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The credit extension was granted for 90 days only. (So wala na INSURANCE COMPANY OF THE PHILS.) by August 16, 1964.) 134 SCRA 155 - If ACME was granted credit extensions in the past, the promissory note it MELENCIO-HERRERA; January 17, 1985. signed did away with such credit arrangement. Also, before RA 3540, the Renewal Receipts issued by INSURER did not contain the auto-cancellation FACTS after 90 days note. By 1964, however, the situation had changed by the - ACME Shoe Rubber and Plastic Corporation (ACME) had been insuring passage of the RA: no policy could be valid and binding unless and until yearly against fire its building, machines and general merchandise with the premium thereof had been paid. Domestic Insurance Company (INSURER) since 1946. On May 14, 1962, - What became automatically cancelled by R.A. No. 3540 was the 1964-1965 ACME continued to insure its properties with INSURER in the amount of policy for ACME's failure to pay the premium within the 90-day extension P200,000 for the period May 15, 1962 up to May 15, 1963. granted, and in accordance with the express terms of the Promissory Note - On May 14, 1963, INSURER issued Renewal Receipt to cover the period that it had signed. May 15, 1963 to May 15, 1964. Disposition The judgment under review is hereby affirmed. Without - On January 8, 1964, ACME paid P3,331.26 as premium. The INSURER pronouncement as to costs. applied the payment as renewal premium for the period of May 15, 1963 to May 15, 1964. CAPITAL INC. v. PLASTIC ERA CO. - On May 15, 1964, INSURER issued a Renewal Receipt for the period of 65 SCRA 134 May 15, 1964 to May 15, 1965 (for renewal premium of P3,331.26 yet to be MARTIN; July 18, 1975 paid) with a stamped note that says that the insurance will be deemed valid and binding only when the premium and documentary stamps have actually FACTS been paid in full and duly acknowledged in an official receipt. ACME was - On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. given 90 days to pay otherwise the policy would automatically become void delivered to the respondent Plastic Era Manufacturing Co., Inc., its open Fire and ineffective. (ACME should pay short period premium for 90 days before Policy No. 22760 wherein the former undertook to insure the latter's building, the period expires. If they are able to pay the whole amount before the 90- equipments, raw materials, products and accessories located at Sheridan day period, the automatic termination wont apply anymore). Street, Mandaluyong, Rizal. The policy expressly provides that if the property - On May 26, 1964, ACME, through its President, signed a promissory note insured would be destroyed or damaged by fire after the payment of the saying that they promise to pay the premium and documentary stamps and premiums, at anytime between the 15th day of December 1960 and one agreed to the automatic cancellation penalty for not complying. o'clock in the afternoon of the 15th day of December 1961, the insurance - On October 13, 1964, ACMEs properties were completely destroyed by company shall make good all such loss or damage in an amount not fire. ACME filed insurance claim but the INSURER disclaimed liability on the exceeding P100,000.00. When the policy was delivered, Plastic Era failed to ground that as of the date of loss, the properties burned were not covered by pay the corresponding insurance premium. On January 8, 1961, in partial insurance. payment of the insurance premium, Plastic Era delivered to Capital - ACME claims that the January 8, 1964 payment was for the period 1964- Insurance, a check for the amount of P1,000.00 postdated January 16, 1961. 1965 and that INSURER had no right to apply it to the period 1963-1964 However, Capital Insurance tried to deposit the check only on February 20, because under RA 3540, the policy was void and INSURER could have 1961 and the same was dishonored by the bank for lack of funds. validly disclaimed liability for loss had one occurred then. - Two days after the insurance premium became due, at about 4:00 to 5:00 - TC found INSURER liable for P200k and opined that there was a clear o'clock in the morning, the property insured by Plastic Era was destroyed by intention on the INSURER's part to grant ACME a credit extension for the fire. In less than a month Plastic Era demanded from Capital Insurance the payment of the premium due; and that to allow the INSURER to apply the payment of the sum of P100,000.00 as indemnity for the loss of the insured premium ACME paid on January 8, 1964. CA reversed TC and dismissed the property under Policy No. 22760 but the latter refused for the reason that, suit on the ground that, as of the moment of loss, ACME's properties were among others, Plastic Era failed to pay the insurance premium. not insured and the INSURER could not be held liable for any indemnity as a ISSUES result of the loss. 1. WON a contract of insurance has been duly perfected between petitioner ISSUE and respondent WON the premium payment for 1964-1965 was paid 2. WON the dishonored check constituted payment HELD HELD NO 1. YES - Not having paid the 1964-1965 premium within the extension granted, and - Tender of draft or check in order to effect payment that would extinguish pursuant to R.A. No. 3540, the policy was automatically cancelled and there the debtor's liability should be actually cashed. If the delivery of the check of was no insurance coverage to speak of as of the date of the fire on October Plastic Era to Capital Insurance were to be viewed in the light of the 13, 1964. foregoing, no payment of the premium had been effected. Significantly, - The pertinent provision of Republic Act No. 3540 reads: Capital Insurance accepted the promise of Plastic Era to pay the insurance "Sec. 72. An insurer is entitled to payment of the premium as soon as the premium within 30 days from the effective date of policy. By so doing, it has thing insured is exposed to the peril insured against, unless there is clear implicitly agreed to modify the tenor of the insurance policy and in effect, agreement to grant the insured credit extension of the premium due. No waived the provision therein that it would only pay for the loss or damage in policy issued by an insurance company is valid and binding unless and case the same occurs after the payment of the premium. Considering that until the premium thereof has been paid." the insurance policy is silent as to the mode of payment, Capital Insurance is - RA 3540 was approved on June 20, 2963 and was put into effect on Oct 1, deemed to have accepted the promissory note in payment of the premium. 1963. It could not be applied retroactively to the renewal of the policy for the This rendered the policy immediately operative on the date it was delivered. 1963-1964 period because said policy was renewed on May 14, 1963. (Laws 2. YES have no retroactive effect unless the contrary is provided.) Therefore, the - Although the check was due for payment on January 16, 1961 and Plastic Jan 8, 1964 payment was properly applied to the 1963-1964 premium. The Era had sufficient funds to cover it as of January 19, 1961, Capital Insurance Trial Court's opinion that there was a clear agreement to grant ACME credit decided to hold the same for thirty-five (35) days before presenting it for extension for 1964-1965 is negated by ACME's Promissory Note binding payment. Having held the check for such an unreasonable period of time, itself to pay within ninety days from the effective date of this policy, 15th Capital Insurance was estopped from claiming a forfeiture of its policy for

non-payment even if the check had been dishonored later. Where the check is held for an unreasonable time before presenting it for payment, the insurer may be held estopped from claiming a forfeiture if the check is dishonored. Disposition The decision of the CA is AFFIRMED in toto. MAKATI TUSCANY v. CA ( AMERICAN HOME ASSURANCE CO.) 215 SCRA 462 BELLOSILLO; November 6, 1992 FACTS - American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation an insurance policy on the latter's building and premises, for the period 1 March 1982 to1 March 1983. The premium was paid on installments all of which were accepted by AHAC. - A second policy was issued to renew the first one, this time covering the period 1 March 1983 to 1 March 1984. This was also pain in installment basis. - A third policy was again issued for the period 1 March 1984 to 1 March 1985. For this, petitioner made two installment payments, both accepted by AHAC. Thereafter, petitioner refused to pay the balance of the premium. AHAC filed an action to recover the unpaid balance of P314,103.05. - Petitioner 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 P152k 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. - Trial court dismissed the complaint and the counterclaim upon the following findings: (1) payment of the premiums of the three policies were made during the term of said policies, hence, it could not be said, inspite of the reservations, that no risk attached under the policies; (2) as regards the unpaid premiums, in view of the reservation in the receipts ordinarily issued by AHAC on premium payments the only plausible conclusion is that AHAC has no right to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, Tuscany was justified in refusing to pay the same. - CA modified the decision by ordering Tuscany to pay the balance of the premiums due on the third policy plus legal interest until fully paid, and affirming the denial of the counterclaim. Petitioners Claims Petitioner 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. ISSUE WON payment by installment of the premiums due on an insurance policy invalidates the contract of insurance HELD

Ratio 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. Reasoning - 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. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable. - There is nothing in Section 77 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. - 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. Acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner. - 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. - At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. Disposition Judgment affirmed. Costs against petitioner. UCPB GENERAL INSURANCE CO., INC. v. MASAGANA TELAMART, INC. (EN BANC) 356 SCRA 307 DAVIDE; April 4, 2001 FACTS - In its decision of 15 June 1999, the SC 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. The Court resolved this issue in the negative in view of Section 77 of the Insurance Code and its decisions in Valenzuela v. Court of Appeals; South Sea Surety and Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court of Appeals. Accordingly, it 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 the SC had made in the decision its 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 its 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. - 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. ISSUE WON Sec. 77 of the Insurance Code of 1978 must be strictly applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums HELD NO - 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 there are exceptions to Section 77. 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, 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. 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, 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. Disposition Judgment reconsidered and set aside, that of the Court of Appeals affirmed in toto. SEPARATE OPINION VITUG - An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract where the rights and obligations of the parties correlate and mutually correspond. - By weight of authority, estoppel cannot create a contract of insurance, neither can it be successfully invoked to create a primary liability, nor can it give validity to what the law so procribes as a matter of public policy. PARDO [dissent] - An assureds failure to give notice of the fire immediately upon its occurrence blatantly showed the fraudulent character of its claims. Respondent is required by law and by express terms of the policy to give immediate written notice of loss. This must be complied with in the utmost good faith. - Assuming arguendo that the 60- to 90-day credit has been agreed between the parties, respondent could not still invoke estoppel to back up its claim. Estoppel cannot give validity to an act that is prohibited by law or against public policy. The actual payment of premiums is a condition precedent to the validity of an insurance contract other than life insurance policy. Any agreement to the contrary is void as against law and public policy.