G.R. No.

L-38613 February 25, 1982

PACIFIC TIMBER EXPORT CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.

DE CASTRO, ** J.:

This petition seeks the review of the decision of the Court of Appeals reversing the decision of the
Court of First Instance of Manila in favor of petitioner and against private respondent which ordered
the latter to pay the sum of Pll,042.04 with interest at the rate of 12% interest from receipt of notice
of loss on April 15, 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and
the costs 1 thereby dismissing petitioner s complaint with costs. 2

The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as
shall be indicated in the discussion of the opinion of this Court the substantial correctness of still particular
finding having been disputed, thereby raising a question of law reviewable by this Court 3 are as follows:

March 19, l963, the plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be
shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The
defendant issued on said date Cover Note No. 1010, insuring the said cargo of the
plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and approved by the Office
of the Insurance Commissioner (Exhibit A).

The regular marine cargo policies were issued by the defendant in favor of the
plaintiff on April 2, 1963. The two marine policies bore the numbers 53 HO 1032 and
53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was
for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was
for 853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The total cargo
insured under the two marine policies accordingly consisted of 1,395 logs, or the
equivalent of 1,195.498 bd. ft.

After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the
two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to
be exported were lost during loading operations in the Diapitan Bay. The logs were to
be loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline
of the Diapitan Bay. The logs were taken from the log pond of the plaintiff and from
which they were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March
29, 1963, while the logs were alongside the vessel, bad weather developed resulting
in 75 pieces of logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost or
washed away as a result of the accident.

In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32
pieces of log's during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:

April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines

Gentlemen:

This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd.
ft. Philippine Lauan and Apitong Logs. We would like to inform you that we have
received advance preliminary report from our Office in Diapitan, Quezon that we
have lost approximately 32 pieces of logs during loading of the SS Woodlock.

We will send you an accurate report all the details including values as soon as same
will be reported to us.

Thank you for your attention, we wish to remain.

Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.

Although dated April 4, 1963, the letter was received in the office of the defendant
only on April 15, 1963, as shown by the stamp impression appearing on the left
bottom corner of said letter. The plaintiff subsequently submitted a 'Claim Statement
demanding payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in
the total amount of P19,286.79 (Exhibit G).

On July 17, 1963, the defendant requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. The adjustment company
submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the adjuster
found that 'the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032
and 1033 inasmuch as said policies covered the actual number of logs loaded on
board the 'SS Woodlock' However, the loss of 30 pieces of logs is within the
1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.

On September 14, 1963, the adjustment company submitted a computation of the

defendant's probable liability on the loss sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4).

On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on
the ground they defendant's investigation revealed that the entire shipment of logs
covered by the two marines policies No. 53 110 1032 and 713 HO 1033 were
received in good order at their point of destination. It was further stated that the said
loss may be considered as covered under Cover Note No. 1010 because the said
Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant was
brought by the plaintiff to the attention of the Insurance Commissioner by means of a
letter dated March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964,
Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. 1010', and advised early
settlement of the said marine loss and salvage claim (Exhibit L).
 On June 26, 1964, the defendant informed the Insurance Commissioner that, on
advice of their attorneys, the claim of the plaintiff is being denied on the ground that
the cover note is null and void for lack of valuable consideration (Exhibit M). 4

Petitioner assigned as errors of the Court of Appeals, the following:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS
NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE
COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE
COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE
COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT

WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT
DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF
DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON
THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5

1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation,
the cover note is made subject to the terms and conditions of the marine policies, and the payment of
premiums is one of the terms of the policies. From this undisputed fact, We uphold petitioner's submission
that the Cover Note was not without consideration for which the respondent court held the Cover Note as
null and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover
Note before the loss insured against occurred, does not militate against the validity of petitioner's
contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not
contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate premiums are intended or required
to be paid on a Cover Note. This is a fact admitted by an official of respondent company, Juan Jose
Camacho, in charge of issuing cover notes of the respondent company (p. 33, tsn, September 24, 1965).

At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the
statement issued by private respondent after the issuance of the two regular marine insurance
policies, thereby leaving no account unpaid by petitioner due on the insurance coverage, which must
be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of
integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note
would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere
application for insurance which is a mere offer. 6

It may be true that the marine insurance policies issued were for logs no longer including those which had
been lost during loading operations. This had to be so because the risk insured against is not for loss
during operations anymore, but for loss during transit, the logs having already been safely placed aboard.
This would make no difference, however, insofar as the liability on the cover note is concerned, for the
number or volume of logs lost can be determined independently as in fact it had been so ascertained at
the instance of private respondent itself when it sent its own adjuster to investigate and assess the loss,
after the issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its computation of
respondent's liability on the insurance coverage. This coverage could not have been no other than
what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage
arising from the marine insurance policies. For obvious reasons, it was not necessary to ask
petitioner to pay premium on the Cover Note, for the loss insured against having already occurred,
the more practical procedure is simply to deduct the premium from the amount due the petitioner on
the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was
not chargeable against its fault. Had all the logs been lost during the loading operations, but after the
issuance of the Cover Note, liability on the note would have already arisen even before payment of
premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve
no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy
is delivered without requiring payment of the premium, the presumption is that a credit was intended
and policy is valid. 7

2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The
law requires this ground of delay to be promptly and specifically asserted when a claim on the insurance
agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting
to petitioner's claim of recovery on the cover note, it took steps clearly indicative that this particular
ground for objection to the claim was never in its mind. The nature of this specific ground for resisting a
claim places the insurer on duty to inquire when the loss took place, so that it could determine whether
delay would be a valid ground upon which to object to a claim against it.

As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was
on April 15, 1963, was to set in motion from July 1963 what would be necessary to determine the
cause and extent of the loss, with a view to the payment thereof on the insurance agreement. Thus it
sent its adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report
on August 23, 1963 and its computation of respondent's liability on September 14, 1963. From April
1963 to July, 1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings that took place
later in the Office of the Insurance Commissioner, private respondent should then have raised this
ground of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this
Court fails to find a real and substantial sign thereof. But even on the assumption that there was
delay, this Court is satisfied and convinced that as expressly provided by law, waiver can
successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides:

Section 84.Delay in the presentation to an insurer of notice or proof of loss is

waived if caused by any act of his or if he omits to take objection promptly and
specifically upon that ground.

From what has been said, We find duly substantiated petitioner's assignments of error.

ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is
reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.

SO ORDERED.

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April
29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief,
through these petitions for certiorari by way of appeal, from the amended decision of respondent
Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering
"the defendants (herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly
and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year
endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting
(Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over
to the Company, but he reatined the amount of P1,317.00 as his commission for being a duly
authorized agebt of Pacific Life. Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from
Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the
offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance
plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for
such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier
refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private respondent
Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the
aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a
BINDING RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said
insurance shan be in force and in effect from the date of such medical examination,
for such period as is covered by the deposit ..., PROVIDED the company shall be
satisfied that on said date the applicant was insurable on standard rates under its
rule for the amount of insurance and the kind of policy requested in the application.

D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to
issue a policy for a different plan and/or amount ..., the insurance shall not be in force
and in effect until the applicant shall have accepted the policy as issued or offered by
the Company and shall have paid the full premium thereof. If the applicant does not
accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the
Company declines to approve the application the insurance applied for shall not have
been in force at any time and the sum paid be returned to the applicant upon the
surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to
be merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and offers to issue a policy for a different
plan, the insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble according to the
standard rates, and the company disapproves the application, the insurance applied for shall not be
in force at any time, and the premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely
an acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether
or not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does
not insure outright. As held by this Court, where an agreement is made between the applicant and
the agent, no liability shall attach until the principal approves the risk and a receipt is given by the
agent. The acceptance is merely conditional and is subordinated to the act of the company in
approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M),
Pacific Life disapproved the insurance application in question on the ground that it is not offering the
twenty-year endowment insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private respondent failed to
accept. In the absence of a meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in
favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid by private respondent shall have
to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like
other contracts, must be assented to by both parties either in person or by their agents ... The
contract, to be binding from the date of the application, must have been a completed contract, one
that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined,
before it shall take effect. There can be no contract of insurance unless the minds of the parties have
met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on
the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there
was no contract perfected between the parties who had no meeting of their minds. Private
respondet, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably
aware that said company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life
had rejected the proposal and recommendation. Secondly, having an insurable interest on the life of
his one-year old daughter, aside from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on
the processing of such application and could not pretend ignorance of the Company's rejection of the
20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate
Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to
the amended decision of the respondent court which completely reversed the original decision, the
following:

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit
3-M) nor the reply thereto of appellant Mondragon reiterating the desire for
applicant's father to have the application considered as one for a 20-year endowment
plan was ever duly communicated to Ngo; Hing, father of the minor applicant. I am
not quite conninced that this was so. Ngo Hing, as father of the applicant herself, was
precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged
statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M),
specifically admits that said Ngo Hing was "our associate" and that it was the latter
who "insisted that the plan be placed on the 20-year endowment plan." Under these
circumstances, it is inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He must have been duly
apprised of the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who insisted on the
application as originally filed, thereby implictly declining the offer to consider the
 application under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to know what kind of
policies are available in the company for minors below 7 years old. What he and
Mondragon were apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment policies for minors just
as other insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at
all. (Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private
respondent had deliberately concealed the state of health and piysical condition of his daughter
Helen Go. Wher private regpondeit supplied the required essential data for the insurance application
form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor disguished. Nonetheless, private
respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by the
insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surely must have
known. his duty and responsibility to such a material fact. Had he diamond said significant fact in the
insurance application fom Pacific Life would have verified the same and would have had no choice
but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute
and perfect candor or openness and honesty; the absence of any concealment or demotion,
however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer
(Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to
communicate that which a partY knows aDd Ought to communicate (Section 25, Act No. 2427).
Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.
Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty
thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with
the noncompliance of the conditions provided in the binding receipt, and concealment, as legally
defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby
entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company
from their civil liabilities as found by respondent Court and ordering the aforesaid insurance
company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing.
Costs against private respondent.

SO ORDERED.

[G.R. No. 119176. March 19, 2002]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINCOLN

PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-
 CMA LIFE INSURANCE COMPANY, INC.) and THE COURT OF
APPEALS, respondents.

DECISION
KAPUNAN, J.:

This is a petition for review on certiorari filed by the Commission on Internal

Revenue of the decision of the Court of Appeals dated November 18, 1994 in C.A.
G.R. SP No. 31224 which reversed in part the decision of the Court of Tax Appeals in
C.T.A. Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-
CMA Life Insurance Company, Inc.) is a domestic corporation registered with the
Securities and Exchange Commission and engaged in life insurance business. In the
years prior to 1984, private respondent issued a special kind of life insurance policy
known as the Junior Estate Builder Policy, the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage
upon attainment of a certain age by the insured without the need of issuing a new
policy. The clause was to take effect in the year 1984. Documentary stamp taxes due
on the policy were paid by petitioner only on the initial sum assured.
In 1984, private respondent also issued 50,000 shares of stock dividends with a
par value of P100.00 per share or a total par value of P5,000,000.00. The actual value
of said shares, represented by its book value, was P19,307,500.00. Documentary
stamp taxes were paid based only on the par value of P5,000,000.00 and not on the
book value.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for
the year 1984 in the amounts of (a) P464,898.75, corresponding to the amount of
automatic increase of the sum assured on the policy issued by respondent, and
(b) P78,991.25 corresponding to the book value in excess of the par value of the stock
dividends. The computation of the deficiency documentary stamp taxes is as follows:

On Policies Issued:

Total policy issued during the year P1,360,054,000.00

Documentary stamp tax due thereon

(P1,360,054,000.00 divided by

P200.00 multiplied by P0.35) P 2,380,094.50

Less: Payment P 1,915,495.75

Deficiency P 464,598.75

Add: Compromise Penalty 300.00

-----------------------

TOTAL AMOUNT DUE & COLLECTIBLE P 464,898.75

Private respondent questioned the deficiency assessments and sought their

cancellation in a petition filed in the Court of Tax Appeals, docketed as CTA Case
No. 4583.
On March 30, 1993, the Court of Tax Appeals found no valid basis for the
deficiency tax assessment on the stock dividends, as well as on the insurance
policy. The dispositive portion of the CTAs decision reads:

WHEREFORE, the deficiency documentary stamp tax assessments in the amount

of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack
of merit. Respondent Commissioner of Internal Revenue is ordered to desist from
collecting said deficiency documentary stamp taxes for the same are considered
withdrawn.

SO ORDERED.[1]

Petitioner appealed the CTAs decision to the Court of Appeals. On November 18,
1994, the Court of Appeals promulgated a decision affirming the CTAs decision
insofar as it nullified the deficiency assessment on the insurance policy, but reversing
the same with regard to the deficiency assessment on the stock dividends. The CTA
ruled that the correct basis of the documentary stamp tax due on the stock dividends is
the actual value or book value represented by the shares. The dispositive portion of
the Court of Appeals decision states:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is

hereby REVERSED with respect to the deficiency tax assessment on the stock
dividends, but AFFIRMED with regards to the assessment on the Insurance Policies.
Consequently, private respondent is ordered to pay the petitioner herein the sum
of P78,991.25, representing documentary stamp tax on the stock dividends it issued.
No costs pronouncement.

SO ORDERED.[2]
 A motion for reconsideration of the decision having been denied, [3] both the
Commissioner of Internal Revenue and private respondent appealed to this Court,
docketed as G.R. No. 118043 and G.R. No. 119176, respectively. In G.R. No. 118043,
private respondent appealed the decision of the Court of Appeals insofar as it upheld
the validity of the deficiency tax assessment on the stock dividends. The
Commissioner of Internal Revenue, on his part, filed the present petition questioning
that portion of the Court of Appeals decision which invalidated the deficiency
assessment on the insurance policy, attributing the following errors:

THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED

THAT THERE IS A SINGLE AGREEMENT EMBODIED IN THE
POLICY AND THAT THE AUTOMATIC INCREASE CLAUSE IS NOT A
SEPARATE AGREEMENT, CONTRARY TO SECTION 49 OF THE
INSURANCE CODE AND SECTION 183 OF THE REVENUE CODE
THAT A RIDER, A CLAUSE IS PART OF THE POLICY.

THE HONORABLE COURT OF APPEALS ERRED IN NOT COMPUTING

THE AMOUNT OF TAX ON THE TOTAL VALUE OF THE INSURANCE
ASSURED IN THE POLICY INCLUDING THE ADDITIONAL
INCREASE ASSURED BY THE AUTOMATIC INCREASE CLAUSE
DESPITE ITS RULING THAT THE ORIGINAL POLICY AND THE
AUTOMATIC CLAUSE CONSTITUTED ONLY A SINGULAR
TRANSACTION.[4]

Section 173 of the National Internal Revenue Code on documentary stamp taxes
provides:

Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon
documents, instruments, loan agreements, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, right or property incident thereto,
there shall be levied, collected and paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes prescribed in the following
section of this Title, by the person making, signing, issuing, accepting, or transferring
the same wherever the document is made, signed, issued, accepted, or transferred
when the obligation or right arises from Philippine sources or the property is situated
in the Philippines, and at the same time such act is done or transaction had: Provided,
That whenever one party to the taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not exempt shall be the one directly
liable for the tax. (As amended by PD No. 1994) The basis for the value of
documentary stamp taxes to be paid on the insurance policy is Section 183 of the
National Internal Revenue Code which states in part:
 The basis for the value of documentary stamp taxes to be paid on the insurance
policy is Section 183 of the National Internal Revenue Code which states in part:

Sec. 183. Stamp tax on life insurance policies. - On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall
be made or renewed upon any life or lives, there shall be collected a documentary
stamp tax of thirty (now 50c) centavos on each Two hundred pesos per fractional part
thereof, of the amount insured by any such policy.

Petitioner claims that the automatic increase clause in the subject insurance policy
is separate and distinct from the main agreement and involves another transaction; and
that, while no new policy was issued, the original policy was essentially re-issued
when the additional obligation was assumed upon the effectivity of this automatic
increase clause in 1984; hence, a deficiency assessment based on the additional
insurance not covered in the main policy is in order.
The Court of Appeals sustained the CTAs ruling that there was only one
transaction involved in the issuance of the insurance policy and that the automatic
increase clause is an integral part of that policy.
The petition is impressed with merit.
Section 49, Title VI of the Insurance Code defines an insurance policy as the
written instrument in which a contract of insurance is set forth. [5] Section 50 of the
same Code provides that the policy, which is required to be in printed form, may
contain any word, phrase, clause, mark, sign, symbol, signature, number, or
word necessary to complete the contract of insurance.[6] It is thus clear that any rider,
clause, warranty or endorsement pasted or attached to the policy is considered part of
such policy or contract of insurance.
The subject insurance policy at the time it was issued contained an automatic
increase clause. Although the clause was to take effect only in 1984, it was written
into the policy at the time of its issuance. The distinctive feature of the junior estate
builder policy called the automatic increase clause already formed part and parcel of
the insurance contract, hence, there was no need for an execution of a separate
agreement for the increase in the coverage that took effect in 1984 when the assured
reached a certain age.
It is clear from Section 173 that the payment of documentary stamp taxes is done
at the time the act is done or transaction had and the tax base for the computation of
documentary stamp taxes on life insurance policies under Section 183 is the amount
fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary
measurement.[7] What then is the amount fixed in the policy? Logically, we believe
that the amount fixed in the policy is the figure written on its face and whatever
increases will take effect in the future by reason of the automatic increase clause
embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage
was to take effect later on, the date of its effectivity, as well as the amount of the
increase, was already definite at the time of the issuance of the policy. Thus, the
amount insured by the policy at the time of its issuance necessarily included the
additional sum covered by the automatic increase clause because it was already
determinable at the time the transaction was entered into and formed part of the
policy.
The automatic increase clause in the policy is in the nature of a conditional
obligation under Article 1181,[8] by which the increase of the insurance coverage shall
depend upon the happening of the event which constitutes the obligation. In the
instant case, the additional insurance that took effect in 1984 was an obligation subject
to a suspensive obligation,[9] but still a part of the insurance sold to which private
respondent was liable for the payment of the documentary stamp tax.
The deficiency of documentary stamp tax imposed on private respondent is
definitely not on the amount of the original insurance coverage, but on the increase of
the amount insured upon the effectivity of the Junior Estate Builder Policy.
Finally, it should be emphasized that while tax avoidance schemes and
arrangements are not prohibited,[10] tax laws cannot be circumvented in order to evade
the payment of just taxes. In the case at bar, to claim that the increase in the amount
insured (by virtue of the automatic increase clause incorporated into the policy at the
time of issuance) should not be included in the computation of the documentary stamp
taxes due on the policy would be a clear evasion of the law requiring that the tax be
computed on the basis of the amount insured by the policy.
WHEREFORE, the petition is hereby given DUE COURSE. The decision of the
Court of Appeals is SET ASIDE insofar as it affirmed the decision of the Court of Tax
Appeals nullifying the deficiency stamp tax assessment petitioner imposed on private
respondent in the amount of P464,898.75 corresponding to the increase in 1984 of the
sum under the policy issued by respondent.
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 2modifying 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 well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision

While the import of Section 77 is that prepayment of premiums is strictly required as

a condition to the validity of the contract, We are not prepared to rule that the request
to make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment
in the insurance policy of receipt of premium as conclusive evidence of payment so
far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public
order or public policy (De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not so proscribed. At
the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted. 4

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

Co. 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.

It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third policy
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or
momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED.
Costs against petitioner.

SO ORDERED.

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

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

TELAMART, INC., respondent.

RESOLUTION
DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision[1] of the Court of Appeals, which affirmed with modification the judgment of the trial
court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the
premiums for the renewal of the five insurance policies on Respondents properties; (b) declaring
the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993;
and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The modification consisted in the (1)
deletion of the trial courts declaration that three of the policies were in force from August 1991
to August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10% of the
total amount due the Respondent.
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
c) The properties covered by the said policies were burned in a fire that took place last June 13,
1992, or before tender of premium payment."
(Record, p. 5)

Hence Masagana filed this case.

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

26. Renewal Clause. -- Unless the company at least forty five days in advance of the
end of the policy period mails or delivers to the assured at the address shown in the
policy notice of its intention not to renew the policy or to condition its renewal upon
reduction of limits 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 non-renewal was made within 45 days before 22 May 1992, or before the
expiration date of the fire insurance policies. Thus, the policies in question were renewed by
operation of law and were effective and valid on 30 June 1992 when the fire occurred, since the
premiums were paid within the 60- to 90-day credit term.
 Respondent likewise disagrees with our ruling that parties may neither agree expressly or
impliedly on the extension of credit or time to pay the premium nor consider a policy binding
before actual payment. It urges the Court to take judicial notice of the fact that despite the
express provision of Section 77 of the Insurance Code, extension of credit terms in premium
payment has been the prevalent practice in the insurance industry.Most insurance companies,
including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a
prohibitive injunction but is merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-
payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its
awareness of Section 77 Petitioner persuaded and induced Respondent to believe that payment of
premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments
within 60 to 90 days after the due dates. By extending credit and habitually accepting payments
60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor
of the insurance policy and in effect waived the provision therein that it would pay only for the
loss or damage in case the same occurred after payment of the premium.
Petitioner filed an opposition to the 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 totothe 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;
3. P200,000.00 as loss of profit;
4. P100,000.00 as exemplary damages;
5. P50,000.00 as attorneys fees; and
6. Cost of suit.
On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of
Appeals found that respondents claim was substantially proved and petitioners unjustified refusal
to pay the claim entitled respondent to the award of damages.
Its motion for reconsideration of the judgment having been denied, petitioner filed the
petition in this case. Petitioner reiterates its stand that there was no existing insurance contract
between the parties. It invokes Section 77 of the Insurance Code, which provides:

An insurer is entitled to payment of the premium as soon as the thing insured is

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

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[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 non-disclosure 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.
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.
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.
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.
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:

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

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

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

Petitioner asserts that an insurance contract can only be enforced upon the payment of the
premium, which should have been made before the renewal period.
Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the
policy in issue was limited to a liability of P200,000; but the trial court granted the following
monetary awards: P200,000 as actual damages; P200,000 as moral damages; P100,000 as
exemplary damages; and P50,000 as 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.
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]
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.

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:

Q The matter of additional insurance of other companies, was that ever discussed in
your investigation?

A Yes, sir.

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

A Yes, Your Honor.

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

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the
denial of the claim, you found three documents to be spurious. That is your only
basis?

A Yes, Your Honor.[13] [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the 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.

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 factual backdrop is described briefly by the appellate court thusly:

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 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.

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:

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. 3-27, 16-17, 22 October 1985).
 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:

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

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.

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.