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89 PHIL 351
BENGZON, June 29, 1951

APPEAL from a judgment of the Court of First Instance of Manila

(this is a tax case. Whats really important here is the definition of CASH
- Manufacturers Life Insurance Company is a duly organized corporation which has
its head office at Toronto. It is duly registered and licensed to engage in life insurance
business in the Philippines, and, maintains a branch office in Manila. It was engaged
in such business in the Philippines for more than five years before and including the
year 1941. But due to the exigencies of the war It closed the branch office at Manila
during 1942 up to September 1945.
- Plaintiff issued a number of life insurance policies in the Philippines containing
stipulations referred to as NONFORFEITURE CLAUSES

- From January 1, 1942 to December 31, 1946, Plaintiff head office at Toronto applied
the provisions of the automatic premium loan clauses upon the nonpayment of the
corresponding premiums by the people who subscribed to the insurance. The net
amount of premiums advanced (by the company) or loaned (to the insured) as
payment for the premium due totaled P1,069,254.98.
- Meer, the Collector of the National Internal Revenue assessed the net amount of
premium at P17,917.12 pursuant to SEC.255, National Internal Revenue Code

- Company protested the assessment, but paid the taxes anyway. Then they filed a
complaint to recover money paid under protest for taxes
- CFI: Dissmiss complaint
- PLAINTIFFs MAIN CONTENTION: when it made premium loans or premium
advances by virtue of the non-forfeiture clauses, it did not collect premiums within
the meaning of the above sections of the law, and therefore it is not amenable to the
tax therein provided.

1"'8. Automatic Premium Loan.-This Policy shall not lapse for non-payment of any premium after it has been three full years in force, it, at the due date of such premium, the Cash Value of this Policy and of any bonus additions and dividends left on accumulation
(after deducting any indebtedness to the company and the interest accrued thereon) shall exceed the amount of said premium. I n which event the company will, without further request, treat the premium then due as paid, and the amount of such premium, with
interest from its actual due date at six per cent per annum, compounded yearly, and one per cent, compounded yearly, for expenses, shall be a first lien on this Policy in the Company's favour in priority to the claim of any assignee or any other person. The
accumulated lien may at any time, while the Policy is in force, be paid in whole or in part.
'When the premium falls due and is not paid in cash within the month's grace, if the Cash Value of this policy and of any bonus additions and dividends left on accumulation (after deducting any accumulated indebtedness) be less than the premium then due, the
Company will, without further requests, continue this insurance in force for a period * * *.
'10. Cash and Paid-Up Insurance Values.-At the end of the third policy year or thereafter, upon the legal surrender of this Policy to the Company while there is no default in premium payments or within two months after the due date of the premium in default, the
Company will (1) grant a cash value as specified in Column (A) increased by the cash value of any bonus additions and dividends left on accumulation, which have been alloted to t his Policy, less all indebtedness to the Company on this Polley an the date of
ouch surrender, or (2) endorse this Policy as a Non-Participating Paid-up Polley for the amount as specified In Column (B) of the Table of Guaranteed Values * * *.
'11. Extended Insurance-After the premiums for three or more full years have been paid hereunder in cash, if any subsequent premium is not paid when due, and there is no indebtedness to the Company on the written request of the insured * * *."
2"SEC. 255. Taxes on insurance premiums.-There shall be collected from every person, company, or corporation (except purely cooperative companies or associations) doing insurance business of any sort in the Philippines a tax of one per centum of the total
premiums collected * * * whether such permiums are paid in money, notes, credits, or any substitute for money but premiums refunded within six months after payment on account of rejection of risk or returned for other reason to person insured shall not be
included in the taxable receipts * * *."

1. WON premium advances made by plaintiff-appellant under the automatic
premium loan clause of its policies are premiums collected' by the Company subject
to tax
2. WON, in the application of the automatic premium loan clause of plaintiff-
appellant's policies, there is 'payment in money, notes, credits, or any substitutes for
3. WON the collection of the alleged deficiency premium taxes constitutes double
4. WON the making of premium advances, granting for the sake of argument that it
amounted to collection of premiums, were done in Toronto, Canada
5. WON the fact that plaintiff-appellant was not doing business in the Philippines
during the period from January 1, 1942 to September 30, 1945, inclusive, exempts it
from payment of premium taxes corresponding to said period

NOTE (example given by the plaintiff): "Suppose that 'A', 30 years of age,
secures a 20-year endowment policy for P5,000 from plaintiff-appellant Company
and pays an annual premium of P250. 'A' pays the first ten yearly premiums
amounting to P2,500 and on this amount plaintiff-appellant pays the corresponding
taxes under section 255 of the National Internal Revenue Code. Suppose also that the
cash value of said policy after the payment of the 10th annual premium amounts to
P1,000." When on the eleventh year the annual premium fell due and the insured
remitted no money within the mouth grace, the insurer treated the premium then
over due as paid from the cash value, the amount being a loan to the
policyholder1 who could discharge it at any time with interest at 6 per cent. The
insurance contract, therefore, continued in force for the eleventh year.
1. YES
- Based on the example given by the plaintiff, the insurer collected the amount of
P250 as the annual premium for the eleventh year on the said policy when it loaned
to A the sum of P250. The insurer became a creditor of the loan, but not of the
premium that had already been paid (advanced by the insurer). The insurer is
entitled to collect interest on the loan, not on the premium. "A" paid the premium for
the eleventh year; but in turn he became a debtor of the company for the sum of
P250. This debt he could repay either by later remitting the money to the insurer or
by letting the cash value compensate for it. The debt may also be deducted from the
amount of the policy should "A" die thereafter during the continuance of the policy.
in the form of CREDIT for the advances made (in the example, the P250 for the 11

applied to a life insurance policy, is the amount of money the company agrees to pay
to the holder of the policy if he surrenders it and releases his claims upon it. The
more premiums the insured has paid the greater will be the surrender value; but the
surrender value is always a lesser sum than the total amount of premiums paid."
(Cyclopedia Law Dictionary 3d. ed. 1077.) The cash value or cash surrender value is
therefore an amount which the insurance company holds In trust for the insured to
be delivered to him upon demand. It is therefore a liability of the company to the
insured. Now then, when the company's credit for advances is paid out of the cash
value or cash surrender value, that value and the company's liability is thereby
diminished pro tanto.
2. YES
- the insurer agreed to consider the premium paid on the strength of the automatic
loan. The premium was therefore paid by means of a "note" or "credit" or "other
substitute for money" and the tax is due because section 255 above quoted levies
taxes according to the total premiums collected by the insurer "whether such
premiums are paid in money, notes, credits or any substitute for money.
3. NO
- No constitutional prohibition against double taxation.
4. NO
- The loans are made to policyholders in the Philippines, who in turn pay therewith
the premium to the insurer thru the Manila branch. Approval of appellant's position
will enable foreign insurers to evade the tax by contriving to require that premium
payments shall be made at their head offices. What is important, the law does not
contemplate premiums collected in the Philippines. It is enough that the insurer is
doing insurance business in the Philippines, irrespective of the place of its
organization or establishment.
5. NO
- Although during those years the appellant was not open for new business because
its branch office was closed, still it was practically and legally, operating in this
country by collecting premiums on its outstanding policies, incurring the risks and/or
enjoying the benefits consequent thereto, without having previously taken any steps
indicating withdrawal in good faith from this field of economic activity.
Disposition finding no prejudicial error in the appealed decision, we hereby affirm
it with costs.

102 Phil. 919
REYES, J.B.L., Jan.28, 1958

Appeal from judgment of CFI

- Feb. 13, 1950: For the sum of P5,000, defendant-appellee Crown Life issued an
insurance policy in the name of plaintiff-appellant Rufino and his wife, with the
stipulation that the premiums are to be paid semi-annually.
- The premiums for the 1
and 2
semester of the 1
year, in the amount of P165.15
were paid by Rufino but the premium for the third semester, in the same amount,
was not paid.
- Jan. 6, 1951, Crown Life, through its branch secretary, wrote to Mr. and Mrs.
Andres advising them that their insurance policy lapsed on Dec. 26, 1950 and the
amount of P165.15 was overdue, giving them 60 days from the date of lapse to file an
application for reinstatement. Crown Life later sent another letter telling the spouses
Andres that their insurance policy was no longer in force.
- Feb. 1951: Plaintiff and his wife executed a Statement of Health and application for
reinstatement of the aforesaid policy.
- Feb. 20, 1951: Plaintiff wrote a letter to the defendant, enclosed with a money order
for P100. Upon acceptance, defendant advised Rufino that its main office had
approved the application and that the reinstatement of the lapsed policy was subject
to the payment of the remaining premium balance of P65.15.
- May 3, 1951: Severa Andres died of dystocia, contracted pelvis.
- May 5, 1951: Plaintiff sent a letter enclosed with a money order in the amount of
P65, for the remaining balance due.
- May 15, 1951: Defendant sent a letter with official receipt of the P165.15 paid by
Rufino as well as a Certificate of Reinstatement.
- June 7, 1951: Rufino presented a death claim as survivor-beneficiary of his deceased
wife. Payment was denied by the defendant.
- April 1952: Rufino filed a complaint in CFI against Crown Life for the recovery of
the amount of P5,000 as the face value of a joint 20-year endowment insurance
policy issued by defendant in favor of plaintiff and his wife, on Feb. 13, 1950. In its
answer, Crown Life disclaimed liability and set forth the special defense that the
aforementioned policy had already lapsed.
- Aug. 5, 1954: CFI rendered a decision absolving the defendant company from any
liability on the ground that the policy had lapsed and it was not reinstated at the time
of the plaintiffs wifes death. Plaintiff later appealed to the CA but the same was
certified by the CA to the SC for having no question of fact.

WON the insurance policy, which has been in a state of lapse before May 3, 1951, has
been validly and completely reinstated after said date (Was there a perfected
contract of reinstatement after the policy lapsed due to non-payment of premiums?)

Ratio The stipulation in a life insurance policy giving the insured the privilege to
reinstate it upon written application does not give the insured absolute right to such
reinstatement by the mere filing of an application. The Company has the right to deny
the reinstatement if it is not satisfied as to the insurability of the insured and if the
latter does not pay all overdue premiums and all other indebtedness to the Company.
After the death of the insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy because the conditions
precedent to reinstatement can no longer be determined and satisfied.
- The stipulations of facts render it undisputable that the original policy lapsed for
non-payment of premiums on Dec. 26, 1950, upon expiration of the 31-day grace
- As found by the lower court, the conditions set forth in the policy for reinstatement
as provided in the contract itself are the following: (A) application shall be made
within 3 years from the date of lapse; (B) there should be a production of evidence of
the good health of the insured; (C) if the rate of premium depends upon the age of the
Beneficiary, there should likewise be a production of evidence of his or her good
health; (D) there should be presented such other evidence of insurability at the date
of application for reinstatement; (E) there should be no change which has taken place
in such good health and insurability subsequent to the date of such application and
before the policy is reinstated; and (F) all overdue premiums and other indebtedness
in respect of the policy, together with interest at 6%, compounded annually, should
first be paid.
- The plaintiff did not comply with the last condition; for he only paid P100 before his
wifes death; and despite the Companys reminders, he only remitted the balance of
P65.15 two days after his wife died. On the face of such facts, the Company had the
right to treat the contract as lapsed and refuse payment of the policy.
- Rufino contends that the condition regarding payment of the premium was waived
by the insurance Company through its letters, wherein it made statements such as: If
you are unable to pay the full amount immediately, send as large amount as possible
and advise us how soon you expect to be able to pay the balance; we will work out an
adjustment most beneficial to you. The Court found the statements to be too vague
and indefinite to indicate an intention on the insurers part to waive the full payment
as prerequisite to the reinstatement of the lapsed policy. The Court reiterated the rule
that a waiver must be clear and positive, the intent to waive shown clearly and
convincingly. On the other hand, It found subsequent letters sent by defendant
indicating that they insisted on full payment of the premium before the policy was
reinstated and that defendant did not consider partial payment as sufficient
consideration for the reinstatement. Plaintiff-Appellants failure to remit the balance
before the death of his wife operated to deprive him of any right to waive the policy
and recover the face value thereof.
Disposition Judgment appealed from is affirmed.

323 SCRA 613
YNARES-SANTIAGO; January 28, 2000

Petition for review on certiorari

- Primitivo Perez has been insured with the BF Lifeman Insurance Corporation (BF
hereafter) since 1980 for Php20,000.
Sometime in 1987, Rodolfo Lalog (agent of BF) convinced him to apply for additional
insurance coverage of Php50,000.
Perez accomplished the application form and passed the required medical
examination. He also paid Php2,075 premium) to Lalog.
- On November 25, 1987, Perez died while riding a banca which capsized during a
storm. During this time his application papers for the additional insurance coverage
was still with the Gumaca, Quezon
office of BF.
- Without knowing that Perez died on November 25, 1987, BF approved Perez's
application and issued the corresponding policy for the Php50,000 on December 2,
- Virginia Perez (wife of the deceased) claimed the benefits under the insurance
policies of the deceased, but she was only able to receive Php40,000 under the first
insurance policy.
BF refused to pay the proceeds amounting to Php150,000 under the additional policy
coverage of Php50,000 because they maintain that such policy had not been
- On September 21, 1990, BF filed a complaint against Mrs. Perez seeking recission
and declaration of nullity of the insurance contract in question. Mrs. Perez filed a
for the collection of Php150,000 plus damages.

WON there was a consummated contract of insurance between Perez and BF

- An essential requisite of a valid contract is consent. Consent must be manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.
- The offer must be certain and the acceptance absolute. When Perez filed the
application, it was subject to the acceptance of BF. The perfection was also further
conditioned upon (1) the issuance of the policy,
(2) the payment of the premium, and (3) the delivery to and acceptance by the
applicant in good health.
- The delivery and acceptance by the applicant was a suspensive condition which was
not fulfilled inasmuch as the applicant was already dead at the time the policy was
issued. The non-fulfillment of the condition resulted
in the non-perfection of the contract.
- An application for insurance is merely an offer which requires the overt act of the
insurer for it to ripen to a contract. Delay in acting on the application does not
constitute acceptance even though the insured has forwarded
his first premium with his application. Delay, in this case, does not constitute gross
negligence because the application was granted within the normal processing time.
Disposition Decision of CA affirmed in so far as it declared the insurance policy for
Php50,000 issued by BF null and void (no recission because it presupposes a valid

62 Phil 51
BUTTE; September 4, 1935

- Arturo Sindayen, up to the time of his death on January 19, 1933, was employed as a
linotype operator in the Bureau of Printing at Manila and had been such for eleven
years prior thereto. While there he made a written application on December 26, 1932,
to the defendant Insular Life Assurance Co., Ltd., through its agent, Cristobal
Mendoza, for a policy of insurance on his life in the sum of P1,000 and he paid to the
agent P15 cash as part of the first premium. It was agreed with the agent that the
policy, when and if issued, should be delivered to his aunt. Felicidad Estrada, with
whom Sindayen left the sum of P26.06 to complete the payment of the first annual
premium of P40.06.
- On January 1, 1933, Sindayen, who was then twenty-nine years of age, was
examined by the company's doctor who made a favorable report, to the company. On
January 11, 1933, The company accepted the risk and issued policy No. 47710 dated
back to December 1, 1932, and mailed the same to its agent, Cristobal Mendoza, in
Camiling, Tarlac, for delivery to the insured. -On January 11, 1933, Sindayen was at
work in the Bureau of Printing. On January 12, he complained of a severe headache
and remained at home. On January 15, he called a physician who found that he was
suffering from acute nephritis and uremia and on January 19, 1933, he died.
- On January 18, 1933, the agent, in accordance with his agreement with the insured,
delivered the policy to Felicidad Estrada upon her payment of the balance of the first
year's annual premium. The agent asked Felicidad Estrada if her nephew was in good
health and she replied that she believed so because she had no information that he
was sick and he thereupon delivered to her the policy.
- On January 20, 1933, the agent learned of the death of Arturo Sindayen and called
on Felicidad Estrada and asked her to return the policy. But he did not return or offer
to return the premium paid. Felicidad Estrada on his aforesaid statement gave him
the policy.
- On February 4, 1933 Insular Life obtained from the beneficiary, Sindayens wife, her
signature to a legal document entitled "ACCORD, SATISFACTION AND RELEASE"
whereby in consideration of the sum of P40.06 paid to her by a check of the company,
she "assigns, releases and forever discharges said Isular Life Assurance Co., Ltd., its
successors and assigns, of all claims, obligation in or indebtedness. The said check for
P40.06 was never cashed but returned to the company and appears in the record of
this case as Exhibit D. Thereupon this action was brought to enforce payment of the
By the terms of the policy, an annual premium of P40.06 is due on the first day of
December of each year, the first premium already paid by the insured covering the
period from December 1, 1932. It is to December 1, 1933. It is to be noted that the
policy was not issued and the company assumed no actual risk prior to January 11,
1933.The application which the insured signed in Camiling, Tarlac, on December 26,
1932, contained among others the following provisions:
3 That the said policy shall not take effect until the first premium has been paid and
the policy has been delivered to and accepted by me, while I am in good health.
-Main defense of the company in this case, namely, that the said policy never took
effect because of paragraph 3 of the application above quoted, for at the time of its
delivery by the agent as aforesaid the insured was not in good health

WON the insurance policy is valid

- There is one line of cases which holds that the stipulation contained in paragraph 3
is in the nature of a condition precedent, that is to say, that there can be no valid
delivery to the insured unless he is in good health at the time; that this condition
precedent goes to the very essence of the contract and cannot be waived by the agent
making delivery of the policy
- On the other hand, a number of American decisions hold that an agent to whom a
life insurance policy similar to the one here involved was sent with instructions to
deliver it to the insured has authority to bind the company by making such delivery,
although the insured was not in good health at the time of delivery, on the theory that
the delivery of the policy being the final act to the consummation of the contract, the
condition as to the insurer's good health was waived by the company.
- we are inclined to the view that it is more consonant with the well known practice of
life insurance companies and the evidence in the present case to rest our decision on
the proposition that Mendoza was authorized by the company to make the delivery of
the policy when he received the payment of the first premium and he was satisfied
that the insured was in good health. As was well said in the case of MeLaurin vs.
Mutual Life Insurance Co. It is plain, therefore, that upon the facts it is not
necessarily a case of waiver or of estoppel, but a case where the local agents, in the
exercise of the powers lodged in them, accepted the premium and delivered the
policy. That act binds their principal, the defendant.
- Mendoza was duly licensed by the Insurance Commissioner to act as the agent of
the defendant insurance company. The well known custom of the insurance business
and the evidence in this case prove that Mendoza was not regarded by the company
as a mere conduit or automaton for the performance of the physical act of placing the
policy in the hands of the insured
- Granted that Mendoza's decision that the condition had been met by the insured
and that it was proper to make a delivery of the policy to him is just as binding on the
company as if the decision had been made by its board of directors. Granted that
Mendoza made a mistake of judgement because he acted on insufficient evidence as
to the state of health of the insured. But it is not charged that the mistake was
induced by any misconduct or omission of duty of the insured.
- It is the interest not only the applicant but of all insurance companies as well that
there should be some act which gives the applicant the definite assurance that the
contract has been consummated. This sense of security and of peace of mind that
one's defendants are provided for without risk either of loss or of litigation is the
bedrock of life insurance. When the policy is issued and delivered, in the absence of
fraud or other grounds for rescission, it is plainly not within the intention of the
parties that there should be any questions held in abeyance or reserved for future
determination that leave the very existence of the contract in suspense and doubt.
- It is therefore in the public interest, for the public is profoundly and generally
interested in life insurance, as well as in the interest of the insurance companies
themselves by giving certainly and security to their policies, that we are constrained
to hold, as we, do, that the delivery of the policy to the insured by an agent of the
company who is authorized to make delivery or without delivery is the final act which
binds the company (and the insured as well) in the absence of fraud or other legal
ground for rescission
- The company therefore having decided that all the conditions precedent to the
taking effect of the policy had been complied with and having accepted the premium
and delivered the policy thereafter to the insured, the company is now estopped to
assert that it never intended that the policy should take effect.


IMPERIAL [dissent]
- "A local agent of an insurance company, whose only power is to solicit applications
for insurance, and forward them to the company for approval, when, if approved to
the insured, has no power to waive any of the provision of the policy so delivered."
- It is clear, therefore, that the delivery of the policy by Mendoza does not bind the
defendant, nor is the defendant estopped from alleging its defense, for the simple
reason that Mendoza was not an agent with authority to issue policies or to accept
risks in the name of his principle.
-There is another ground upon which the majority opinion is based, namely, that the
defendant waived the defense it now invokes, by reason of the delivery of the policy
by its invokes, by reason of the delivery of the policy by its agent. It is admitted that if
the delivery of the policy was due to fraud, legally there could have been no waiver. In
view of the facts established and admitted, there is no doubt, as to the existence of the
fraud. -Estrada, as a representative of the insured was not only bound to give a
truthful information on the state of health of the insured, but it was her duty to find
out it his true state of health in order to give true and correct information. When she
gave Mendoza an incorrect information tending to create the impression that the
insured was well when in fact he was seriously ill, there is no doubt that she
committed fraud and imparted a deceitful information to the defendant agent

41 PHIL 269
MALCOLM; November 29, 1920

Appeal from judgment of trial court denying plaintiffs (administrator of the estate of
the late Joaquin Ma. Herrer) action to recover from the defendant life insurance
company the sum of pesos 6,000 paid by the deceased for a life annuity.

- On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he
paid the sum of P6,000 to the manager of the company's Manila office and was given
a receipt.
- The application was immediately forwarded to the head office of the company at
Montreal, Canada. On November 26, 1917, the head office gave notice of acceptance
by cable to Manila. (Whether on the same day the cable was received, notice was sent
by the Manila office of Herrera that the application had been accepted, is a disputed
point, which will be discussed later.) On December 4, 1917, the policy was issued at
Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila
office of the company stating that Herrer desired to withdraw his application. The
following day the local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26, 1917. This letter was
received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.
- The chief clerk of the Manila office of Sun Life testified that he prepared the letter
and handed it to the local manager, Mr. E. E. White, for signature. The local
manager, Mr. White, testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on November 26, 1917. He said that
on the same day he signed a letter notifying Mr. Herrer of this acceptance. The
witness further said that letters, after being signed, were sent to the chief clerk and
placed on the mailing desk for transmission. Mr. Tuason, who was the chief clerk on
November 26, 1917, was not called as a witness.
- For the defense, attorney Manuel Torres testified to having prepared the will of
Joaquin Ma. Herrer. That on this occasion, Mr. Herrer mentioned his application for
a life annuity, and that he said that the only document relating to the transaction in
his possession was the provisional receipt. Rafael Enriquez, the administrator of the
estate, testified that he had gone through the effects of the deceased and had found
no letter of notification from the insurance company to Mr. Herrer.

WON there exists a contract for life annuity between Herrer and defendant

Ratio The law applicable to the case is found to be the second paragraph of article
1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge.
- Until quite recently, all of the provisions concerning life insurance in the Philippines
were found in the Code of Commerce and the Civil Code. After July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act concerns life
and health insurance. The Act expressly repealed Title VIII of Book II and Section III
of Title III of Book III of the code of Commerce. The law of insurance is consequently
now found in the Insurance Act and the Civil Code.
- While, as just noticed, the Insurance Act deals with life insurance, it is silent as to
the methods to be followed in order that there may be a contract of insurance. On the
other hand, the Civil Code, in article 1802, not only describes a contact of life annuity
markedly similar to the one we are considering, but in two other articles, gives strong
clues as to the proper disposition of the case. For instance, article 16 of the Civil Code
provides that "In matters which are governed by special laws, any deficiency of the
latter shall be supplied by the provisions of this Code." On the supposition, therefore,
which is incontestable, that the special law on the subject of insurance is deficient in
enunciating the principles governing acceptance, the subject-matter of the Civil code,
if there be any, would be controlling. In the Civil Code is found article 1262 providing
that "Consent is shown by the concurrence of offer and acceptance with respect to the
thing and the consideration which are to constitute the contract. An acceptance made
by letter shall not bind the person making the offer except from the time it came to
his knowledge.
- According to the provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had to be a medical
examination of the applicant; (2) there had to be approval of the application by the
head office of the company; and (3) this approval had in some way to be
communicated by the company to the applicant. The further admitted facts are that
the head office in Montreal did accept the application, did cable the Manila office to
that effect, did actually issue the policy and did, through its agent in Manila, actually
write the letter of notification and place it in the usual channels for transmission to
the addressee.
- The contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.
Disposition Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20, 1918, until paid,
without special finding as to costs in either instance.

215 SCRA 462
BELLOSILLO; November 6, 1992

Appeal from decision of the CA

- American Home Assurance Co. (AHAC), represented by American International
Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation an insurance policy on the latter's building and premises,
for the period 1 March 1982 to1 March 1983. The premium was paid on installments
all of which were accepted by AHAC.
- A second policy was issued to renew the first one, this time covering the period 1
March 1983 to 1 March 1984. This was also pain in installment basis.
- A third policy was again issued for the period 1 March 1984 to 1 March 1985. For
this, petitioner made two installment payments, both accepted by AHAC. Thereafter,
petitioner refused to pay the balance of the premium. AHAC filed an action to recover
the unpaid balance of P314,103.05.
- Petitioner explained that it discontinued the payment of premiums because the
policy did not contain a credit clause in its favor and the receipts for the installment
payments covering the policy for 1984-85, as well as the two (2) previous policies,
stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny
liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is not
- Petitioner further claimed that the policy was never binding and valid, and no risk
attached to the policy. It then pleaded a counterclaim for P152k for the premiums
already paid for 1984-85, and in its answer with amended counterclaim, sought the
refund of P924,206.10 representing the premium payments for 1982-85.
- Trial court dismissed the complaint and the counterclaim upon the following
findings: (1) payment of the premiums of the three policies were made during the
term of said policies, hence, it could not be said, inspite of the reservations, that no
risk attached under the policies; (2) as regards the unpaid premiums, in view of the
reservation in the receipts ordinarily issued by AHAC on premium payments the only
plausible conclusion is that AHAC has no right to demand their payment after the
lapse of the term of said policy on March 1, 1985. Therefore, Tuscany was justified in
refusing to pay the same.
- CA modified the decision by ordering Tuscany to pay the balance of the premiums
due on the third policy plus legal interest until fully paid, and affirming the denial of
the counterclaim.
Petitioners Claims
Petitioner argues that where the premiums is not actually paid in full, the policy
would only be effective if there is an acknowledgment in the policy of the receipt of
premium pursuant to Sec. 78 of the Insurance Code. The absence of an express
acknowledgment in the policies of such receipt of the corresponding premium
payments, and petitioner's failure to pay said premiums on or before the effective
dates of said policies rendered them invalid. Petitioner thus concludes that there
cannot be a perfected contract of insurance upon mere partial payment of the
premiums because under Sec. 77 of the Insurance Code, no contract of insurance is
valid and binding unless the premium thereof has been paid, notwithstanding any
agreement to the contrary.

WON payment by installment of the premiums due on an insurance policy invalidates
the contract of insurance

Ratio Where the risk is entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was exposed to the risk
insured for any period, however brief or momentary.
- The obligation to pay premiums when due is ordinarily as indivisible obligation to
pay the entire premium. Here, the parties herein agreed to make the premiums
payable in installments, and there is no pretense that the parties never envisioned to
make the insurance contract binding between them. And the insured never informed
the insurer that it was terminating the policy because the terms were unacceptable.
- There is nothing in Section 77 which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and
binding upon payment of the first premium.
- The records clearly show that petitioner and private respondent intended subject
insurance policies to be binding and effective notwithstanding the staggered payment
of the premiums. Acceptance of payments speaks loudly of the insurer's intention to
honor the policies it issued to petitioner.
- Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes
the parties from stipulating that the policy is valid even if premiums are not paid, but
does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy.
- At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
Disposition Judgment affirmed. Costs against petitioner.

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


OF; EFFECT; RIGHT OF PARTIES. When an insurance policy is delivered to the
insured upon partial payment of the premium 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.
Thereafter, the parties could demand from each other the obligations each one
assumed: the insurer, to demand payment of the unpaid premium or sue for
rescission. As in the case at bar it chose to demand specific performance, the duty of
the insured to pay is inubitable.



Appeal upon a question of law taken by Woodworks, Inc. from the judgment of the
Court of First Instance of Manila in Civil Case No. 50710 "ordering the defendant,
Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix Surety & Insurance, Inc.,
the sum of P3,522.09 with interest thereon at the legal rate of 6% per annum from
the date of the filing of the complaint until fully paid, and costs of the suit."cralaw
virtua1aw library

Appellee Philippine Phoenix Surety & Insurance Co., Inc., commenced this action in
the Municipal Court of Manila to recover from appellant Woodworks, Inc. the sum of
P3,522.09, representing the unpaid balance of the premiums on a fire insurance
policy issued by appellee in favor of appellant for a term of one year from April 1,
1960 to April 1, 1961. From an adverse decision of said court, Woodworks, Inc.
appealed to the Court of First Instance of Manila (Civil Case No. 50710) where the
parties submitted the following stipulation of facts, on the basis of which the
appealed decision was rendered:jgc:chanrobles.com.ph

"That plaintiff and defendant are both corporations duly organized and existing
under and by virtue of the laws of the Philippines;

"That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the
amount of P300,000.00, under the terms and conditions therein set forth in said
policy a copy of which is hereto attached and made a part hereof as Annex A;

"That the premiums of said policy as stated in Annex A amounted to P6,051.95; the
margin fee pursuant to the adopted plan as an implementation of Republic Act 2609
amounted to P363.22, copy of said adopted plan is hereto attached as Annex B and
made a part hereof, the documentary stamps attached to the policy was P96.42;

"That the defendant paid P3,000.00 on September 22, 1960 under official receipt No.
30245 of plaintiff;" That plaintiff made several demands on defendant to pay the
amount of P3,522.09."cralaw virtua1aw library

In the present appeal, appellant claims that the court a quo committed the following

"I. The lower court erred in stating that in fire insurance policies the risk attached
upon the issuance and delivery of the policy to the insured.

"II. The lower court erred in deciding that in a perfected contract of insurance non-
payment of premium does not cancel the policy.

"III. The lower court erred in deciding that the premium in the policy was still
collectible when the complaint was filed.

"IV. The lower court erred in deciding that a partial payment of the premium made
the policy effective during the whole period of the policy."cralaw virtua1aw library

It is clear from the foregoing 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.

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

Having thus resolved that the fourth and last assignment of error submitted in
appellants brief is without merit, the first three assignments of error must likewise be
overruled as lacking in merit.

Wherefore, the appealed decision being in accordance with law and the evidence, the
same is hereby affirmed, with costs.

257 SCRA 126
BELLOSILLO; May 24, 1996

- On 22 January 1987 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
covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987,
of the total premium of P2,983.50, Violeta Tibay only paid P600 thus leaving a
considerable balance unpaid.
- On 8 March 1987 the insured building was completely destroyed by fire. Two days
later, 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 nonwaiver agreement with GASI to the effect that any action
taken by the companies shall not be, or be claimed to be, an admission of liability.
- 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 representing the total coverage of
the fire insurance policy plus 12% interest per annum, P100,000 moral damages, and
attorney's fees equivalent to 20% of the total claim. The trial court ruled for
petitioners. CA reversed.

WON a fire insurance policy is valid, binding and enforceable upon mere partial
payment of premium

Ratio Where the insurer and the insured expressly stipulated that the policy is not in
force until the premium has been fully paid 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.
- 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

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.
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. 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. 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.
Disposition Petition is DENIED. Decision of the CA is AFFIRMED.


VITUG [dissent]
- The law neither requires, nor measures the strength of the vinculum juris by, any
specific amount of premium payment. It should thus be enough that payment on the
premium, partly or in full, is made by the insured which the insurer accepts. In fine, it
is either that a juridical tie exists (by such payment) or that it is not extant at all (by
an absence thereof). Once the juridical relation comes into being, the full efficacy, not
merely pro tanto, of the insurance contract naturally follows. Verily, not only is there
an insurance perfected but also a partially performed contract. In case of loss,
recovery on the basis of the full contract value, less the unpaid premium can
accordingly be had; conversely, if no loss occurs, the insurer can demand the
payment of the unpaid balance of the premium. The insured, on the one hand, cannot
avoid the obligation of paying the balance of the premium while the insurer, upon the
other hand, cannot treat the contract as valid only for the purpose of collecting
premiums and as invalid for the purpose of indemnity.

308 SCRA 259
PARDO; June 15, 1999

Petition for review on certiorari of a decision of the Court of Appeals.

- 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, petitioner
returned to respondent the five 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.
- 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.
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.
- In due time, petitioner appealed to the Court of Appeals (CA). The CA promulgated
its decision 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.
It held that following previous practice, respondent was allowed a 60- to 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

WON 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 was tendered on a later date after the occurrence of the risk (fire) insured

- 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.
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.
Disposition Judgment reversed and set aside

65 SCRA 134
MARTIN; July 18, 1975

Petition for review of a decision of the CA affirming the decision of the CFI of Manila

- On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. delivered to
the respondent Plastic Era Manufacturing Co., Inc., its open Fire Policy No. 22760
wherein the former undertook to insure the latter's building, equipments, raw
materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal.
The policy expressly provides that if the property insured would be destroyed or
damaged by fire after the payment of the premiums, at anytime between the 15th day
of December 1960 and one o'clock in the afternoon of the 15th day of December 1961,
the insurance company shall make good all such loss or damage in an amount not
exceeding P100,000.00. When the policy was delivered, Plastic Era failed to pay the
corresponding insurance premium. On January 8, 1961, in partial payment of the
insurance premium, Plastic Era delivered to Capital Insurance, a check for the
amount of P1,000.00 postdated January 16, 1961. However, Capital Insurance tried
to deposit the check only on February 20, 1961 and the same was dishonored by the
bank for lack of funds.
- Two days after the insurance premium became due, at about 4:00 to 5:00 o'clock in
the morning, the property insured by Plastic Era was destroyed by fire. In less than a
month Plastic Era demanded from Capital Insurance the payment of the sum of
P100,000.00 as indemnity for the loss of the insured property under Policy No.
22760 but the latter refused for the reason that, among others, Plastic Era failed to
pay the insurance premium.

1. WON a contract of insurance has been duly perfected between petitioner and
2. WON the dishonored check constituted payment

1. YES
- Tender of draft or check in order to effect payment that would extinguish the
debtor's liability should be actually cashed. If the delivery of the check of Plastic Era
to Capital Insurance were to be viewed in the light of the foregoing, no payment of the
premium had been effected. Significantly, Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within 30 days from the effective date of
policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy
and in effect, waived the provision therein that it would only pay for the loss or
damage in case the same occurs after the payment of the premium. Considering that
the insurance policy is silent as to the mode of payment, Capital Insurance is deemed
to have accepted the promissory note in payment of the premium. This rendered the
policy immediately operative on the date it was delivered.
2. YES
- Although the check was due for payment on January 16, 1961 and Plastic Era had
sufficient funds to cover it as of January 19, 1961, Capital Insurance decided to hold
the same for thirty-five (35) days before presenting it for payment. Having held the
check for such an unreasonable period of time, Capital Insurance was estopped from
claiming a forfeiture of its policy for non-payment even if the check had been
dishonored later. Where the check is held for an unreasonable time before presenting
it for payment, the insurer may be held estopped from claiming a forfeiture if the
check is dishonored.
Disposition The decision of the CA is AFFIRMED in toto.

154 SCRA 672
CRUZ; October 12, 1987

- On June 7, 1981, Malayan Insurance Co. (MICO), issued fire insurance for the
amount of P14,000 on the property of private respondent, Pinca, effective July 1981-
1982. MICO later allegedly cancelled the policy for non-payment of the premium and
sent a notice to Pinca. On Dec. 24 Adora, an agent of MICO, received Pincas
payment, which was remitted to MICO. On Jan. 18, 1982, Pincas property was
completely burned. On Feb. 5, MICO returned Pincas payment to Adora on the
ground that her policy had been cancelled; the latter refused to accept it. Her demand
for payment having been rejected by MICO, Pinca went to the Insurance
Commission. Public respondent Arnaldo, the Insurance Commissioner, sustained
Pinca, hence this petition from MICO. Records show MICO received Arnaldos
decision on April 10; MICO filed a MFR on April 25 which was denied on June 4;
MICO received notice of this denial on June 14; instant petition was filed on July 2.

1. WON the petition should be dismissed for late filing
2. WON there was a valid insurance contract at the time of the loss
3. WON Adora was authorized to receive such payment
4. WON an adjuster is indispensable in the valuation of the loss

1. YES
- Petitioner invokes Sec 416 of the Insurance Code which grants it 30 days from
notice of the Insurance Commission within which to appeal by certiorari with the
Court. MICO filed its MFR on April 25, 15 days after the notice; the reglementary
period began to run again after June 13. Since the petition was filed only on July 2, it
was tardy by 4 days. Alternatively it invokes Rule 45 of the Rules of Court for
certiorari but the petition still exceeds the 15 day limit from the June 13 notice.
-Respondents, on the other hand, invoke Sec. 39 of B.P. 129 which pegs the period for
appeal from decisions of any court in all cases at 15 days from the notice of the
decision appealed from. Since the MFR was filed only 15 days after receiving notice of
the decision, it was already 18 days late by July 2. So whichever is applied, the
petition is still late.
2. YES
- A valid cancellation requires the following conditions based on Sections 64-65 of the
Code: prior notice which must be based on the occurrence of one or more of the
grounds mentioned in Sec 64 (in this case, non-payment of premium), after the
effective date of the policy; the notice must be written and mailed to the address on
the policy; it must state the ground(s) for cancellation and the insurer must furnish
details upon the request of the insured.
- It is undisputed that payment of premium was made. Petitioner relies heavily on Sec
77 of the Insurance Code to contest this, the said provision requiring payment of
premium as soon as the thing is exposed to the peril insured against and that the
policy is invalid without it. However, this is not applicable in the instant case as
payment was eventually made. It is to be noted that the premium invoice was
stamped Payment Received, indicating an understanding between the parties that
payment could be made later. This is furthered by the fact that Adora had earlier told
her to call him anytime she was ready with her payment. The Court also finds it
strange that MICO only sought to return Pincas Jan. 15 payment only on Feb. 5, long
after her house had burned downthis makes petitioners motives highly suspect.
- MICO claims to have sent a notice to Pinca, who flatly denied receiving one. Pinca
did not have to prove this since the strict language of Sec 64 requires that MICO
ensure the cancellation was actually sent to and received by the insured.
- MICO also suggests that Pinca knew the policy had been cancelled and was paying
the premium in order to renew the policy. A close study of the transcripts show,
however, that Pinca only meant to renew the policy had it been cancelled but not if it
was still in effectit was conditional. Payment was thus legally made on the original
transaction and validly received by Adora, who was not informed of the alleged
cancellation and thus saw no reason to reject the payment.
3. YES
- Sec. 306 of the Insurance Code provides that any insurance company that delivers a
policy to its agent is deemed to have authorized such agent to receive payment of
premium on its behalf. It is a well-known principle under the law of agency that
payment to an authorized agent is equivalent to payment to the principal himself.
MICOs acknowledgement of Adora as its agent thus defeats its contention that he
was not authorized to receive payments on its behalf.
4. NO
- In absence of fraud, the amount of the loss may be determined on the basis of such
proof offered by the insured. Here. The certification of the Integrated National Police
as the extent of the loss should suffice.
Disposition petition is DENIED

244 SCRA 744
VITUG; June 2, 1995

Petition for review on certiorari

- Hardwood entered into agreement with Seven Bros Shipping, where latter
undertook to load the formers logs on vessel. Hardwood insured the logs with South
Sea Surety which issued Marine Cargo Insurance Policy. The vessel sank Jan 25,
- Hardwood filed claim with South Sea and Seven Bros. Trial Court favored
Hardwood. CA decided against South Sea, but absolved Seven Bros. South Sea filed
this instant petition.

WON the insurance contract was already in effect when the vessel sank

- It is already in effect because Hardwood has already paid the insurance premium.
It delivered the check to Victorio Chua before the vessel sank, but Victorio Chua was
only to deliver the check to South Sea five days after the vessel sank.
Appellant argues that Chua was not its broker, but it was found that Chua was
authorized by South Sea to receive the premium on its behalf.

117 SCRA 187
VASQUEZ; September 30, 1982

Appeal from a decision of the CFI

- Sometime in April 1969, Carmen O, Lapuz applied with respondent insurance
corporation for insurance coverage against accident and injuries. In the application
form which was dated April 15, 1969, she gave the date of her birth as July 11, 1904.
On the same date, she paid the sum of P20.00 representing the premium for which
she was issued the corresponding receipt signed by an authorized agent of the
respondent insurance corporation. Upon the filing of said application and the
payment of the premium on the policy applied for, the respondent insurance
corporation issued to Carmen O. Lapuz its Certificate of Insurance. The policy was to
be effective for a period of 90 days.
- On May 31, 1969 or during the effectivity of the Insurance, Carmen O. Lapuz died in
a vehicular accident.
- On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was
the named beneficiary in the policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites with the private respondent.
Her claim having been denied, Regina L. Edillon instituted this action in the Court of
First Instance of Rizal.
- In resisting the claim of the petitioner, the respondent insurance corporation relies
on a provision contained in the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years ..." It is pointed out that the insured
being over sixty (60) years of age when she applied for the insurance coverage, the
policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom.
- RTC dismissed the complaint.

WON the acceptance by the private respondent insurance corporation of the
premium and the issuance of the corresponding certificate of insurance should be
deemed a waiver of the exclusionary condition of overage stated in the said certificate
of insurance

- The age of the insured Carmen 0. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed form
furnished by private respondent and which contained very few items of information
clearly indicated her age of the time of filing the same to be almost 65 years of age.
Despite such information which could hardly be overlooked in the application form,
considering its prominence thereon and its materiality to the coverage applied for,
the respondent insurance corporation received her payment of premium and issued
the corresponding certificate of insurance without question. The accident which
resulted in the death of the insured, a risk covered by the policy, occurred on May 31,
1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There
was sufficient time for the private respondent to process the application and to notice
that the applicant was over 60 years of age and thereby cancel the policy on that
ground if it was minded to do so. If the private respondent failed to act, it is either
because it was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it simply
overlooked such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel. Its inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver of such
Disposition Judgment appealed from is REVERSED and SET ASIDE and
respondent insurance corporation is ordered to pay to the petitioner the proceeds of

G.R. No. L-57308 April 23, 1990

This case involves an insured's claim for refund of the first premium on the
endowment policy on his life, upon being notified by the insurer that the policy never
took effect despite the premium payment.
Private respondent Teodoro Cortez, upon the solicitation of Margarita Siega an
underwriter for the petitioner Great Pacific Insurance Corporation, applied for a 20-
year endowment policy for P30,000. His application, with the requisite medical
examination, was accepted and approved by the company and in due course,
Endowment Policy No. 221944 was issued in his name. It was released for delivery on
January 24, 1973, and was actually delivered to him by the underwriter, Mrs. Siega on
January 25, 1973. The effective date indicated on the face of the policy in question
was December 25, 1972. The annual premium was P1,416.60. Mrs. Siega assured him
that the first premium may be paid within the grace period of thirty (30) days from
date of delivery of the policy. The first premium of P1,416.60 was paid by him in three
(3) installments, to wit:
(1) P400 evidenced by Temporary Receipt No. 19422, dated February 5, 1973 issued
by Mrs. Siega (Exh. B) and confirmed by Official Receipt No. 43543 dated March 6,
1973, issued by the Home Office of the defendant in Makati, Rizal (Exh. B-1);
(2) P350 evidenced by Temporary Receipt No. 19448 dated February 17, 1973 issued
by Mrs. Siega (Exh. C) and confirmed by Official Receipt No. 43559 dated March 28,
1973 issued by defendant's Home Office (Exh. C-1); and
(3) P666.60 evidenced by Temporary Receipt No. 19702 dated February 21, 1973,
issued by the underwriter Mrs. Siega (Exh. D), and confirmed by Official Receipt No.
43563 dated March 28, 1973 issued by defendant's Home Office (Exh. D-1).
In a letter dated June 1, 1973 (Exh. E), defendant advised plaintiff that Policy No.
221944 (Exh. A) was not in force. To make it enforceable and operative, plaintiff was
asked to remit the balance of P1,015.60 to complete his initial annual premium due
December 15, 1972, and to see Dr. Felipe V. Remollo for another full medical
examination at his own expense.
Cortez' reaction to the company's act was to immediately inform it that he was
cancelling the policy and he demanded the return of his premium plus damages.
When the company ignored his demand, Cortez filed on August 14, 1973, a complaint
for damages in the Court of First Instance of Negros Oriental, docketed as Civil Case
No. 5709, entitled "Teodoro Cortez vs. Pacific Life Assurance Corporation." He
prayed for the refund of the insurance premium of P1,416.60 which he paid, plus
P45,000 as moral damages, and P2,000 as attorney's fees.
After trial, the court a quo rendered judgment on September 9, 1977, the dispositive
portion of which reads:
hereby rendered, in favor of the plaintiff and against the defendant,
ordering the latter to pay to plaintiff the sum of:
SIXTY CENTAVOS (P1,416.60), without interest, representing the
first annual premium paid by plaintiff on policy Exh. "A";
(2) THIRTY THOUSAND PESOS (P30,000.00) as moral damages;
(3) FIVE HUNDRED PESOS (P500.00) as litigation expenses;
(4) TWO THOUSAND PESOS (P2,000.00) as attorney's fees; and
(5) Costs of suit." (p. 22, Rollo.)
The insurer appealed to the Court of Appeals and on March 10, 1981, the latter court
rendered a decision the dispositive portion of which reads:
"WHEREFORE, modified in the sense that the amount of moral
damages is hereby reduced to P10,000.00, the judgment appealed
from is hereby affirmed in all other respects. With costs against the
appellant." (p. 25, Rollo.)
It filed a motion for reconsideration, but the same was denied by the Appellate Court
on June 11, 1981. Hence, this petition for review.
The only issue in this case is whether Cortez is entitled to a refund of his premium. In
affirming the lower court's decision, the Appellate Court made the following
In the instant case, the policy was issued on December 25, 1972 and
was delivered on January 25, 1973 and the appellee was given by the
appellant thru its underwriter Mrs. Margarita Siega a grace period of
30 days from said date within which the premium was to be paid.
Record shows that the premium was paid fully on February 21, 1973
or within the grace period. This being so, the policy was already
enforceable. The company had sufficient time to examine the result
of their medical examination on the person of the appellee. They
would not have delivered the policy on January 24, 1973 if the
appellee was unacceptable. Moreover, if premiums were to be paid
within 90 days then the reckoning period should be the date the
policy was delivered and not the date the appellee was physically
examined. The 90-day period from the date of physical examination
as provided for in the receipts of payment is of' no moment, since
said receipts are an integral part of the insurance policy (contract).
The official receipts issued by the company's agent can only mean
that the company ratified the act of Mrs. Margarita Siega in giving
the appellee a grace period of 30 days from January 25, 1973 within
which to pay the annual premium.
Indeed, record shows that the three (3) installment payments were
paid for within 30-days period and all 3 partial payments were
officially acknowledged by the company, on March 6, 1973, and the 2
other installments on March 28, 1973, Exhs. D-1, C-1, E-1. To the
mind of this Court, this acknowledgments are the most eloquent
proofs that at such time the policy was already in full force and effect.
We have no doubt at all that when the appellant wrote the letter in
question in June 1973, understandably, the appellee must have been
shocked to know that after all the matter about his coverage or the
security that he provided for his family was after all empty or, to say
the least, made debatable by the very company the appellant has
sought security from. (p. 24, Rollo.)
When the petitioner advised private respondent on June 1, 1973, four months after he
had paid the first premium, that his policy had never been in force, and that he must
pay another premium and undergo another medical examination to make the policy
effective, the petitioner committed a serious breach of the contract of insurance.
Petitioner should have informed Cortez of the deadline for paying the first premium
before or at least upon delivery of the policy to him, so he could have complied with
what was needful and would not have been misled into believing that his life and his
family were protected by the policy, when actually they were not. And, if the premium
paid by Cortez was unacceptable for being late, it was the company's duty to return it.
By accepting his premiums without giving him the corresponding protection, the
company acted in bad faith.
Sections 79, 81 and 82 of P.D. 612 of the Insurance Code of 1978 provide when the
insured is entitled to the return of premium paid.
SECTION 79. A person insured is entitled to a return of premium, as
(a) To the whole premium, if no part of his interest in the thing
insured be exposed to any of the perils insured against.
(b) Where the insure is made for a definite period of time and the
insured surrenders his policy, to such portion of the premium as
corresponds with the unexpired time, at a pro ratarate, unless a
short period rate has been agreed upon and appears on the face of
the policy, after deducting from the whole premium any claim for
loss or damage under the policy which has previously
accrued: Provided, That no holder of a life insurance policy may avail
himself of the privileges of this paragraph without sufficient causes
as otherwise provided by law.
SECTION 81. A person insured is entitled to a return of the premium
when the contract is voidable on account of the fraud or
misrepresentation of the insurer or of his agent or on account of facts
the existence of which the insured was ignorant without his fault; or
when, by any default of the insured other than actual fraud, the
insurer never incurred any liability under the policy.
SECTION 82. In case of an over-insurance by several insurers, the
insured is entitled to a ratable return of the premium, proportioned
to the amount by which the aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk.
Since his policy was in fact inoperative or ineffectual from the beginning, the
company was never at risk, hence, it is not entitled to keep the premium.
The award of moral damages to Cortez was proper for there can hardly be any doubt
that he must have suffered moral shock, serious anxiety and wounded feelings upon
being informed by the petitioner six (6) months after it issued the policy to him and
four (4) months after receiving the full premium, that his policy was in fact worthless
for it never took effect, hence, he and his family never received the protection that he
paid for.
WHEREFORE, the petition for review is denied for lack of merit. In the interest of
justice, in view of the serious delay the private respondent's claim has suffered on
account of the petitioner's intransigence in refusing to pay its just debt, the petitioner
is ordered to pay legal rate of interest of 6% per annum on the premium of P1,416.60
refundable to the private respondent from the filing of the complaint until the
judgment is fully paid. As thus modified, the decision of the Court of Appeals is
affirmed. Costs against the petitioner. This decision is immediately executory.
Lumibao v IAC, et al., G.R. No. 64677, September 13, 1990
Issues: 1) Whether petitioner induced the insured to take out the policy through a
2) Whether the petitioner should be compelled to fulfill her promise of giving
half of the premium paid by the insured
Ruling: 1) Petitioner violated Sec. 361 of the Insurance Code when she promised the
insured a rebate of 50% of the first premium paid.
2) The appellate court should not have ordered petitioner to pay the
promised amount to the insured as it is against the law and public policy.
Basis: 1) A preponderance of evidence on record supports the findings of the trial
and appellate courts that petitioner had induced private respondent to take out a life
insurance policy from Manila Bankers Life Insurance Corporation by promising him
a rebate equivalent to 50% of the first annual premium payment. These factual
findings are, therefore, final and binding upon the Court.
Section 361 of Pres. Decree No. 612 states:
No insurance company doing business in the Philippines or any
agent thereof, no insurance broker, and no employee or other
representative of any such insurance company, agent, or broker, shall
make, procure or negotiate any contract of insurance or agreement as
to policy contract, other than is plainly expressed in the policy or
other written contract issued or to be issued as evidence thereof, or
shall directly or shall indirectly, by giving or sharing a commission
or in any manner whatsoever, pay or allow or offer to pay or allow
to the insured or to any employee of such insured, either as an
inducement to the making of such insurance or after such insurance
has been effected, any rebate from the premium which is specified in
the policy, or any special favor or advantage in the dividends or
other benefits to accrue thereon, or shall give or offer to give any
valuable consideration or inducement of any kind, directly or
indirectly, which is not specified in such policy or contract of
insurance; nor shall any such company, or any agent thereof, as to
any policy or contract of insurance issued, make any discrimination
against any Filipino in the sense that he is given less advantageous
rates, dividends or other policy conditions or privileges than are
accorded to other nationals because of his race [Emphasis supplied.]
Furthermore, Section 363 of Pres. Decree No. 612 provides that violation of the above
section constitutes a ground for the immediate revocation of the license issued to the
erring insurance company, agent or broker and the imposition of a fine not exceeding
five hundred pesos.
It is evident that petitioner's promise to pay private respondent an amount equivalent
to 50% of the first premium payment, which would be taken out of her commission
on the insurance policy, is covered squarely by the express provisions of Section 361.
2) By virtue of Article 1409 (7) of the New Civil Code, the rebate agreement between
the petitioner and private respondent is deemed a contract void ab initio, and,
consequently, does not give rise to enforceable rights and obligations as between the
parties thereto.
Public policy considerations serve to underscore further the Court's foregoing ruling
that petitioner's promise of rebate, which is expressly prohibited by law, may not be
enforced for compliance by the courts.
Section 361 of Pres. Decree No. 612 is similar to the so-called "anti-discrimination"
statutes found in other jurisdictions which regulate the activities in the insurance
industry. The purpose of these statutes is the prevention of unfair discriminatory
practices by insurance companies, agents and brokers in order to ensure that equal
terms are fixed for policyholders of the same insurable class and equal expectation of
life. In aid and furtherance of this desirable policy, the statutes prohibit such
practices involving rebates or preferential treatment with respect to the cost of the
policy or the benefits allowed for the premium. It follows that to enforce contracts or
agreements directly forbidden under these statutes, thereby allowing recovery
thereunder, would be subversive of the very public policy which the law was designed
and intended to uphold. True, the statutes, like Sections 361 and 363 of Pres. Decree
No. 961, in terms, are addressed to the insurance companies, agents and brokers, and
is enacted for the protection of policyholders, but this is for the general body of
policyholders who would suffer by the enforcement of the prohibited agreements, and
not for those who have entered into such agreements and are seeking to profit by its
American Home v Chua G.R. No. 130421. June 28, 1999
C.J. Davide

Chua obtained from American Home a fire insurance covering the stock-in-trade of
his business.The insurance was due to expire on March 25, 1990.
On April 5, 1990, Chua issued a check for P2,983.50 to American Homes agent,
James Uy, as payment for the renewal of the policy. The official receipt was issued on
April 10. In turn, the latter a renewal certificate. A new insurance policy was issued
where petitioner undertook to indemnify respondent for any damage or loss arising
from fire up to P200,000 March 20, 1990 to March 25, 1991.
On April 6, 1990, the business 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, Prudential
Guarantee, Filipino Merchants and DomesticInsurance. Petitioner refused to
honor the claim hence, the respondent filed an action in the trial court.
American Home claimed there was no existing contract because respondent did not
pay the premium. Even with a contract, they contended that he was ineligible bacue
of his fraudulent tax returns, his failure to establish the actual loss and his failure to
notify to petitioner of anyinsurance already effected. The trial court ruled in favor
of respondent because the respondentpaid by way of check a day before the fire
occurred and that the other insurance companies promptly paid the claims. American
homes was made to pay 750,000 in damages.
The Court of Appeals found that respondents claim was substantially proved and
petitioners unjustified refusal to pay the claim entitled respondent to the award of
American Home filed the petition reiterating its stand that there was no
existing insurance contract between the parties. It invoked Section 77 of the
Insurance Code, which provides that no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid and the case of Arce v. Capital Insurance that until the premium is paid
there is no insurance.

1. Whether there was a valid payment of premium, considering that
respondents check was cashed after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts
3. Whether respondent is entitled to the award of damages.

Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

1. The trial court found, as affirmed by the Court of Appeals, that there was a
valid check payment by respondent to petitioner. The court respected this.
The renewal certificate issued to respondent contained the acknowledgment that
premium had been paid.
In the instant case, the best evidence of such authority is the fact that petitioner
accepted thecheck and issued the official receipt for the payment. It is, as well, bound
by its agents acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium
is actually paid.
2. Submission of the alleged fraudulent documents pertained to respondents income
tax returns for 1987 to 1989. Respondent, however, presented a BIR certification that
he had paid the proper taxes for the said years. Since this is a question of fact, the
finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of
existing co-insurers, non-disclosure is a violation that entitles the insurer to avoid the
policy. The purpose for the inclusion of this clause is to prevent an increase in the
moral hazard. 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.
Respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from invoking this argument due to
the loss adjusters admission of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latters non-
disclosure of the other insurance contracts when petitioner actually had prior
knowledge thereof. The loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other insurance contracts binds
3. Petitioner is liable to pay the loss. But there is merit in petitioners grievance
against the damages and attorneys fees awarded. There was no basis for an award for
loss of profit. This cannot be shouldered by petitioner whose obligation is limited to
the object of insurance.
There was no fraud to justify moral damages. Exemplary damages cant be awarded
because thedefendant never acted in a reckless manner to claim insurance. Attorneys
fees cant be recovered as part of damages because no premium should be placed on
the right to litigate.

236 SCRA 643
ROMERO; September 22, 1994


- June 29, 1985- 7 months after the issuance of Santos Areola's Personal Accident
Insurance Policy No. PA-20015 (covering a period of one year), Prudential
unilaterally cancelled the same since company records revealed that Areola failed to
pay his premiums.
o Under the terms of the statement of account issued by Prudential, Areola was
supposed to pay the total amount of P1,609.65 which included the premium of
P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40.
o The statement of account stated that it must not be considered a receipt as an
official receipt will be issued upon payment of the account. And if payment was
made to a representative, the client must demand for a Provisional Receipt and if
Official Receipts arent received within 7 days, Prudential should be notified. If
payment is made to their office, clients should demand for an OR.
- August 3, 1985- Prudential offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to December 17, 1985, upon a
finding that the cancellation was erroneous and that the premiums were paid in full
by Areola but were not remitted by Teofilo M. Malapit, Prudential's branch manager.
Petitioners Claims
- The fraudulent act of in misappropriating Areolas premium payments is the
proximate cause of the cancellation of the insurance policy.
- Areola theorized that Malapit's act of signing and even sending the notice of
cancellation himself, notwithstanding his personal knowledge of petitioner-insured's
full payment of premiums, further reinforces the allegation of bad faith.
- Such fraudulent act committed by Malapit is attributable to Prudential.
- Malapit's actuations are therefore not separate and distinct from that of
Prudentials. It must, therefore, bear the consequences of the erroneous cancellation
of subject insurance policy caused by the non-remittance by its own employee of the
premiums paid.
- Subsequent reinstatement could not possibly absolve respondent insurance
company from liability, there being an obvious breach of contract. After all damage
had already been inflicted on him and no amount of rectification could remedy the
Respondents Argument
- Prudential argues that where reinstatement, the equitable relief sought by Areola
was granted at an opportune moment, i.e. prior to the filing of the complaint, Areola
is left without a cause of action on which to predicate his claim for damages.
- Reinstatement effectively restored Areola to all his rights under the policy.

1. WON the erroneous act of canceling subject insurance policy entitle petitioner-
insured to payment of damages
2. WON the subsequent act of reinstating the wrongfully cancelled insurance policy
obliterate whatever liability for damages Prudential has

1. YES
2. NO
- Malapit's fraudulent act of misappropriating the premiums paid by petitioner-
insured is beyond doubt directly imputable to Prudential.
- A corporation, such as respondent insurance company, acts solely thru its
employees. The latters acts are considered as its own for which it can be held to
- The facts are clear as to the relationship between private respondent insurance
company and Malapit. His act of receiving the premiums collected is well within the
province of his authority as manager. Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by provision of law, particularly under
Article 1910 of the Civil Code, is bound by the acts of its agent.
- Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
- Malapit's failure to remit the premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration from liability could result
- Prudentials earlier act of reinstating the insurance policy can not obliterate the
injury inflicted on petitioner-insured.
- Respondent company should be reminded that a contract of insurance creates
reciprocal obligations for both insurer and insured.
- Reciprocal obligations are those which arise from the same cause and in which each
party is both a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other.
- Under the circumstances of instant case, the relationship as creditor and debtor
between the parties arose from a common cause: i.e., by reason of their agreement to
enter into a contract of insurance under whose terms, Prudential promised to extend
protection to Areola against the risk insured for a consideration in the form of
premiums to be paid by the latter.
- Under the law governing reciprocal obligations, particularly the second paragraph
of Article 1191, the injured party, Areola in this case, is given a choice between
fulfillment or rescission of the obligation in case one of the obligors, such as
respondent insurance company, fails to comply with what is incumbent upon him.
- However, said article entitles the injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the obligation.
- Untenable then is reinstatement insurance company's argument, namely, that
reinstatement being equivalent to fulfillment of its obligation, divests petitioner-
insured of a rightful claim for payment of damages. Such a claim finds no support in
our laws on obligations and contracts.
- The nature of damages to be awarded, however, would be in the form of nominal
- Although the erroneous cancellation of the insurance policy constituted a breach of
contract, Prudential within a reasonable time took steps to rectify the wrong
committed by reinstating the insurance policy of petitioner.
- Moreover, no actual or substantial damage or injury was inflicted on petitioner
Areola at the time the insurance policy was cancelled.
- Nominal damages are "recoverable where a legal right is technically violated and
must be vindicated against an invasion that has produced no actual present loss of
any kind, or where there has been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be shown.
Disposition Petition for review on certiorari is hereby GRANTED. RTC s