Tibay v CA G.R. No. 119655. May 24, 1996 J. Bellosillo: Facts: Fo t!"e #i$e iss!e% a $i e i"s!

a"ce &olicy to Tibay o" 'e t(o)sto ey esi%e"tial b!il%i"* at +obel ,t eet, Ma-ati City. T'e i"s! a"ce (as $o &6..,...... cove i"* t'e /e io% $ o0 Ja"!a y 21, 1923 to Ja"!a y 21, 1922. 4" Ja"!a y 21 1923, Tibay o"ly /ai% &6..... o$ 1,... /eso / e0i!0 a"% le$t a bala"ce. T'e i"s! e% b!il%i"* (as co0/letely %est oye% by $i e. Tibay t'e" /ai% t'e bala"ce. 4" t'e sa0e %ay, s'e $ile% a clai0 o" t'e /olicy. 5e clai0 (as acco %i"*ly e$e e% to t'e a%6!ste , Goo%(ill, ('ic' i00e%iately ( ote 7ioleta e8!esti"* 'e to $! "is' it (it' t'e "ecessa y %oc!0e"ts $o t'e i"vesti*atio" a"% / ocessi"* o$ 'e clai0. &etitio"e co0/lie%, a"% s'e si*"e% a "o")(aive a* ee0e"t. Fo t!"e %e"ie% t'e clai0 $o violatio" o$ t'e 9"s! a"ce Co%e. Tibay s!e% $o %a0a*es i" t'e a0o!"t o$ &6..,...... e/ ese"ti"* t'e total cove a*e o$ t'e /olicy. T'e t ial co! t !le% $o /etitio"e s a"% 0a%e $o t!"e liable $o t'e total val!e o$ t'e i"s! e% b!il%i"* a"% /e so"al / o/e ties. T'e Co! t o$ A//eals eve se% t'e co! t by e0ovi"* liability $ o0 Fo t!"e a$te et! "i"* t'e / e0i!0. 5e"ce t'is /etitio" $o evie(.

T'e /etitio"e co"te"%e% t'at Fo t!"e e0ai"e% liable !"%e t'e s!b6ect $i e i"s! a"ce /olicy i" s/ite o$ t'e $ail! e o$ /etitio"e s to /ay t'ei / e0i!0 i" $!ll. 9ss!e: May a $i e i"s! a"ce /olicy be vali%, bi"%i"* a"% e"$o ceable !/o" 0e e /a tial /ay0e"t o$ / e0i!0: 5el%: No. &etitio" %is0isse%. Ratio: T'e /e ti"e"t / ovisio"s ea%: 2. T'is /olicy i"cl!%i"* a"y e"e(al t'e eo$ a"%;o a"y e"%o se0e"t t'e eo" is "ot i" $o ce !"til t'e / e0i!0 'as bee" $!lly /ai% to a"% %!ly ecei/te% by t'e Co0/a"y i" t'e 0a""e / ovi%e% 'e ei". T'is /olicy s'all be %ee0e% e$$ective, vali% a"% bi"%i"* !/o" t'e Co0/a"y o"ly ('e" t'e / e0i!0s t'e e$o 'ave act!ally bee" /ai% i" $!ll a"% %!ly ac-"o(le%*e% i" a ecei/t si*"e% by a"y a!t'o i<e% o$$icial o$ t'e co0/a"y ='e e t'e / e0i!0 'as o"ly bee" /a tially /ai% a"% t'e bala"ce /ai% o"ly a$te t'e /e il i"s! e% a*ai"st 'as occ! e%, t'e i"s! a"ce co"t act %i% "ot ta-e e$$ect a"%

t'e i"s! e% ca""ot collect at all o" t'e /olicy. T'e 9"s! a"ce Co%e ('ic' says t'at "o /olicy o co"t act o$ i"s! a"ce iss!e% by a" i"s! a"ce co0/a"y is vali% a"% bi"%i"* !"less a"% !"til t'e / e0i!0 'as bee" /ai%. ='at %oes >!"less a"% !"til t'e / e0i!0 t'e eo$ 'as bee" /ai%? 0ea": @scos! a v. ,a" Mi*!el) t'e le*islative / actice (as to i"te / et >(it' /ay? i" acco %a"ce to t'e i"te"tio" o$ %isti"*!is' bet(ee" $!ll a"% /a tial /ay0e"t, ('e e t'e 0o%i$yi"* te 0 is !se%. &etitio"e s !se% &'ili//i"e &'oe"iA v. =oo%(o -s, ('e e /a tial /ay0e"t o$ t'e / e0i!0 0a%e t'e /olicy e$$ective %! i"* t'e ('ole /e io% o$ t'e /olicy. T'e ,C %i%"Bt co"si%e t'e 1963 &'oe"iA case as /e s!asive %!e to t'e %i$$e e"t $act!al sce"a io. 9" Ma-ati T!sca"y v CA, t'e /a ties 0!t!ally a* ee% t'at t'e / e0i!0s co!l% be /ai% i" i"stall0e"ts, 'e"ce, t'is Co! t e$!se% to i"vali%ate t'e i"s! a"ce /olicy. Not'i"* i" A ticle 33 o$ t'e Co%e s!**este% t'at t'e /a ties 0ay "ot a* ee to allo( /ay0e"t o$ t'e / e0i!0s i" i"stall0e"t, o to co"si%e t'e co"t act as vali% a"% bi"%i"* !/o" /ay0e"t o$ t'e $i st / e0i!0. &'oe"iA a"% T!sca"y %e0o"st ate% t'e (aive o$ / e/ay0e"t i" $!ll by t'e i"s! e . 9" t'is case 'o(eve , t'e e (as "o (aive . T'e e (as a sti/!latio" t'at t'e /olicy (as"Bt i" $o ce !"til t'e / e0i!0 'as bee" $!lly /ai% a"% ecei/te%. T'e e (as "o 6! i%ical tie o$ i"%e0"i$icatio" $ o0 t'e $ actio"al /ay0e"t o$ / e0i!0. T'e i"s! a"ce co"t act itsel$ eA/ essly / ovi%e% t'at t'e /olicy (o!l% be e$$ective o"ly ('e" t'e / e0i!0 (as /ai% i" $!ll. 7e ily, it is ele0e"tal la( t'at t'e /ay0e"t o$ / e0i!0 is e8!isite to -ee/ t'e /olicy o$ i"s! a"ce i" $o ce. 9$ t'e / e0i!0 is "ot /ai% i" t'e 0a""e / esc ibe% i" t'e /olicy as i"te"%e% by t'e /a ties t'e /olicy is i"e$$ective. &a tial /ay0e"t eve" ('e" acce/te% as a /a tial /ay0e"t (ill "ot -ee/ t'e /olicy alive. ,o!t' ,ea v CA sti/!late% 2 eAce/tio"s to t'e e8!i e0e"t o$ /ay0e"t o$ t'e e"ti e / e0i!0 as a / e e8!isite to t'e vali%ity o$ t'e i"s! a"ce co"t act. T'ese a e ('e" i" case t'e i"s! a"ce cove a*e elates to li$e o i"s! a"ce ('e" a * ace /e io% a//lies, a"% ('e" t'e i"s! e 0a-es a ( itte" ac-"o(le%*0e"t o$ t'e ecei/t o$ / e0i!0 to be co"cl!sive evi%e"ce o$ /ay0e"t. 5e"ce, i" t'e abse"ce o$ clea (aive o$ / e/ay0e"t i" $!ll by t'e i"s! e , t'e i"s! e% ca""ot collect o" t'e / ocee%s o$ t'e /olicy. >T'e te 0s o$ t'e i"s! a"ce /olicy co"stit!te t'e 0eas! e o$ t'e i"s! e Bs liability. 9" t'e abse"ce o$ stat!to y / o'ibitio" to t'e co"t a y, i"s! a"ce co0/a"ies 'ave t'e sa0e i*'ts as i"%ivi%!als to li0it t'ei liability a"% to i0/ose ('ateve

co"%itio"s t'ey %ee0 best !/o" t'ei obli*atio"s "ot i"co"siste"t (it' /!blic /olicy.? Cisse"t: J. 7it!* >All t'e calc!latio"s o$ t'e co0/a"y a e base% o" t'e 'y/ot'esis o$ / o0/t /ay0e"ts. T'ey "ot o"ly calc!late o" t'e ecei/t o$ t'e / e0i!0s ('e" %!e, b!t o" t'e co0/o!"%i"* i"te est !/o" t'e0. 9t is o" t'is basis t'at t'ey a e e"able% to o$$e ass! a"ce at t'e $avo able ates t'ey %o.? T'e $ail! e o$ a//ella"ts to $!lly /ay t'ei / e0i!0 / eve"te% t'e co"t act o$ i"s! a"ce $ o0 beco0i"* bi"%i"* a" Fo t!"e. T'is se ies o$ acts is tai"te% (it' 0is e/ ese"tatio" a"% violates t'e !be i0ae $i%ae / i"ci/le o$ i"s! a"ce co"t acts. Tibay 'a% e"te e% i"to a DNo")=aive A* ee0e"tD (it' t'e a%6!ste ('ic' /e 0itte% Fo t!"e to clai0 "o")/ay0e"t o$ / e0i!0 as a %e$e"se. T'e la( "eit'e e8!i es, "o 0eas! es t'e st e"*t' o$ t'e vi"c!l!0 6! is by a"y s/eci$ic a0o!"t o$ / e0i!0 /ay0e"t. &ay0e"t o" t'e / e0i!0, /a tly o i" $!ll, is 0a%e by t'e i"s! e% ('ic' t'e i"s! e acce/ts. 9" $i"e, it is eit'e t'at a 6! i%ical tie eAists Eby s!c' /ay0e"tF o t'at it is "ot eAta"t at all Eby a" abse"ce t'e eo$F. 4"ce t'e 6! i%ical elatio" co0es i"to bei"*, t'e $!ll e$$icacy $ollo(s. T'is is a /a tially /e $o 0e% co"t act. T'e "o")/ay0e"t o$ t'e bala"ce s'o!l%"Bt es!lt i" a" a!to0atic ca"cellatio" o$ t'e co"t actG ot'e (ise, t'e i*'t to %eci%e t'e e$$ectivity o$ t'e co"t act (o!l% beco0e /otestative. 9"stea%, t'e /a ties s'o!l% be able to %e0a"% $ o0 eac' ot'e t'e /e $o 0a"ce o$ ('ateve obli*atio"s t'ey 'a% ass!0e% o , i$ %esi e%, s!e ti0ely $o t'e escissio" o$ t'e co"t act. 9" t'e 0ea"('ile, t'e co"t act e"%! es, a"% a" occ! e"ce o$ t'e is- i"s! e% i**e s t'e i"s! e Hs liability. Also, le*al co0/e"satio" a ises ('e e i"s! e Hs liability to t'e i"s! e% (o!l% si0/ly be e%!ce% by t'e bala"ce o$ t'e / e0i!0. 9t 0!st 'e e be "ote% t'at t'e i"s! e% 'a% 0a%e, a"% t'e i"s! e 'a% acce/te% /a tial / e0i!0 /ay0e"t o" t'e /olicy (ee-s be$o e t'e is- i"s! e% a*ai"st too/lace. A" i"s! a"ce is a" aleato y co"t act e$$ective !/o" its /e $ectio" alt'o!*' t'e occ! e"ce o$ a co"%itio" o eve"t 0ay late %ictate t'e %e0a"%ability o$ ce tai" obli*atio"s. Fo t!"eBs sti/!latio" t'at i"s! a"ce s'all "ot Dbe . . . i" $o ce !"til t'e / e0i!0 'as bee" $!lly /ai%,D a"% t'at it Ds'all be %ee0e% e$$ective, vali% a"% bi"%i"* !/o" t'e co0/a"y o"ly ('e" t'e / e0i!0s t'e e$o 'ave act!ally bee" /ai% i" $!ll a"% %!ly ac-"o(le%*e%,D ove i%e t'e e$$icacio!s"ess o$ t'e i"s! a"ce co"t act %es/ite t'e /ay0e"t a"% acce/ta"ce.

A ticle 32 o$ t'e 9"s! a"ce Co%e >A" ac-"o(le%*0e"t i" a /olicy o co"t act o$ i"s! a"ce o$ t'e ecei/t o$ / e0i!0 is co"cl!sive evi%e"ce o$ its /ay0e"t, so $a as to 0a-e t'e /olicy bi"%i"*, "ot(it'sta"%i"* a"y sti/!latio" t'e ei" t'at it s'all "ot be bi"%i"* !"til t'e / e0i!0 is act!ally /ai%> @ve" i$ a /o tio" (as /ai% i" t'e / e0i!0, t'e i"s! a"ce cove a*e beco0es e$$ective a"% bi"%i"*, a"y sti/!latio" i" t'e /olicy to t'e co"t a y "ot(it'sta"%i"*.