1.

117 SCRA 187 Mercantile Law Insurance Law Representation Collection

of Premium Even Though Insured is Disqualified (Age)

FACTS: In April 1969, Carmen Lapuz filled out an application form for insurance under
Manila Banker Life Assurance Corporation. She stated that her date of birth was July
11, 1904. Upon payment of the Php 20.00 premium, she was issued the insurance
policy in April 1969. In May 1969, Carmen Lapuz died in a vehicular accident. Regina
Edillon, who was named a beneficiary in the insurance policy sought to collect the
insurance proceeds but Manila Banker denied the claim. Apparently, it is a rule of the
insurance company that they were not to issue insurance policies to persons who are
under the age of sixteen (16) years of age or over the age of sixty (60) years Note,
that Lapuz was already 65 years old when she was applying for the insurance policy.

ISSUE: Whether or not Edillon is entitled to the insurance claim as a beneficiary.

HELD: Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance
company still received premium from Lapuz and issued the corresponding insurance
policy to her. When the accident happened, the insurance policy has been in force for
45 days already and such time was already sufficient for Manila Banker to notice the
fact that Lapuz is already over 60 years old and thereby cancel the insurance policy. If
Manila Banker failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for which it
has only itself to blame, it simply overlooked such fact. Under the circumstances, Manila
Banker is already deemed in estoppel.

2. Pioneer v Yap G.R. No. L-36232 December 19, 1974

Facts:
Respondent Oliva Yap was the owner of a store in a two-storey building where she sold shopping
bags and footwear. Chua Soon Poon, her son-in-law, was in charge of the store.
Yap took out a Fire Insurance Policy No. 4216 from Pioneer Insurance with a value of P25,000.00
covering her stocks, office furniture, fixtures and fittings.
Among the conditions in the policy executed by the parties are the following:
unless such notice be given and the particulars of such insurance or insurances be stated in, or
endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this Policy shall be forfeited Any false declaration or breach or this
condition will render this policy null and void.
Another insurance policy for P20,000.00 issued by Great American covering the same properties.
The endorsement recognized co-insurance by Northwest for the same value.
Oliva Yap took out another fire insurance policy for P20,000.00 covering the same properties from
the Federal Insurance Company, Inc., which was procured without notice to and the written consent
of Pioneer.
A fire broke out in the building, and the store was burned. Yap filed an insurance claim, but the same
was denied for a breach.
Oliva Yap filed a case for payment of the face value of her fire insurance policy. The insurance
company refused to pay because she never informed Pioneer of another insurer. The
trial court decided in favor of Yap. The CA affirmed.
Issue:
Whether or not petitioner should be absolved from liability on the Pioneeer policy on account of any
violation of the co-insurance clause

Held: No. Petition dismissed.

Ratio:
There was a violation. The insurance policy for P20,000.00 issued by the Great American, ceased to
be recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the parties to recognize on the date the endorsement
was made, the existence of only one co-insurance, the Northwest one. The finding of
the Court of Appeals that the Great American Insurance policy was substituted by the Federal
Insurance policy is indeed contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid the contract. It required
no affirmative act of election on the part of the company to make operative the clause avoiding the
contract, wherever the specified conditions should occur. Its obligations ceased, unless, being
informed of the fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of additional
insurance without the consent of the insurer renders the policy void is in American jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this state and practically all of the states
is to the effect that a clause in a policy to the effect that the procurement of additional insurance
without the consent of the insurer renders the policy void is a valid provision.
In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua- The annotation then, must
be deemed to be a warranty that the property was not insured by any other policy. Violation thereof
entitled the insurer to rescind. Furthermore, even if the annotations were overlooked the defendant
insurer would still be free from liability because there is no question that the policy issued by General
Indemnity has not been stated in nor endorsed on Policy No. 471 of defendant. The obvious purpose
of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the
perpetration of fraud where a fire would be profitable to the insured.

3.

FACTS:
July 21, 1960: Woodworks, Inc. was issued a fire policy for its
building machinery and equipment by Philippine Phoenix Surety & Insurance
Co. for P500K covering July 21, 1960 to July 21, 1961. Woodworks did not pay
the premium totalling to P10,593.36.
April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix the
cancellation of the Policy so Philippine Phoenix credited P3,110.25 for the
 unexpired period of 94 days and demanded in writing the payment
of P7,483.11
Woodworks refused stating that it need not pay premium "because the
Insurer did not stand liable for any indemnity during the period the premiums
were not paid."
Philippine Phoenix filed with the CFI to recover its earned premium
of P7,483.11
Woodworks: to pay the premium after the issuance of the policy put an
end to the insurance contract and rendered the policy unenforceable
CFI: favored Philippine Phoenix
ISSUE: W/N there was a valid insurance contract despite no premium payment was
paid

HELD: NO. Reversed

Policy provides for pre-payment of premium. To constitute an extension of

credit there must be a clear and express agreement therefor and there nust be
acceptance of the extension - none here
Since the premium had not been paid, the policy must be deemed to have
lapsed.
failure to make a payment of a premium or assessment at the time provided
for, the policy shall become void or forfeited, or the obligation of the insurer
shall cease, or words to like effect, because the contract so prescribes and
because such a stipulation is a material and essential part of the contract. This
is true, for instance, in the case of life, health and accident, fire and hail
insurance policies
Explicit in the Policy itself is plaintiff's agreement to indemnify defendant
for loss by fire only "after payment of premium" Compliance by the insured
with the terms of the contract is a condition precedent to the right of recovery.
The burden is on an insured to keep a policy in force by the payment of
premiums, rather than on the insurer to exert every effort to prevent the
insured from allowing a policy to elapse through a failure to make premium
payments.

FACTS:
Upon WOODWORKSs application, PHIL. PHOENIX issued in its favor a
fire insurance policy whereby PHIL. PHOENIX insured WOODWORKS
building, machinery and equipment for a term of one year from against
loss by fire. The premium and other charges amounted to P10,593.36.
It is undisputed that WOODWORKS did not pay the premium stipulated
in the Policy when it was issued nor at any time thereafter.

Before the expiration of the one-year term, PHIL. PHOENIX notified

WOODWORKS of the cancellation of the Policy allegedly upon request
of WOODWORKS. The latter has denied having made such a request.
PHIL. PHOENIX credited WOODWORKS with the amount of P3,110.25
for the unexpired period of 94 days, and claimed the balance of
P7,483.11 representing , earned premium. Thereafter, PHIL. PHOENIX
demanded in writing for the payment of said amount.
WOODWORKS disclaimed any liability contending, in essence, that it
need not pay premium because the Insurer did not stand liable for any
indemnity during the period the premiums were not paid.

For this reason, PHIL. PHOENIX commenced action in the CFI of

Manila. Judgment was rendered in PHIL. PHOENIXs favor . From this
adverse Decision, WOODWORKS appealed to the Court of Appeals
which certified the case to SC on a question of law.

ISSUE:
May the insurer collect the earned premiums?

HELD:
NO. The Courts findings are buttressed by Section 77 of the Insurance
Code (Presidential Decree No. 612, promulgated on December 18,
1974), which now provides that no contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, notwithstanding any agreement to the contrary.

Since the premium had not been paid, the policy must be deemed to
have lapsed.
The non-payment of premiums does not merely suspend but put, an end
to an insurance contract, since the time of the payment is peculiarly of
the essence of the contract.

In fact, if the peril insured against had occurred, PHIL. PHOENIX, as

insurer, would have had a valid defense against recovery under the
Policy it had issued. Explicit in the Policy itself is PHIL. PHOENIXs
agreement to indemnify WOODWORKS for loss by fire only after
payment of premium, Compliance by the insured with the terms of the
contract is a condition precedent to the right of recovery.

The burden is on an insured to keep a policy in force by the payment of

premiums, rather than on the insurer to exert every effort to prevent the
insured from allowing a policy to elapse through a failure to make
premium payments. The continuance of the insurers obligation is
conditional upon the payment of premiums, so that no recovery can be
had upon a lapsed policy, the contractual relation between the parties
having ceased.

Moreover, an insurer cannot treat a contract as valid for the purpose of

collecting premiums and invalid for the purpose of indemnity.

DISPOSITION:
The judgment appealed from was reversed, and PHIL. PHOENIXs
complaint dismissed.

PHILIPPINE PHOENIX SURETY & INSURANCE, INC.

vs.WOODWORKS, INC.

[G.R. No. L-22684 August 31, 1967]

FACTS:

That on April 1, 1960, plaintiff issued to defendant Fire Policy No.

9652 for the amount of P300,000.00. The premiums of said policy
amounted to P6, 051.95. The defendant paid P3,000.00 on
September 22, 1960 and the plaintiff made several demands on
defendant to pay the amount of P3,522.09.

Appellee Philippine Phoenix Surety & Insurance Co., Inc.

commenced this action in the Municipal Court of Manila to recover
from appellant Woodworks, Inc. the sum of P3,522.09,
representing the unpaid balance of the premiums on a fire
insurance policy issued by appellee in favor of appellant for a
term of one year from April 1, 1960 to April 1, 1961. From an
adverse decision of said court, Woodworks, Inc. appealed to the
Court of First Instance of Manila.

Appeal upon a question of law taken by Woodworks, Inc. from the

judgment of the Court of First Instance of Manila "ordering the
defendant, Woodworks, Inc. to pay to the plaintiff, Philippine
Phoenix Surety & Insurance, Inc., the sum of P3,522.09 with
interest thereon at the legal rate of 6% per annum from the date
of the filing of the complaint until fully paid, and costs of the
suit." Hence, this petition.

Issue:
Whether or not the non-payment of premium does not cancel the
policy in a perfected contract of insurance

Whether or not a partial payment of the premium made the policy

effective during the whole period of the policy

Ruling:

The petition is lack of merit.

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 court did not agree with appellant's theory that non-
payment by it of the premium due, produced the cancellation of
the contract of insurance. Such theory would place exclusively in
the hands of one of the contracting parties the right to decide
whether the contract should stand or not. Rather the correct view
would seem to be this: as the contract had become perfected, the
parties could demand from each other the performance of
whatever obligations they had assumed. In the case of the
insurer, it is obvious that it had the right to demand from the
insured the completion of the payment of the premium due or sue
for the rescission of the contract. As it chose to demand specific
performance of the insured's obligation to pay the balance of the
premium, the latter's duty to pay is indeed indubitable.

The appealed decision being in accordance with law and the evidence, the
same is affirmed.

4.

5.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs. HON.
COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY

G.R. No. 103576 August 22, 1996

Facts:

1. Petitioner Chua Pac, the president and general manager of Acme Shoe
executed for and in behalf of the company, a chattel mortgage in favor
respondent Bank.

2. The mortgage stood by way of security for petitioner's corporate loan

of P3,000,000.00. In due time, the loan was paid by petitioner corporation.
3. Subsequently, it obtained from respondent additional financial
accommodations totaling P2,700,000.00. These borrowings were on due date
also fully paid.

4. The bank yet again extended to petitioner corporation a loan of

P1,000,000.00 covered by four promissory notes for P250,000.00 each.

5. Due to financial constraints, the loan was not settled at maturity.

6. Respondent applied for an extra judicial foreclosure of the chattel

mortgage, prompting Petitioner Corporation to forthwith file an action for
injunction.

7. Ultimately, the court dismissed the complaint and ordered the

foreclosure of the chattel mortgage.

Issues:

1. Whether or not the foreclosure is valid

2. If so, whether the plaintiff is entitled to moral damages as a result of

the unlawful action taken by respondent bank against it

Ruling:

1. No. The mortgage is made for the purpose of securing the obligation
specified in the conditions thereof, and for no other purpose, and that the
same is a just and valid obligation, and one not entered into for the purpose
of fraud. makes it obvious that the debt referred to in the law is a current,
not an obligation that is yet merely contemplated. In the chattel mortgage
here involved, the only obligation specified in the chattel mortgage contract
was the P3,000,000.00 loan which petitioner corporation later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage void or terminated.

2. In LBC Express, Inc. vs. Court of Appeals, the court have said: Moral
damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. A corporation, being an artificial
person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and
mental anguish. Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life all of
which cannot be suffered by respondent bank as an artificial person.

While Chua Pac is included in the case, the complaint, however, clearly
states that he has merely been so named as a party in representation of
Petitioner Corporation.

6. 77. Arce vs Capital Insurance

G.R. No. L-28501, September 30, 1982

FACTS:

1 The petitioner, the insured, was the owner of a residential house inTondo, Manila, which
had been insured with the Capital insurance since 1961under Fire Policy No. 24204.
2 On November 27, 1965, the COMPANY sent to the petitioner Renewal Certificate No.
47302 to cover the period December 5, 1965 to December 5, 1966. The respondent also
requested payment of the corresponding premium in the amount of P38.10.
3 Anticipating that the premium could not be paid on time, the petitioner, thru his wife,
promised to pay it on January 4, 1966. The respondent accepted the promise but the
premium was not paid on January 4, 1966.
4 When the petitioners house was ravaged with fire, the petitioners wife presented a claim
for indemnity to the respondent. She was told that no indemnity was due because the
premium on the policy was not paid.
5 Nonetheless the respondent tendered a check forP300.00 as financial aid which was
received by the petiotioners daughter. The respondent reiterated that the check was given
"not as an obligation, but as a concession" because the renewal premium had not been
paid. The petitioner cashed the check but then sued the respondent on the policy.
CFI: Capital Insurance and Surety Co., Inc. was ordered to pay Pedro Arce the proceeds of a fire
insurance policy.

ISSUE:
 Whether or not the petitioners are entitled to claim from their policy despite non-payment
of their premium.

HELD:

No.

RATIO:

1 It is obvious from both the Insurance Act, as amended, and the stipulation of the parties
that time is of the essence in respect of the payment of the insurance premium so that if it
is not paid the contract does not take effect unless there is still another stipulation to the
contrary. In the instant case, the petitioner was given a grace period to pay the premium
but the period having expired with no payment made; he cannot insist that the respondent
is nonetheless obligated to him.
2 Moreover, the parties in this case had stipulated:

[T]his insurance will be deemed valid and binding upon the respondent (Capital Assurance)
only when the premium and documentary stamps therefor have actually been paid in full and
duly acknowledged in an official receipt signed by an authorized official/representative of the
respondent (Capital Assurance).

DOCTRINE

An insurer is entitled to payment of premium as soon as the thing insured is exposed to the perils
insured against, unless there is clear agreement to grant credit extension for the premium due. No
policy issued by an insurance company is valid and binding unless and until the premium thereof
has been paid.

Insurance Case Digest: Valenzuela V.

7.

CA (1990)

FACTS:
 Valenzuela, General Agent of Philippine American General
Insurance Company, Inc authorized to sell in behalf
of Philamgen solicited marine insurance from Delta Motors, Inc.
amounting to P4.4M entitling him to a 32% commission or P1.6M
1976-1978: premium payments of P1,946,886 were paid directly
to Philamgen. Philamgen wanted a 50% share of Valenzuela's
commission but Valenzuela refused.
Because of his refusal, the officers of Philamgen reversed his
commission due him, placed agency transactions on a cash and
carry basis thus removing the 60-day credit for premiums due,
threatened to cancel policies issued by his agency and leaked out
the news that he has substantial accounts with Philamgen.
December 27, 1978: His agency with Philamgen was terminated
Valenzuela sought relief from the RTC
RTC: favored Valenzuela with reinstatement, commission with
interest, monthly compensatory damages, moral damages,
attorney's fees and cost of suit
CA modified by holding Philamgen and Valenzuela jointly and
severally liable for the premium
ISSUE: W/N Valuenuela should be NOT be held liable since non-payment of the
premium renders the policy invalid

petition is GRANTED. RTC reinstated with modification

HELD: YES.
that upon satisfaction of the judgment, contractual relationship is
terminated
The principal may not defeat the agent's right to indemnification
by a termination of the contract of agency. Where the principal
terminates or repudiates the agent's employment in violation of the
contract of employment and without cause ... the agent is entitled
to receive either the amount of net losses caused and gains
prevented by the breach, or the reasonable value of the services
rendered. Thus, the agent is entitled to prospective profits which he
would have made except for such wrongful termination provided
that such profits are not conjectural, or speculative but are capable
of determination upon some fairly reliable basis.
If a principal violates a contractual or quasi-contractual duty
which he owes his agent, the agent may as a rule bring an
appropriate action for the breach of that duty. The agent may in a
proper case maintain an action at law for compensation or
damages
 question of whether or not the agency agreement is coupled with
interest is helpful to the petitioners' cause but is not the primary
and compelling reason
Section 77 of the Insurance Code, the remedy for the non-
payment of premiums is to put an end to and render the
insurance policy not binding
unless premium is paid, an insurance contract does not take
effect
since admittedly the premiums have not been paid, the policies
issued have lapsed
to sue Valenzuela for the unpaid premiums would be the
height of injustice and unfair dealing
Under Article 2200 of the new Civil Code, "indemnification for
damages shall comprehend not only the value of the loss suffered,
but also that of the profits which the obligee failed to obtain."

8. UCPB General Insurance Co., Inc.

-vs-
Masagana Telemart, inc.
G.R. No. 137172, 04 April 2001

FACTS
Plaintiff [herein Respondent] obtained from defendant [herein
Petitioner] five (5) insurance policies on its properties. All five (5) policies
reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to
4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties were
razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted,
five (5) Equitable Bank Manager's Checks as renewal premium payments for
which Official Receipt Direct Premium was issued by defendant. 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) that it was rejecting Masagana's claim on the
following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for
another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-
renewal earlier; and
c) The properties covered by the said policies were burned in a fire
that took place last June 13, 1992, or before tender of premium
payment."
ISSUE
Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460)
must be strictly applied to Petitioner's advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums.

HELD
Section 77 of the Insurance Code of 1978 provides:

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

as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract
of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case
of a life or an industrial life policy whenever the grace period provision
applies.

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. 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.
5.