G.R. No. L-67835 October 12, 1987 MALAYAN INSURANCE CO., INC. (MICO), petitioner, vs.

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

CRUZ, J.: When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of smoke, only a gray desolation. The dying embers leave ashes in the heart. For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By such insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the house does burn, the insured, while losing his house, wins the wagers. The prize is the recompense to be given by the insurer to make good the loss the insured has sustained. It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss. Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many times. In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at the time of the loss. The chronology of the relevant antecedent facts is as follows: On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2 On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca. On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5 On January 18, 1982, Pinca's property was completely burned. 6 On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adora refused to accept it. 7 In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It is because she was ultimately sustained by the public respondent that the petitioner has come to us for relief. From the procedural viewpoint alone, the petition must be rejected. It is stillborn. The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9Notice of this denial was received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11 The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private respondents insist that the applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies like the Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45. The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO. MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does not indicate
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from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation has been given. Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not habe been written by the same person who signed at the bottom of the petitioner's Annex "B." Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes but also because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-serving; at best, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been received earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department need not detain us here. Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days. Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or also four days from July 2, when the petition was filed. If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2. Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine days late. Whichever law is applicable, therefore, the petition can and should be dismissed for late filing. On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled before the occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable. The petitioner relies heavily on Section 77 of the Insurance Code providing that: SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured that such payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually made by Pinca to Adora, who remitted the same to MICO. The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment had been made and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured property had not been burned, would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and not on December 24, 1982? It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so would have been valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others words, the policy would have run for only eight months although the premium paid was for one whole year. It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it. MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that: SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. And it is a well-known principle under the law of agency that:

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal. 15
There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had elapsed since the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to Adora at her own riskl as she was bound to first check his authority to receive it. 16 MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the same time insists that the policy never came into force because the premium had not been paid. One surely, cannot have his cake and eat it too. We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy never became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation was made in accordance therewith and with Article 65. Section 64 reads as follows: SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; (d) discovery of willful, or reckless acts or commissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable;or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. As for the method of cancellation, Section 65 provides as follows: SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. A valid cancellation must, therefore, require concurrence of the following conditions: (1) There must be prior notice of cancellation to the insured; 17 (2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;18 (3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19 (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. 20 MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its employees, who testified that "the original of the endorsement and credit memo" presumably meaning the alleged cancellation

 "were sent the assured by mail through our mailing section" 21 However, there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section." without more. The petitioner then says that its "stand is enervated (sic) by the legal presumption of regularity and due performance of duty." 22 (not realizing perhaps that "enervated" means "debilitated" not "strengthened"). On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO's to make sure that the cancellation was actually sent to and received by the insured. The presumption cited is unavailing against the positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she had received notice of the claimed cancellation. It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora was very accomodating and had earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981, and not December 24, 1981. MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981, her purpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof did not legally bind MICO. which had not ratified it. To support this argument, MICO's cites the following exchange: Q: Now, Madam Witness, on December 25th you made the alleged payment. Now, my question is that, did it not come to your mind that after the lapse of six (6) months, your policy was cancelled? A: I have thought of that but the agent told me to call him up at anytime. Q: So if you thought that your policy was already intended to revive cancelled policy? A: Misleading, Your Honor. Hearing Officer: The testimony of witness is that, she thought of that. Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled. Now, when you made the payment of December 24, 1981, your intention was to revive the policy if it was already cancelled? A: Yes, to renew it. 23 A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it was stffl effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on the original transaction and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the cancellation either and saw no reason not to accept the said payment. The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and without unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90 of the Insurance Code. The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered sufficient. Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the Insurance Commission. It is also worth observing that Pinca's property was not the only building bumed in the fire that razed the commercial district of Lao-ang, Samar, on January 18, 1982. 27 There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters. We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad faith if not plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the Insurance Commission and that there was a feeble attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to

further hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18, 1982. We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona fides. WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory. SO ORDERED. Teehankee, C.J., Narvasa and Paras, JJ., concur. Gancayco, J, is on leave.

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.
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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. . . .
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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.
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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. Cruz, Padilla and Grio-Aquino, JJ., concur. Medialdea, J., is on leave.

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.
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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.

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. Feliciano, Romero, Melo and Francisco, JJ., concur.

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

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners, vs. COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC.,respondents. D E C I S I O N* BELLOSILLO, J.: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium? On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid. On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.[1] In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the total claim. On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the

complaint until full payment, and attorneys fees equivalent to 20% of the total amount claimed plus costs of suit.[2] On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment.[3] Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE remains liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in full. We find no merit in the petition; hence, we affirm the Court of Appeals. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.[4] The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.[5] The pertinent provisions in the Policy on premium read THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x 2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein. Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect. xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force provide for the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by any authorized official or representative/agent of the Company in such manner as provided herein, (Italics supplied).[6] Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot

collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies (Italics supplied). Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has been paid. This leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish the court should neither distinguish assumes that the legislature made no qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court through Mr. Justice Jesus G. Barrera, interpreting the phrase with pay used in connection with leaves of absence with pay granted to employees, ruled x x x the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the modifying term is used x x x Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation each month, which laws simply stated with pay, the Court concluded that it was undisputed that in all these laws the phrase with pay used without any qualifying adjective meant that the employee was entitled to full compensation during his leave of absence. Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling otherwise the Court held It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was

concerned. Thereafter the obligation of the insurer to pay the insured the amount, for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable. The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in force until the premium has been fully paid and duly receipted by the Company x x x. Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract. In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, novinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against. In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed that the premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with approval the Court of Appeals The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the parties x x x agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable. While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by basic considerations of fairness and equity x x x.

These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company x x x and that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged. Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto. Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the policy. [10] Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured.[11] Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.[12] Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutory exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium,

this acknowledgment being declared by law to, be then conclusive evidence of the premium payment.[14] A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firm at regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy. In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of insurance is primarily a risk-distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium, without receiving anything therefor in case the contingency does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies.[15] It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required premium, and when the risk occurs simply points to the proceeds from where to source the balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the insurance should the risk insured against occur? Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak, kill the goose that lays the golden egg. We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid. And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to

meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction.[16] It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of thevinculumjuris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured. The terms of the insurance policy constitute the measure of the insurers liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.[17] The validity of these limitations is by law passed upon by the Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question. WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED. SO ORDERED. Kapunan, and Hermosisima, Jr., JJ., concur. Padilla (Chairman), J., joins Mr. Justice Vitugs dissent. Vitug, J., see dissenting opinion.

Tibay, et. al v Court of Appeals GR No. 119655, 24 May 1996 Bellosillo, [J.] Facts: In January 22 1987, the Petitioner Violeta Tibay (and Nicolas Roralso) obtained a fire insurance policy for their 2-storey from the Private Respondent Fortune Life Insurance Co. The said policy covers the period from January 23, 1987 until January 23, 1988 or one year for P600,000 and at the agreed premium of P2,983.50. On January 23 or the next day, petitioner made a partial payment of the premium with P600. Unfortunately, on March 8 1987, the said building was burned to the ground. It was only two days after the fire that Petitioner Violeta advanced the full payment of the policy premium which was accepted by the insurer. On this same day, petitioner likewise filed the claim that was then referred to the insurer's adjuster. Investigation of the cause of fire commenced and the petitioner submitted the required proof of loss. Despite that, the private respondent Fortune refused to pay the insurance claim saying it as not liable due to the nonpayment by petitioner of the full amount of the premium as stated in the policy. The petitioner then brought the matter to the Insurance Commission but nothing good came out. Hence this case filed. The trial court rule in favor of the petitioner. Upon appeal, the Court of Appeals reversed the lower court's decision and held that Fortune is not liable but ordered it to return the premium paid with interest to the petitioner. Hence, this petition for review. Issue Is the partial payment of the premium rendered the insurance policy ineffective? Ruling: YES. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The consideration is the premium, which must be paid at the time, way and manner as stated in the policy, and if not so paid asin this case, the policy is therefore forfeited by its own terms. In this case, the policy taken out by the petitioner provides for payment of premium in full. Since the petitioner only made partial payment with the remaining balance paid only after the fire or peril insured against has occurred, the insurance contract therefore did not take effect barring the insured from claiming or collecting from the loss of her building. Under Section 77 of the Insurance Code (Philippine), it provides therein that "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." Herein case, the controversy is on the payment of the premium. It cannot be disputed that premium is the elixir vitae of the insurance business because the insurer is required by law to maintain a reserve fund to meet its contingent obligations to the public. Due to this, it is imperative that the premium is paid fully and promptly. To allow the possibility of paying the premium even

after the peril has ensued will surely undermine the foundation of the insurance business.

G.R. No. 137172. June 15, 1999] UCPB GENERAL INSURANCE CO., INC., Petitioner, vs. MASAGANA TELAMART, INC., Respondent. DECISION PARDO, J.: The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals,[1 affirming with modification that of the Regional Trial Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of P18,645,000.00, as the proceeds of the insurance coverage of respondent's property razed by fire; 25% of the total amount due as attorney's fees and P25,000.00 as litigation expenses, and costs. The facts are undisputed and may be related as follows: On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described therein against fire, for the period from May 22, 1991 to May 22, 1992. In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies. On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in the policies. On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued. On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by fire. On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it tendered, and at the same time rejected respondent's claim for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on June 13, 1992, before respondent's tender of premium payment. On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against petitioner for recovery of P18,645,000.00, representing the face value of the policies covering respondent's insured property razed by fire, and for attorney's fees.[2 On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It alleged that the complaint "fails to state a cause of action"; that petitioner was not liable to respondent for insurance proceeds under the policies because at the time of the loss of respondent's property due to fire, the policies had long expired and were not renewed.[3 After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the dispositive portion of which reads: "WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, as follows: "(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95 (refused by the defendant) as full payment of the corresponding premiums for the replacement-renewal policies for Exhibits A, B, C, D and E; "(2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration May 22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said replacement-renewal policies; "(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9, 1991 to August 9, 1992, respectively; and "(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's claim for indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit. "All other claims and counterclaims asserted by the parties are denied and/or dismissed, including plaintiff's claim for interests. "SO ORDERED. "Makati, Metro-Manila, March 10, 1993.

"ZOSIMO Z. ANGELES Judge.[4 In due time, petitioner appealed to the Court of Appeals.[5 On September 7, 1998, the Court of Appeals promulgated its decision[6 affirming that of the Regional Trial Court with the modification that item No. 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of the total amount due.[7 The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to ninety (90) day credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that payment could be made later. Hence, this appeal. By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to filea motion to dismiss within ten (10) days from notice.[8 On April 22, 1999, respondent filed itscomment.[9 Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal was sent. The notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the insurance agency but not respondent itself did not suffice. Respondent submits further that the Court of Appeals did not err in finding that there existed a sixty (60) to ninety (90) days credit agreement between UCPB and Masagana, and that, finally, the Supreme Court could not review factual findings of the lower court affirmed by the Court of Appeals.[10 We give due course to the appeal. The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the period May 22, 1991 to May 22, 1992, had expired on the latter date or had been extended or renewed by an implied credit arrangement though actual payment of premium wastendered on a later date after the occurrence of the risk (fire) insured against. The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void.[11 The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before actual payment. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo,[12 cited by the Court of Appeals, is not applicable. In that case, payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire. WHEREFORE, the Court hereby REVERSESand SETS ASIDEthe decision of the Court of Appeals in CA-G.R. CV No. 42321. In lieu thereof, the Court renders judgment dismissing respondent's complaint and petitioner's counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without costs. SO ORDERED.

Davide, Jr., C.J., (Chairman), Melo, Kapunan, and Ynares-Santiago, JJ.,

concur.

G.R. No. 130421 June 28, 1999 AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.

DAVIDE, JR.

C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of the decision 1 of the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial Court, Makati City, Branch 150 (hereafter trial court), in Civil Case No. 91-1009. Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from petitioner a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioner's 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 petitioner's 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 petitioner's bank account, was even acknowledged in the renewal certificate issued by petitioner's 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 respondent's 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 petitioner's 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 attorney's 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 respondent's claim was substantially proved and petitioner's 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 respondent's check payment was dated 10 April 1990, four days after the fire occurred. Citing jurisprudence, 4 petitioner also contends that respondent's non-disclosure of the other insurance contracts rendered the policy void. It underscores the trial court's neglect in considering the Commission on Audit's 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 respondent's claim. Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. The trial court's finding on the matter, which was affirmed by the Court of Appeals, is conclusive. Respondent refutes the reason for petitioner's denial of his claim. As found by the trial court, petitioner's loss adjuster admitted prior knowledge of respondent's 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 respondent's 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 respondent's testimony that the check was given to petitioner's 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 concurrence of the fire, there still could not have been payment until the check was cleared. Moreover, petitioner denies respondent's 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 and payment. If there be any loss, 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 attorney's fees. The following issues must be resolved: first, whether there was a valid payment of premium, considering that respondent's check was cashed after the occurrence of the fire; second, whether respondent violated the policy by his submission of fraudulent documents and nondisclosure 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 agent's acknowledgment of receipt of payment. Sec. 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 petitioner's arguments. The submission of the alleged fraudulent documents pertained to respondent's 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 respondent's 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 must invoking this argument. The trial court cited the testimony of petitioner's 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 nondisclosure 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. [Emphasis supplied]

13

Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's non-disclosure of the other insurance contracts when petitioner actually had prior knowledge thereof. Petitioner's 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 petitioner's grievance against the damages and attorney's 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 respondent's 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 petitioner's 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 defendant's 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 attorney's fees, the general rule is that attorney's 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 attorney's fees as part of damages is the exception rather than the rule; counsel's 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 attorney's fees where it deems just and equitable that it be so granted. While we respect the trial court's 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 attorney's fees from P50,000 to P10,000. No pronouncement as to costs. Melo, Kapunan, Pardo and Santiago, JJ., concur. Footnotes 1 Per Cui, E.J., with Montenegro, E. and De la Rama, J., JJ. concurring. Annex of Petition, Rollo, 16-26. 2 117 SCRA 63 [1982].

3 Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory noted payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. 4 General Insurance & Surety Corporation v. Ng Hua, 106 Phil. 1117 [1960]; and Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., 47 SCRA 271 [1972]. 5 Sec. 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insured 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 named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.
1wphi 1.nt

6 Sec. 77, insurance Code. 7 Borillo v. Court of Appeals, 209 SCRA 130, 140 [1992]; Gobonsong, Jr. v. Court of Appeals, 246 SCRA 472, 474-475 [1995]; Vda. de Alcantara v. Court of Appeals, 252 SCRA 457, 468 [1996]. 8 See Malayan Insurance Co. v. Amaldo, 154 SCRA 672, 678 [1987]. 9 RUFUS R. RODRIGUEZ, The Insurance Code of the Philippines Annotated, 3rd ed., 162. 10 241 SCRA 152, 160 [1995], citing General Insurance & Surety Corporation v. Ng Hua, 106 Phil. 1117 [1960]; Union Manufacturing Co., Inc., v. Philippine Guaranty Co., Inc., 47 SCRA 271 [1972]; Pioneer Insurance & Surety Corporation v. Yap, 61 SCRA 426 [1974]. 11 Sec. 29. An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. 12 Geagonia v. Court of Appeals, supra note 10. 13 TSN, 27 November 1991, 29-30. 14 Visayan Sawmill Company, Inc. v. Court of Appeals, 219 SCRA 378, 392 [1993], citing authorities. 15 People v. Wenceslao, 212 SCRA 560, 569 [1992]. 16 Art. 2232, Civil Code. 17 Firestone Tire & Rubber Company of the Philippines v. Chaves, 18 SCRA 356, 358 [1966]; Philippine Air Lines v. Miano, 242 SCRA 235, 240 [1995]. 18 Philtranco Service Enterprises Inc. v. Court of Appeals, 273 SCRA 562, 575 [1997].

G.R. No. L-36232 December 19, 1974 PIONEER INSURANCE AND SURETY CORPORATION, petitioner-appellant, vs. OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON respondent-appellee. Eriberto D. Ignacio for petitioner-appellant. Paculdo, Miranda, Marquez, Sibal & Associates for respondent-appellee.

FERNANDEZ, J.:p This is an appeal by certiorari from the decision of the Court of Appeals dated December 16, 1972, in CA-G.R. No. 36669-R, affirming the judgment of the Court of First Instance of Manila (Branch VI) in Civil Case No. 54508, which latter court declared plaintiff Oliva Yap, herein respondent, entitled to recover from defendant Pioneer Insurance & Surety Corporation, herein petitioner, the full amount of the damage inquired in Policy No. 4219, which is P25,000.00, plus 12% of said sum from the date of filing of the complaint until full payment, in addition to the sum of P6,000.00 for attorney's fees, and costs. Respondent Oliva Yap was the owner of a store in a two-storey building located at No. 856 Juan Luna Street, Manila, where in 1962 she sold shopping bags and footwear, such as shoes, sandals and step-ins. Chua Soon Poon Oliva Yap's son-in-law, was in charge of the store. On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from petitioner Pioneer Insurance & Surety Corporation with a face value of P25,000.00 covering her stocks, office furniture, fixtures and fittings of every kind and description. Among the conditions in the policy executed by the parties are the following: The Insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in, or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited. (emphasis supplied) It is understood that, except as may be stated on the face of this policy there is no other insurance on the property hereby covered and no other insurance is allowed except by the consent of the Company endorsed hereon. Any false declaration or breach or this condition will render this policy null and void. At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap, an insurance policy for P20,000.00 issued by the Great American Insurance Company covering the same properties was noted on said policy as co-insurance (Annex "1-E"). Later, on August 29, 1962, the parties executed Exhibit "1-K", as an endorsement on Policy No. 4219, stating: It is hereby declared and agreed that the co-insurance existing at present under this policy is as follows: P20,000.00 Northwest Ins., and not as originally stated. (emphasis supplied) Except as varied by this endorsement, all other terms and conditions remain unchanged. Still later, or on September 26, 1962, respondent Oliva Yap took out another fire insurance policy for P20,000.00 covering the same properties, this time from the Federal Insurance Company, Inc., which new policy was, however, procured without notice to and the written consent of petitioner Pioneer Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in Policy No. 4219. At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's above-mentioned store, and the said store was burned. Respondent Yap filed an insurance claim, but the same was denied in petitioner's letter of May 17, 1963 (Exhibit "G"), on the ground of "breach and/or violation of any and/or all terms and conditions" of Policy No. 4219. On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila the present complaint, asking, among others, for payment of the face value of her fire insurance policy. In its answer, petitioner alleged that no property belonging to plaintiff Yap and covered by the insurance policy was destroyed by the fire; that Yap's claim was filed out of time; and that Yap took out an insurance policy from another insurance company without petitioner's knowledge and/or endorsement, in violation of the express stipulations in Policy No. 4219, hence, all benefits accruing from the policy were deemed forfeited. As already stated at the beginning of this opinion, the trial court decided for plaintiff Oliva Yap; and its judgment was affirmed in full by the Court of Appeals.

The vital issue in this appeal is whether or not petitioner should be absolved from liability on Fire Insurance Policy No. 4219 on account of any violation by respondent Yap of the co-insurance clause therein. In resolving this problem, the Court of Appeals stated in its decision: 5. The plaintiff-appellee has not violated the other insurance clause (Exhibit 1-F) of the insurance Policy No. 4219 that would justify the defendant-appellant, as insurer, to avoid its liability thereunder. It appears on the face of said policy that a co-insurance in the amount of P20,000.00 was secured from the Great American Insurance and was declared by the plaintiff-appellee and recognized by the defendant-appellant. This was later on substituted for the same amount and secured by the Federal Insurance Company. Chua Soon Poon on being cross-examined by counsel for the defendant-appellant, declared that the Great American Insurance policy was cancelled because of the difference in the premium and the same was changed for that of the Federal (t.s.n., hearing of December 1, 1964, pp. 35-36). Contrary to the assertion of the defendant-appellant, the Great American Insurance policy was not substituted by the Northwest Insurance policy. As admitted by the defendant-appellant in its brief (p. 48), the fire insurance policy issued by the Great American Insurance Company for P20,000.00 (Exhibit 1-E) was cancelled on August 29, 1962. On the other hand, the fire insurance policy issued by the Northwest Insurance & Surety Company for P20,000.00 (Exhibit 1-K) was taken out on July 23, 1962. How then can the Northwest Insurance policy issued on July 23, 1962, be considered as having substituted the Great American policy which was cancelled only on August 29, 1962? The defendant-appellant can be considered to have waived the formal requirement of indorsing the policy of co-insurance since there was absolutely no showing that it was not aware of said substitution and preferred to continue the policy (Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. 386). Even assuming that the defendant-appellant did not indorse the Federal Insurance policy, there is no question that the same was only a substitution and did not in any way increase the amount of the declared co-insurance. In other words, there was no increase in the risk assumed by the defendant-appellant. We do not agree with the conclusion of the Court of Appeals. There was a violation by respondent Oliva Yap of the co-insurance clause contained in Policy No. 4219 that resulted in the avoidance of petitioner's liability. The insurance policy for P20,000.00 issued by the Great American Insurance Company covering the same properties of respondent Yap and duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the parties (Exhibit "1-L"), to be recognized by them as a co-insurance policy. The Court of Appeals says that the Great American Insurance policy was substituted by the Federal Insurance policy for the same amount, and because it was a mere case of substitution, there was no necessity for its endorsement on Policy No. 4219. This finding, as well as reasoning, suffers from several flaws. There is no evidence to establish and prove such a substitution. If anything was substituted for the Great American Insurance policy, it could only be the Northwest Insurance policy for the same amount of P20,000.00. The endorsement (Exhibit "1-K") quoted above shows the clear intention of the parties to recognize on the date the endorsement was made (August 29, 1962), the existence of only one co-insurance, and that is the Northwest Insurance policy, which according to the stipulation of the parties during the hearing, was issued on August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and endorsed only on August 20, 1962. The finding of the Court of Appeals that the Great American Insurance policy was substituted by the Federal Insurance policy is unsubstantiated by the evidence of record and indeed contrary to said stipulation and admission of respondent, and is grounded entirely on speculation, surmises or conjectures, hence, not binding on the Supreme Court. 1 The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing the policy of co-insurance "since there was absolutely no showing that it was not aware of said substitution and preferred to continue the policy." The fallacy of this argument is that, contrary to Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove his own allegations, it would shift to petitioner, respondent's burden of proving her proposition that petitioner was aware of the alleged substitution, and with such knowledge preferred to continue the policy. Respondent Yap cites Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., Ltd. 2to justify the assumption but in that case, unlike here, there was knowledge by the insurer of violations of the contract, to wit: "If, with the knowledge of the existence of other insurances which the defendant deemed violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the annulment of the contract ..." A waiver must be express. If it is to be implied from conduct mainly, said conduct must be clearly indicative of a clear intent to waive such right. Especially in the case at bar where petitioner is assumed to have waived a valuable right, nothing less than a clear, positive waiver, made with full knowledge of the circumstances, must be required. By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required no affirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever the specified conditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional insurance. The validity of a clause in a fire insurance policy to the effect that the procurement of additional insurance without the consent of the insurer renders ipso facto the policy void is well-settled: In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521, 522, a substantially identical clause was sustained and enforced, the court saying: "The rule in this state and practically all of the states is to the effect that a clause in a policy to the effect that the procurement of additional insurance without the consent of the insurer renders the policy void is a valid provision. The earlier cases of Planters Mutual Insurance Co., vs. Green, 72 Ark. 305, 80 S.W. 92, are to the same effect." And see Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut. Fire Ins. Co., [Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.) 2. Where a policy contains a clause providing that the policy shall be void if insured has or shall procure any other insurance on the property, the procurement of additional insurance without the consent of the insurer avoids the policy." (Planters' Mut. Ins. Ass'n vs. Green [Supreme Court of Arkansas, March 19, 1904] 80 S.W. 151.)

3. The policy provided that it should be void in case of other insurance "without notice and consent of this company. ..." It also authorized the company to terminate the contract at any time, at its option, by giving notice and refunding a ratable proportion of the premium. Held, that additional insurance, unless consented to, or unless a waiver was shown, ipso facto avoided the contract, and the fact that the company had not, after notice of such insurance, cancelled the policy, did not justify the legal conclusion that it had elected to allow it to continue in force." (Johnson vs. American Fire Ins., Co., [Supreme Court of Minnesota, Aug. 12, 1889] 43 N.W., 59) The aforecited principles have been applied in this jurisdiction in General Insurance & Surety Corporation vs. Ng Hua 3. There, the policy issued by the General Insurance & Surety Corporation in favor of respondent Ng Hua contained a provision identical with the provisions in Policy No. 4219 quoted above. 4 This Court, speaking thru Justice Cesar P. Bengson, in reversing the judgment of the Court of Appeals and absolving the insurer from liability under the policy, held: ... And considering the terms of the policy which required the insured to declare other insurances, the statement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were no other insurance on the property. ... The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitled the insurer to rescind. (Sec. 69, Insurance Act.) Such misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies is not open to doubt. Furthermore, even if the annotations were overlooked the defendant insurer would still be free from liability because there is no question that the policy issued by General Indemnity has not been stated in nor endorsed on Policy No. 471 of defendant. And as stipulated in the above-quoted provisions of such policy "all benefit under this policy shall be forfeited. (Emphasis supplied) The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has no right to complain, for he assents to comply with all the stipulation on his side, in order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for those stipulation would not have been entered into." 5 In view of the above conclusion, We deem it unnecessary to consider the other defenses interposed by petitioner. WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set aside, and the petitioner absolved from all liability under the policy. Costs against private respondent. SO ORDERED. Fernando (Chairman), Barredo, Antonio and Aquino, JJ., concur.

Footnotes 1 Ramos, et al., vs. Pepsi-Cola Bottling Company of the Philippines, et al., L-22533, February 9, 1967, 19 SCRA 289, 291-292. 2 55 Phil., 386. 3 106 Phil., 1117, 1119-1120. 4 "The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be affected, covering any of the property hereby insured and unless such notice be given and the particulars of such insurance or insurances estated or endorsed on this policy by or in behalf of the company before the occurrence of any loss or damage, all benefits under this policy shall be forfeited."

G.R. No. L-27932 October 30, 1972 UNION MANUFACTURING CO., INC. and the REPUBLIC BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant, vs. PHILIPPINE GUARANTY CO., INC., defendant-appellee. Armando L. Abad, Sr. for plaintiff-appellant. Gamelo, Francisco and Aquino for defendant-appellee.

FERNANDO, J.:p In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now appellee, was able to avoid liability upon proof that there was a violation of a warranty. There was no denial thereof from the insured, Union Manufacturing Co., Inc. With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and now the sole appellant, to recover on such policy as mortgagee, by virtue of the cover note in the insurance policy providing that it is entitled to the payment of loss or damages as its interest may appear, was in vain. The defect being legally incurable, its appeal is likewise futile. We affirm. As noted in the decision, the following facts are not disputed: "(1) That on January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans, overdrafts and other credit accommodations from the Republic Bank in the total sum of P415,000.00 with interest at 9% per annum from said date and to secure the payment thereof, said Union Manufacturing Co., Inc. executed a real and chattel mortgages on certain properties, which are more particularly described and listed at the back of the mortgage contract ...; (2) That as additional condition of the mortgage contract, the Union Manufacturing Co., Inc. undertook to secure insurance coverage over the mortgaged properties for the same amount of P415,000.00 distributed as follows: (a) Buildings, P30,000.00; (b) Machineries, P300,000.00; and (c) Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3) That as Union Manufacturing Co., Inc. failed to secure insurance coverage on the mortgaged properties since January 12, 1962, despite the fact that Cua Tok, its general manager, was reminded of said requirement, the Republic Bank procured from the defendant, Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for P500,000.00 over the properties of the Union Manufacturing Co., Inc., as described in defendant's 'Cover Note' dated September 25, 1962, with the annotation that loss or damage, if any, under said Cover Note is payable to Republic Bank as its interest may appear, subject however to the printed conditions of said defendant's Fire Insurance Policy Form; (4) That on September 27, 1962, Fire Insurance Policy No. 43170 ... was issued for the sum of P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for which the corresponding premium in the sum of P8,328.12, which was reduced to P6,688.12, was paid by the Republic Bank to the defendant, Philippine Guaranty Co., Inc. ...; (5) That upon the expiration of said fire policy on September 25, 1963, the same was renewed by the Republic Bank upon payment of the corresponding premium in the same amount of P6,663.52 on September 26, 1963; (6) That in the corresponding voucher ..., it appears that although said renewal premium was paid by the Republic Bank, such payment was for the account of Union Manufacturing Co., Inc. and that the cash voucher for the payment of the first premium was paid also by the Republic Bank but for the account Union Manufacturing Co., Inc.; (7) That sometime on September 6, 1964, a fire occurred in the premises of the Union Manufacturing Co., Inc.; (8) That on October 6, 1964, the Union Manufacturing Co., Inc. filed its fire claim with the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment Co., which was denied by said defendant in its letter dated November 27, 1964 ..., on the following grounds: 'a. Policy Condition No. 3 and/or the 'Other Insurance Clause' of the policy violated because you did not give notice to us the other insurance which you had taken from New India for P80,000.00, Sincere Insurance for P25,000.00 and Manila Insurance for P200,000.00 with the result that these insurances, of which we became aware of only after the fire, were not endorsed on our policy; and (b) Policy Condition No. 11 was not complied with because you have failed to give to our representatives the required documents and other proofs with respect to your claim and matters touching on our liability, if any, and the amount of such liability'; (9) That as of September, 1962, when the defendant Philippine Guaranty Co., issued Fire Insurance Policy No. 43170 ... in the sum of P500,000.00 to cover the properties of the Union Manufacturing Co., Inc., the same properties were already covered by Fire Policy No. 1533 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1961 to October 7, 1962 ...; and by insurance policies Nos. F-2314 ... and F-2590 ... of the Oceanic Insurance Agency for the total sum of P300,000.00 and for periods respectively, from January 27, 1962 to January 27, 1963, and from June 1, 1962 to June 1, 1963; and (10) That when said defendant's Fire Insurance Policy No. 43170 was already in full force and effect, the Union Manufacturing Co., Inc. without the consent of the defendant, Philippine Guaranty Co., Inc., obtained other insurance policies totalling P305,000.00 over the same properties prior to the fire, to wit: (1) Fire Policy No. 250 of New India Assurance Co., Ltd., for P80,000.00 for the period from May 27, 1964 to May 27, 1965 ...; (2) Fire Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1963 to October 7, 1964 ...; and (3) Fire Policy No. 6161 of Manila Insurance Co. for P200,000.00 for the period from May 15, 1964 to May 15, 1965 ... ." 1 There is in the cover note 2 and in the fire insurance policy 3 the following warranty: "[Co- Insurance Declared]: Nil." 4 Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest may appear subject to the terms and conditions, clauses and warranties" of the policy was expressed in the appealed decision thus: "However, inasmuch as the Union Manufacturing Co., Inc. has violated the condition of the policy to the effect that it did not reveal the existence of other insurance policies over the same properties, as required by the warranty appearing on the face of the policy issued by the defendant and that on the other hand said Union Manufacturing Co., Inc. represented that there were no other insurance policies at the time of the issuance of said defendant's policy, and it appearing furthermore that while the policy of the defendant was in full force and effect the Union Manufacturing Co., Inc. secured other fire insurance policies without the written consent of the defendant endorsed on the policy, the conclusion is inevitable that both the Republic Bank and Union Manufacturing Co., Inc. cannot recover from the same policy of the defendant because the same is null and void." 5 The tone of confidence apparent in the above excerpts from the lower court decision is understandable. The conclusion reached by the lower court finds support in authoritative precedents. It is far from easy, therefore, for appellant Republic Bank to impute to such a decision a failure to abide by the law. Hence, as noted at the outset, the appeal cannot prosper. An affirmance is indicated.

It is to Santa Ana v. Commercial Union Assurance Co., 6 a 1930 decision, that one turns to for the first explicit formulation as to the controlling principle. As was made clear in the opinion of this Court, penned by Justice Villa-Real: "Without deciding whether notice of other insurance upon the same property must be given in writing, or whether a verbal notice is sufficient to render an insurance valid which requires such notice, whether oral or written, we hold that in the absolute absence of such notice when it is one of the conditions specified in the fire insurance policy, the policy is null and void." 7 The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co., 8 the conformity of the insured to the terms of the policy, implied from the failure to express any disagreement with what is provided for, was stressed in these words of the ponente, Justice Malcolm: "It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by the insured without objection binds both the acceptor and the insured to the terms thereof. The insured may not thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to read his policy and it will be assumed that he did so." 9 As far back as 1915, in Young v. Midland Textile Insurance Company, 10 it was categorically set forth that as a condition precedent to the right of recovery, there must be compliance on the part of the insured with the terms of the policy. As stated in the opinion of the Court through Justice Johnson: "If the insured has violated or failed to perform the conditions of the contract, and such a violation or want of performance has not been waived by the insurer, then the insured cannot recover. Courts are not permitted to make contracts for the parties. The function and duty of the courts consist simply in enforcing and carrying out the contracts actually made. While it is true, as a general rule, that contracts of insurance are construed most favorably to the insured, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous they must be taken and understood in their plain, ordinary and popular sense." 11 More specifically, there was a reiteration of this Santa Ana ruling in a decision by the then Justice, later Chief Justice, Bengzon, in General Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Such misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance Company, Ltd. ... . The materiality of nondisclosure of other insurance policies is not open to doubt." 13 As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a principle in the face of an assertion that thereby a highly unfavorable provision for the insured would be accorded recognition. This is the language used: "The insurance contract may be rather onerous ('one sided', as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties." 15 There is no escaping the conclusion then that the lower court could not have disposed of this case in a way other than it did. Had it acted otherwise, it clearly would have disregarded pronouncements of this Court, the compelling force of which cannot be denied. There is, to repeat, no justification for a reversal. WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed. No costs. Concepcion, C.J., Zaldivar, Barredo, Makasiar, Antonio and Esguerra, JJ., concur. Castro and Teehankee, JJ., reserve their votes. Makalintal, J., is on leave.