27 ARCE vs. THE CAPITAL INSURANCE & SURETY CO., INC.

,
FACTS:
In Civil Case No. 66466 of the Court of First Instance of Manila, the Capital Insurance and Surety Co., Inc.,
(COMPANY) was ordered to pay Pedro Arce (INSURED) the proceeds of a fire insurance policy. Not
satisfied with the decision, the company appealed to this Court on questions of law.
The INSURED(Pedro Arce) was the owner of a residential house in Tondo, Manila, which had been insured with
the COMPANY(Capital insurance) since 1961 under Fire Policy No. 24204.
On November 27, 1965, the COMPANY sent to the INSURED Renewal Certificate No. 47302 to cover the
period
December 5, 1965 to December 5, 1966. The COMPANY also requested payment of the corresponding
premium in the amount of P 38.10.
Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to pay it
on January 4, 1966. The COMPANY accepted the promise but the premium was not paid on January 4,
1966. On January 8, 1966, the house of the INSURED was totally destroyed by fire.
On January 10, 1966, INSURED’s wife presented a claim for indemnity to the COMPANY. She was told that
no indemnity was due because the premium on the policy was not paid. Nonetheless the COMPANY tendered a
check for P300.00 as financial aid which was received by the INSURED daughter, Evelina R. Arce. The
COMPANY reiterated that the check was given; not as an obligation, but as a concession; because the renewal
premium had not been paid, The INSURED cashed the check but then sued the COMPANY on the policy.

ISSUE: Whether the petitioners are entitled to claim from their policy despite non-payment of their premium.
RULING: SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the
perils insured against, unless there is clear agreement to grant credit extension for the premium due. No policy
issued by an insurance company is valid and binding unless and until the premium thereof has been paid.
Morever, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not. Withstanding anything to the contrary contained in the
within policy, this insurance will be deemed valid and binding upon the Company only when the premium and
documentary stamps therefor have actually been paid in full and duly acknowledged in an
official receipt signed by an authorized official/representative of the Company, ; (pp. 45-46, Record on Appeal.)
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of the essence
in respect of the payment of the insurance premium so that if it is not paid the contract does not take effect unless
there is still another stipulation to the contrary. In the instant case, the INSURED was given a grace period to
pay the premium but the period having expired with no payment made, he cannot insist that the COMPANY is
nonetheless obligated to him.

(Case no. 28) MALAYAN INSURANCE CO., INC. (MICO), petitioner,

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

FACTS:
On June 7, 1981, the petitioner (MICO) issued to the private respondent, Coronacion Pinca,
Fire Insurance Policy on her property effective July 22, 1981, until July 22, 1982.
On October 15, 1981, MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca.

On December 24, 1981, payment of the premium for Pinca was received by Domingo
Adora, agent of MICO. On January 15, 1982, Adora remitted this payment to MICO.

On January 18, 1982, Pinca's property was completely burned.

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her
(Pinca’s) policy had been cancelled earlier. But Adora refused to accept it.
Pinca made the requisite demands for payment, which MICO rejected. She then went to
the Insurance Commission and was ultimately sustained by the latter.

ISSUE:
WON petitioner MICO is liable, for it alleged that the insurance policy was already
cancelled due to nonpayment of premium.
RULING:
The Supreme Court denied the petition.
Petitioner MICO contends that there was NO payment of premium and that the policy had
been cancelled before the occurrence of the loss.

The petitioner relies heavily on Section 77 of the Insurance Code providing that:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.

Petitioner also contends that Adora was not authorized to accept the premium payment
because six months had elapsed since the issuance by the policy itself.
On the other hand, Pinca posits that she never received the claimed cancellation.
Considering the strict language of Section 64 that no insurance policy shall be cancelled
except upon prior notice, it behooved MICO's to make sure that the cancellation was actually sent
to and received by the insured.

The Supreme Court ruled that Section 77 of the Insurance Code is not applicable because
payment of the premium was in fact eventually made in this case. The premium invoice issued to
Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received"
by Domingo Adora. It suggests an understanding between MICO and the insured that such
payment could be made later, as agent Adora had assured Pinca.

MICO's acknowledgment of Adora as its agent defeats its contention that he was not
authorized to receive the premium payment on its behalf. It is clearly provided in Section 306 of
the Insurance Code that:

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or
contract of insurance shall be demmed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of insurance at the time
of its issuance or delivery or which becomes due thereon.
 Under the law of agency, payment to an agent having authority to receive or collect
payment is equivalent to payment to the principal himself.

Payment was in fact made, rendering the policy operative as of June 22, 1981, and
removing it from the provisions of Article 77. Thereafter, the policy could be cancelled on any of
the supervening grounds enumerated in Article 64.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or
more of the grounds mentioned;

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the
address shown in the policy;

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the facts on which the cancellation is based.

In this case, there is NO proof that the notice, assuming it complied with the other
requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to
show that the cancellation was communicated to the insured is its employee's testimony that the
said cancellation was sent "by mail through our mailing section." without more.

If Pinca had really received the said notice, she would not have made payment on the
original policy on December 24, 1981. Instead, she would have asked for a new insurance,
effective on that date and until one year later, and so taken advantage of the extended period. Pinca
honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to
make her payment retroact to July 22, 1981.

As it has NOT been shown that there was a valid cancellation of the policy, there was
consequently no need to renew it but to pay the premium thereon. Payment was thus legally made
on the original transaction and it could be, and was, validly received on behalf of the insurer by
its agent Adora. Adora incidentally, had not been informed of the cancellation either and saw no
reason not to accept the said payment.

Case 29
G.R. No. L-22684 August 31, 1967
PHILIPPINE PHOENIX SURETY & INSURANCE, INC., plaintiff-appellee,
vs.
WOODWORKS, INC., defendant-appellant.
FACTS:
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

Issue:

Whether non-payment of premium does not cancel the policy.

Ruling:
We can not agree with appellant's 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.

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

SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,

VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and
ROSABELLA M. RORALDO, petitioners, vs. COURT OF APPEALS and FORTUNE LIFE
AND GENERAL INSURANCE CO., INC., respondents.

Facts: On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc.
(FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas
Roraldo on their two-storey residential building together with all their personal effects. The
insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On
23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00
thus leaving a considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on
10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with
FORTUNE a claim on the fire insurance policy.

FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec.
77 of the Insurance Code. Violeta and the other petitioners sued FORTUNE for damages in the
amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12%
interest per annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the total
claim.
 The trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the
insured building and personal properties.
The Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to
plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of
P2,983.50 plus 12% interest from 10 March 1987 until full payment.

Issue: whether or not FORTUNE remains liable under the subject fire insurance policy inspite
of the failure of petitioners to pay their premium in full.

Ruling: No,
Insurance is a contract whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.[4] The consideration
is the premium, which must be paid at the time and in the way and manner specified in the policy,
and if not so paid, the policy will lapse and be forfeited by its own terms..
The pertinent provisions in the Policy on premium read

THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company
in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated
above for the period aforementioned for insuring against Loss or Damage by Fire or
Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is not in force
until the premium has been fully paid to and duly receipted by the Company in the manner
provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no effect.

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium
has only been partially paid and the balance paid only after the peril insured against has occurred,
the insurance contract did not take effect and the insured cannot collect at all on the policy. This
is fully supported by Sec. 77 of the Insurance Code which provides
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with
Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular
instance should not be considered the payment required by the law and the stipulation of the
parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until
such time that the full amount has been tendered and duly receipted for. In other words, as
expressly agreed upon in the contract, full payment must be made before the risk occurs for the
policy to be considered effective and in force.

31. UCPB GENERAL INSURANCE CO., INC. VS. MASAGANA TELEMART, INC.
GR NO. 137172; 04 APR 2001

FACTS:
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from 22 MAY 1991 to 22 MAY 1992. On 13 JUN 1992, Masagana’s
properties were razed by fire. On 13 JUL 1992, plaintiff tendered five checks for P225,753.45 as
renewal premium payments. A receipt was issued. On 14 JUL 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The CA disagreed with UCPB’s argument that Masagana’s tender of payment of the premiums
on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective
date of renewal as provided under Policy Condition No. 26, which states:
“26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or elimination
of coverages, the assured shall be entitled to renew the policy upon payment of the premium due
on the effective date of renewal.”

Both the CA and the RTC found that sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term
for the renewal of the policies. Such a practice had existed up to the time the claims were
filed. Most of the premiums have been paid for more than 60 days after the issuance. Also, no
timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from 22 MAY 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The SC, upon observing the facts, affirmed that there was no valid notice of non-renewal of the
policies in question, as there is no proof at all that the notice sent by ordinary mail was received
by Masagana. Also, the premiums were paid within the grace period.

CASE HISTORY: The RTC allowed Respondent to consign the sum as full payment of the
premiums for the renewal of the five insurance policies on Respondent’s properties; declared the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and
ordered Petitioner to pay Respondent as indemnity for the burned properties covered by the
renewal-replacement policies.
CA affirmed with modification: (1) deletion of the trial court's declaration that three of the policies
were in force from AUG 1991- AUG 1992; (2) reduction of attorney's fees from 25% to 10% of
the total amount due the Respondent.
SC reversed and set aside.
Respondent filed a motion for reconsideration while Petitioner filed an opposition to the said
motion for reconsideration, hence this case.

ISSUE: WON Section 77 of the Insurance Code of 1978 must be strictly applied despite its
practice of granting a 60 – 90 day credit term for the payment of premiums.

HELD: NO. Section 77 of the Insurance Code provides:

“No policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid…”

An exception to this section is Section 78 which provides:

“Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until premium is actually paid.”

In the case of Makati Tuscany vs CA, Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy
binding despite the fact that premium is actually unpaid. Section 77 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.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit
extension for the payment of the premium. If the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it
from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the fifth
exception.

32. Gulf Resorts, Inc. vs. Phil. Charter Insurance Corp., G.R. No. 156167. May 16, 2005

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies issued,
the risks of loss from earthquake shock was extended only to petitioner’s two swimming pools. Gulf Resorts
agreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording
and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944
to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium
of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against
earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that “In
consideration of the payment by the insured to the company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that
this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or
through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit
"7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck
Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant,
including the two swimming pools in its Agoo Playa Resort were damaged.

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on
its properties. Respondent denied petitioner’s claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort. The trial court ruled in favor of respondent.
In its ruling, the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it had paid against earthquake shock only on the two swimming pools in
all the policies issued by AHAC.

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not extend
to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the intention of the
parties to extend earthquake shock coverage to the two swimming pools only. An insurance premium is the
consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty
and marine insurance, the premium becomes a debt as soon as the risk attaches. In the subject policy, no premium
payments were made with regard to earthquake shock coverage except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to earthquake shock. This is
consistent with the history of petitioner’s insurance policies with AHAC.
American Home Ass. Co. vs. Antonio Chua

FACTS:

On April 5, 1990 Antonio Chua renewed the fire insurance for its stock-in-trade of
his business, Moonlight Enterprises with American Home Assurance Companyby issuing
a check of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to
him. On the next day, April 6, 1990 Moonlight Enterprises was completely razed by fire
with an estimated loss of P4,000,000 to P5,000,000. An official receipt was issued on
April 10, 1990 and subsequently, a policy was issued covering March 25 1990
to March 25 1991. Antonio Chua filed an insurance claim with American Home and 4
other co-insurers (Pioneer Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc. and Filipino Merchants Insurance Co) American Home refused alleging
the no premium was paid

RTC: favored Antonio Chua for paying by way of check a day before the fire occurred

CA: Affirmed

ISSUE:
1. W/N there was a valid payment of premium considering that the check was cashed
after the occurrence of the fire since the renewal certificate issued containing the
acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts or “other insurance clause"

HELD:petition is partly GRANTED modified by deleting the awards of P200,000 for loss
of profit, P200,000 as moral damages and P100,000 as exemplary damages, and
reducing the award of attorney’s fees from P50,000 to P10,000

1. YES.

Section 77 of the Insurance Code:

An insurer is entitled to payment of the premium as soon as the thing insured is

exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of life or an
industrial life policy whenever the grace period provision applies.

Section 66 of the Insurance Code:

Not applicable since not termination but renewal certificate issued contained the
acknowledgment that premium had been paid.
Section 306 of the Insurance Code:

provides that any insurance company which delivers a policy or contract of

insurance to an insurance agent or insurance broker shall be deemed to have authorized
such agent or broker to receive on its behalf payment of any premium which is due on
such policy or contract of insurance at the time of its issuance or delivery or which
becomes due thereon
best evidence of such authority is the fact that petitioner accepted the check and issued
the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment
of receipt of payment

Section 78 of the Insurance Code:

An acknowledgment in a policy or contract of insurance of the receipt of premium is

conclusive evidence of its payment, so far as to make the policy binding, notwithstanding
any stipulation therein that it shall not be binding until the premium is actually paid.

This Section establishes a legal fiction of payment and should be interpreted as an

exception to Section 77.

2. NO.

purpose for the “other insurance clause” is to prevent an increase in the moral hazard
failure to disclose was not intentional and fraudulent.

Section 75
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.
American Home is estopped because its loss adjusters had previous knowledge of
the co-insurers. The loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other insurance contracts binds
petitioner. No legal and factual basis for the award of P200,000 for loss of profit and no
such fraud or bad faith = no moral damages,grant of attorney’s fees as part of damages
is the exception rather than the rule,award attorney’s fees where it deems just and
equitable that it be so granted and reduced to P10,000.

34. UCPB General Insurance Co., v Masagana Telemart, Inc. (2001)

Davide, Jr.,
FACTS:
The Supreme Court resolved to set aside its decision in this case dated June 15, 1999.

Respondent Masagana Telemart, Inc. obtained from petitioner UCPB General Insurance Co.
five (5) insurance policies on its properties in Pasay City and Manila, effective between 4PM of
May 22, 1991 and 4PM of May 22, 1992.
 On June 13, 1992, Masagana’s properties located at Pasay City were razed by fire.
On July 13, 1992, Masagana tendered five Equitable Bank Manager’s Checks in the total
amount of P225,753.45 as renewal premium payments to which UCPB accepted and issued an
official receipt.
Masagana made its formal demand for indemnification for the burned insured properties.
However, UCPB returned the five (5) manager’s checks stating in its letter that it was rejecting
Masagana’s claim on the grounds (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.
Hence, Masagana filed with the RTC of Makati City a civil complaint against petitioner for
the recovery of P18,645,000.00. UCPB alleged, among others, that it was not liable to respondent
for insurance proceeds under the policies because at the time of the loss of Masagana’s property
due to fire, the policies had long expired and were not renewed.
The RTC ruled in favor of Masagana, as it found it to have complied with the obligation to
pay the premium; hence, the replacement-renewal policy of these policies are effective and binding
for another year (22 May 1992 – 22 May 1993).
On appeal, CA affirmed the RTC Decision, holding that following previous practice,
Masagana was allowed a 60-90 day credit term for the renewal of its policies, and that the
acceptance of the late premium payment suggested that payment could be made later.
The Supreme Court ruled against UCPB in its 1999 Decision holding that the fire insurance
policies issued covering the period from May 22, 1991 to May 22, 1992 had been extended or
renewed by an implied credit arrangement though actual payment of premium was tendered on
a later date and after the occurrence of the risk insured against.
UCPB filed a motion for the reconsideration of the adverse verdict. Hence, the following facts
are indeed established:
For years, UCPB had been issuing fire policies to Masagana and these policies were annually
renewed. UCPB had been granting Masagana a 60 to 90-day credit term within which to pay the
premiums on the renewed policies.The premiums for the policies in question in the aggregate
amount of P225,753.95 were paid by Masagana within the 60- to 90-day credit term and were duly
accepted and received by Petitioner’s cashier.

ISSUE:
Whether Section 77 of the Insurance Code of 1978 (PD No. 1460) must be strictly applied to
petitioner UCPB’s advantage despite its practice of granting a 60-day to 90-day credit term for the
payment of premiums.

RULING:
NO. Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

There are exceptions to Section 77, to wit:

1. Section 77 itself provides that in case of a life or industrial life policy whenever the grace period
provision applies; and
2. Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of

premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid.

3. In Makati Tuscany Condominium Corporation vs. Court of Appeals, the SC ruled that Section
77 may not apply if the parties have agreed to the payment in installments of the premium and
partial payment has been made at the time of loss.

4. There is nothing in Section 77 which prohibits the parties in an insurance contract to provide a
credit term within which to pay the premiums. That agreement is not against the law, morals, good
customs, public order or public policy. The agreement binds the parties. Article 1306 of the Civil
Code provides:

ART. 1306. The contracting parties may establish such stipulations clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

5. Estoppel. Thus, it would be unjust and inequitable if recovery on the policy would not be
permitted against petitioner UCPB, which had consistently granted a 60-day to 90-day credit term
for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking
refuge under said Section, since Respondent Masagana relied in good faith on such practice.

MAKATI TUSCANY CONDOMINIUM CORPORATION v CA (1992)

Bellosillo, J.:
FACTS:
Private respondent American Home Assurance Co. (AHAC) issued in favor of petitioner
Makati Tuscany Condominium Corporation (Tuscany) an Insurance Policy on the latter’s building
and premises, for a period covering March 1, 1982 to March 1, 1983, with a total premium of
P466,103.05. The premium was paid on installments, all of which were accepted by AHAC.
On February 10, 1983, the policy was renewed for a term covering March 1, 1983 to March
1, 1984 and the premium in the amount of P466,103.05 was again paid on installments, all of
which were again accepted by AHAC.
On January 20, 1984, the policy was again renewed covering March 1, 1984 to 1 March 1985.
Petitioner Tuscany made two installment payments which AHAC accepted. Thereafter, petitioner
Tuscany refused to pay the balance of the premium.
Hence, AHAC filed an action to recover the unpaid balance of P314,103.05 for the Insurance
Policy.
In its answer with counterclaim, petitioner Tuscany admitted the issuance of Insurance Policy
and it explained that it discontinued the payment of premiums because the policy did not contain
a credit clause in its favor and the receipts for the installment payments covering the policy for
1984-85, as well as the two (2) previous policies stated the reservations. Petitioner Tuscany further
claimed that the policy was never binding and valid, and no risk attached to the policy. It then
pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its
answer with amended counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85.
Both parties moved for summary judgment.
The RTC dismissed the complaint and the counterclaim, holding that while it is true that the
receipts issued to Tuscany contained reservations, it is equally true that payment of the premiums
of the three policies were made during the lifetime or term of said policies, hence, it could not be
said, inspite of the reservations, that no risk attached under the policies. Hence, Tuscany’s
counterclaim for refund is not justified. As regards the unpaid premiums, AHAC has no right to
demand their payment after the lapse of the term of said policy on March 1, 1985 in view of the
reservation in the receipts.
On appeal by both parties, the Court of Appeals (CA) modified the RTC Decision by ordering
petitioner Tuscany to pay the balance of P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The CA held that the obligation to pay premiums when
due is ordinarily as indivisible obligation to pay the entire premium. The parties agreed to make
the premiums payable in installments, and there is no pretense that the parties never envisioned to
make the insurance contract binding between them. It was renewed for two succeeding years, the
second and third policies being a renewal/replacement for the previous one. And the insured never
informed the insurer that it was terminating the policy because the terms were unacceptable.

ISSUE:
Whether payment by installment of the premiums due for the insurance policies for 1982,
1983 and 1984 invalidated the contract of insurance, in view of Section 77 of PD 612 ( Insurance
Code, as amended) and by the conditions stipulated by the insurer in its receipts, disclaiming
liability for loss for occurring before payment of premiums.

RULING:
NO. Section 77 of the Insurance Code provides:

Sec 77. An insurer is entitled to the payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree
to make the insurance contract valid and binding without payment of premiums, there is nothing
in said section which suggests that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium.
Otherwise, it would allow the insurer to renege on its liability under the contract, had a loss to be
incurred before completion of payment of the entire premium, despite its voluntary acceptance of
partial payments, a result eschewed by a basic considerations of fairness and equity.
In the case at bar, the insurance contract became valid and binding upon payment of the first
premium. Since AHAC agreed to accept installment payment, it could not have denied liability on
the ground that if the payment was not made 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.
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.
Thus, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted. 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.