasoned that
respondents failure to disclose was not intentional and fraudulent. The
application of Section 29 is misplaced. Section 29 concerns concealment
which is intentional. The relevant provision is Section 75, which provides
that:
A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the
policy.

Q But in your report you never recommended the denial of the claim simply
because of the non-disclosure of other insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about this, the only reason you
recommended the denial of the claim, you found three documents to be
spurious. That is your only basis?
A Yes, Your Honor.[13] [Emphasis supplied]
Indubitably, it cannot be said that petitioner was deceived by respondent by
the latters non-disclosure of the other insurance contracts when petitioner
actually had prior knowledge thereof. Petitioners loss adjuster had known all
along of the other existing insurance contracts, yet, he did not use that as
basis for his recommendation of denial. The loss adjuster, being an employee
of petitioner, is deemed a representative of the latter whose awareness of
the other insurance contracts binds petitioner. We, therefore, hold that there
was no violation of the other insurance clause by respondent.
Petitioner is liable to pay its share of the loss. The trial court and the Court of
Appeals were correct in awarding P200,000 for this. There is, however, merit
in petitioners grievance against the damages and attorneys fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of
profit. It cannot be denied that the fire totally gutted respondents business;
thus, respondent no longer had any business to operate. His loss of profit
cannot be shouldered by petitioner whose obligation is limited to the object
of insurance, which was the stock-in-trade, and not the expected loss in
income or profit.
Neither can we approve the award of moral and exemplary damages. At the
core of this case is petitioners alleged breach of its obligation under a
contract of insurance. Under Article 2220 of the Civil Code, moral damages
may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith. We find no such fraud or bad faith. It must again
be stressed that moral damages are emphatically not intended to enrich a
plaintiff at the expense of the defendant. Such damages are awarded only to
enable the injured party to obtain means, diversion or amusements that will
serve to obviate the moral suffering he has undergone, by reason of the
defendants culpable action. Its award is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and it must be
proportional to the suffering inflicted.[14] When awarded, moral damages
must not be palpably and scandalously excessive as to indicate that it was
the result of passion, prejudice or corruption on the part of the trial court
judge.[15]
The law[16] is likewise clear that in contracts and quasi-contracts the court
may award exemplary damages if the defendant acted in a wanton,

fraudulent, reckless, oppressive, or malevolent manner. Nothing thereof can

be attributed to petitioner which merely tried to resist what it claimed to be
an unfounded claim for enforcement of the fire insurance policy.
As to attorneys fees, the general rule is that attorneys fees cannot be
recovered as part of damages because of the policy that no premium should
be placed on the right to litigate.[17] In short, the grant of attorneys fees as
part of damages is the exception rather than the rule; counsels fees are not
awarded every time a party prevails in a suit. It can be awarded only in the
cases enumerated in Article 2208 of the Civil Code, and in all cases it must
be reasonable.[18] Thereunder, the trial court may award attorneys fees
where it deems just and equitable that it be so granted. While we respect the
trial courts exercise of its discretion in this case, the award of P50,000 is
unreasonable and excessive. It should be reduced to P10,000.
WHEREFORE, the instant petition is partly GRANTED. The challenged decision
of the Court of Appeals in CA-G.R. No. 40751 is hereby MODIFIED by a)
deleting the awards of P200,000 for loss of profit, P200,000 as moral
damages and P100,000 as exemplary damages, and b) reducing the award
of attorneys fees from P50,000 to P10,000.
No pronouncement as to costs.
SO ORDERED.