MAKATI TUSCANY CONDOMINIUM CORPORATION vs.

COURT OF APPEALS,
AMERICAN HOME ASSURANCE CO., represented by American International
Underwriters (Phils.), Inc. (November 6, 1992 BELLOSILLO, J.)
While in Sec. 77, 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.

FACTS:
Private respondent American Home Assurance Co. (AHAC) issued in favor of
petitioner Makati Tuscany Condominium Corporation (TUSCANY) three insurance
polices:
1) In 1982, on the latter's building and premises. The premium of P466,103.05 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.
2) On 10 February 1983, replaced and renewed the previous policy. The premium 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.
3) On 20 January 1984, the policy was again renewed. 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.

AHAC filed an action to recover the unpaid balance for the 3rd insurance policy
(P314,103.05). Petitioner claimed that it discontinued the payment of premiums because
the policy did not contain a credit clause in its favor and that the policy was never binding
and valid, and no risk attached to the policy. It sought the refund of P924,206.10
representing the premiums paid for 1982-85.

The trial court dismissed the complaint, providing that defendant's counterclaim for
refund is not justified. CA ordered petitioner to pay the balance of the premiums due plus
legal interest until fully paid.

ISSUE:
WON payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance, in view of Sec. 77 of the Insurance Code.

RULING:
NO. 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.

While in Sec. 77, 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. It also does
not expressly prohibit an agreement granting credit extension.

At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted. Otherwise, we would allow the insurer to
renege on its liability under the contract, had a loss incurred before completion of payment
of the entire premium, despite its voluntary acceptance of partial payments.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is
unavailing because in said case, 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.

Moreover, the obligation to pay premiums is an indivisible obligation to pay the

entire premium. 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