VDA DE CONSUEGRA V GSIS

G.R. No. L-28093 January 30, 1971

BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA LOURDES, JOSE, JR., RODRIGO, LINEDA and LUIS, all
surnamed CONSUEGRA, petitioners-appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER OF PUBLIC HIGHWAYS, HIGHWAY DISTRICT ENGINEER OF
SURIGAO DEL NORTE, COMMISSIONER OF CIVIL SERVICE, and ROSARIO DIAZ, respondents-appellees.

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March 7, 1967, in its Special
Proceeding No. 1720.

The pertinent facts, culled from the stipulation of facts submitted by the parties, are the following:

The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the District Engineer in the province of
Surigao del Norte. In his lifetime, Consuegra contracted two marriages, the first with herein respondent Rosario Diaz, solemnized in the
parish church of San Nicolas de Tolentino, Surigao, Surigao, on July 15, 1937, out of which marriage were born two children, namely, Jose
Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second, which was contracted in good faith while the first
marriage was subsisting, with herein petitioner Basilia Berdin, on May 1, 1957 in the same parish and municipality, out of which marriage
were born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all surnamed Consuegra.

Being a member of the Government Service Insurance System (GSIS, for short) when Consuegra died on September 26, 1965, the
proceeds of his life insurance under policy No. 601801 were paid by the GSIS to petitioner Basilia Berdin and her children who were the
beneficiaries named in the policy. Having been in the service of the government for 22.5028 years, Consuegra was entitled to retirement
insurance benefits in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended by Republic Acts 1616 and
3836. Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him. Respondent Rosario
Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only
legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement insurance benefits.
Petitioner Basilia Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in the
life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits due the deceased
Consuegra. Resolving the conflicting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow
by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his
widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of
them to receive an equal share of 1/16.

Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her children 1 filed on October 10, 1966 a
petition for mandamus with preliminary injunction in the Court of First Instance of Surigao, naming as respondents the GSIS, the
Commissioner of Public Highways, the Highway District Engineer of Surigao del Norte, the Commissioner of Civil Service, and Rosario
Diaz, praying that they (petitioners therein) be declared the legal heirs and exclusive beneficiaries of the retirement insurance of the late
Jose Consuegra, and that a writ of preliminary injunction be issued restraining the implementation of the adjudication made by the GSIS.
On October 26, 1966, the trial court issued an order requiring therein respondents to file their respective answers, but refrained from
issuing the writ of preliminary injunction prayed for. On February 11, 1967, the parties submitted a stipulation of facts, prayed that the same
be admitted and approved and that judgment be rendered on the basis of the stipulation of facts. On March 7, 1967, the court below
rendered judgment, the pertinent portions of which are quoted hereunder:

This Court, in conformity with the foregoing stipulation of facts, likewise is in full accord with the parties with respect to
the authority cited by them in support of said stipulation and which is herein-below cited for purposes of this judgment,
to wit:

"When two women innocently and in good faith are legally united in holy matrimony to the same man, they and their
children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the
estate. Lao & Lao vs. Dee Tim, 45 Phil. 739; Estrella vs. Laong Masa, Inc., (CA) 39 OG 79; Pisalbon vs. Bejec, 74 Phil.
88.

WHEREFORE, in view of the above premises, this Court is of the opinion that the foregoing stipulation of facts is in
order and in accordance with law and the same is hereby approved. Judgment, therefore, is hereby rendered declaring
the petitioner Basilia Berdin Vda. de Consuegra and her co-petitioners Juliana, Pacita, Maria Lourdes, Jose, Jr.,
Rodrigo, Lenida and Luis, all surnamed Consuegra, beneficiary and entitled to one-half (1/2) of the retirement benefit in
the amount of Six Thousand Three Hundred Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the deceased
Jose Consuegra from the Government Service Insurance System or the amount of P3,152.235 to be divided equally
among them in the proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz Vda. de Consuegra is
hereby declared beneficiary and entitled to the other half of the retirement benefit of the late Jose Consuegra or the
amount of P3,152.235. The case with respect to the Highway District Engineer of Surigao del Norte is hereby ordered
dismissed.

Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.
It is the contention of appellants that the lower court erred in not holding that the designated beneficiaries in the life insurance of the late
Jose Consuegra are also the exclusive beneficiaries in the retirement insurance of said deceased. In other words, it is the submission of
appellants that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the appellants who
were the beneficiaries named in the life insurance should automatically be considered the beneficiaries to receive the retirement insurance
benefits, to the exclusion of respondent Rosario Diaz. From the arguments adduced by appellants in their brief We gather that it is their
stand that the system of life insurance and the system of retirement insurance, that are provided for in Commonwealth Act 186 as
amended, are simply complementary to each other, or that one is a part or an extension of the other, such that whoever is named the
beneficiary in the life insurance is also the beneficiary in the retirement insurance when no such beneficiary is named in the retirement
insurance.

The contention of appellants is untenable.

It should be noted that the law creating the Government Service Insurance System is Commonwealth Act 186 which was enacted by the
National Assembly on November 14, 1936. As originally approved, Commonwealth Act 186 provided for the compulsory membership in the
Government Service Insurance System of all regularly and permanently appointed officials and employees of the government, considering
as automatically insured on life all such officials and employees, and issuing to them the corresponding membership policy under the terms
and conditions as provided in the Act.2

Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was amended by Republic Act 660 which was
enacted by the Congress of the Philippines on June 16, 1951, and, among others, the amendatory Act provided that aside from the system
of life insurance under the Government Service Insurance System there was also established the system of retirement insurance. Thus,
We will note in Republic Act 660 that there is a chapter on life insurance and another chapter on retirement insurance. 3 Under the chapter
on life insurance are sections 8, 9 and 10 of Commonwealth Act 186, as amended; and under the chapter on retirement insurance are
sections 11, 12, 13 and 13-A. On May 31, 1957, Republic Act 1616 was enacted by Congress, amending section 12 of Commonwealth Act
186 as amended by Republic Act 660, by adding thereto two new subsections, designated as subsections (b) and (c). This subsection (c)
of section 12 of Commonwealth Act 186, as amended by Republic Acts 660, 1616 and 3096, was again amended by Republic Act 3836
which was enacted on June 22, 1963.lwph1.t The pertinent provisions of subsection (c) of Section 12 of Commonwealth Act 186, as
thus amended and reamended, read as follows:

(c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty years of service.
The benefit shall, in addition to the return of his personal contributions plus interest and the payment of the
corresponding employer's premiums described in subsection (a) of Section 5 hereof, without interest, be only a gratuity
equivalent to one month's salary for every year of service, based on the highest rate received, but not to exceed
twenty-four months; Provided, That the retiring officer or employee has been in the service of the said employer or
office for at least four years, immediately preceding his retirement.

xxx xxx xxx

The gratuity is payable by the employer or office concerned which is hereby authorized to provide the necessary
appropriation to pay the same from any unexpended items of appropriations.

Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to the commutation
of the unused vacation and sick leave, based on the highest rate received, which they may have to their credit at the
time of retirement.

Jose Consuegra died on September 26, 1965, and so at the time of his death he had acquired rights under the above-quoted provisions of
subsection (c) of Section 12 of Com. Act 186, as finally amended by Rep. Act 3836 on June 22, 1963. When Consuegra died on
September 26, 1965, he had to his credit 22.5028 years of service in the government, and pursuant to the above-quoted provisions of
subsection (c) of Section 12 of Com. Act 186, as amended, on the basis of the highest rate of salary received by him which was P282.83
per month, he was entitled to receive retirement insurance benefits in the amount of P6,304.47. This is the retirement benefits that are the
subject of dispute between the appellants, on the one hand, and the appellee Rosario Diaz, on the other, in the present case. The question
posed is: to whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not, or failed to, designate the
beneficiary of his retirement insurance?

If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it follows that he started in the
government service sometime during the early part of 1943, or before 1943. In 1943 Com. Act 186 was not yet amended, and the only
benefits then provided for in said Com. Act 186 were those that proceed from a life insurance. Upon entering the government service
Consuegra became a compulsory member of the GSIS, being automatically insured on his life, pursuant to the provisions of Com. Act 186
which was in force at the time. During 1943 the operation of the Government Service Insurance System was suspended because of the
war, and the operation was resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could not
have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on
retirement insurance under the GSIS came about only when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951. Hence, it
cannot be said that because herein appellants were designated beneficiaries in Consuegra's life insurance they automatically became the
beneficiaries also of his retirement insurance. Rep. Act 660 added to Com. Act 186 provisions regarding retirement insurance, which are
Sections 11, 12, and 13 of Com. Act 186, as amended. Subsection (b) of Section 11 of Com. Act 186, as amended by Rep. Act 660,
provides as follows:

(b) Survivors benefit. Upon death before he becomes eligible for retirement, his beneficiaries as recorded in the
application for retirement annuity filed with the System shall be paid his own premiums with interest of three per
centum per annum, compounded monthly. If on his death he is eligible for retirement, then the automatic retirement
annuity or the annuity chosen by him previously shall be paid accordingly.
The above-quoted provisions of subsection (b) of Section 11 of Commonwealth Act 186, as amended by Rep. Act 660, clearly indicate that
there is need for the employee to file an application for retirement insurance benefits when he becomes a member of the GSIS, and he
should state in his application the beneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless the same beneficiary in the life insurance is so designated in the
application for retirement insurance.

Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund and for a retirement insurance fund.
There was no such provision in Com. Act 186 before it was amended by Rep. Act 660. Thus, subsections (a) and (b) of Section 24 of
Commonwealth Act 186, as amended by Rep. Act 660, partly read as follows:

(a) Life insurance fund. This shall consist of all premiums for life insurance benefit and/or earnings and savings
therefrom. It shall meet death claims as they may arise or such equities as any member may be entitled to, under the
conditions of his policy, and shall maintain the required reserves to the end of guaranteeing the fulfillment of the life
insurance contracts issued by the System ...

(b) Retirement insurance fund. This shall consist of all contributions for retirement insurance benefit and of earnings
and savings therefrom. It shall meet annuity payments and establish the required reserves to the end of guaranteeing
the fulfillment of the contracts issued by the System. ...

Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members one is the life insurance and the other
is the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds that are maintained by
the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the
case of a life insurance provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may
not necessarily be a heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be
so under the provisions of the Civil Code.4 And in the absence of any beneficiary named in the life insurance policy, the proceeds of the
insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee to provide for his old age, or incapacity, after rendering
service in the government for a required number of years. If the employee reaches the age of retirement, he gets the retirement benefits
even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement
insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or
overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal
heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of the retirement insurance of the
late Jose Consuegra should be divided equally between his first living wife Rosario Diaz, on the one hand, and his second wife Basilia
Berdin and his children by her, on the other; and the lower court did not commit error when it confirmed the action of the GSIS, it being
accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good faith. The lower court has
correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45 Phil. 739 as cited in the stipulation of facts and in
the decision appealed from.5 In the recent case of Gomez vs. Lipana, L-23214, June 30, 1970,6 this Court, in construing the rights of two
women who were married to the same man a situation more or less similar to the case of appellant Basilia Berdin and appellee Rosario
Diaz held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that
marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the new Civil Code,
entitled to share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in a still subsisting
marriage or as such putative heir she has an interest in the husband's share in the property here in dispute.... " And with respect to the
right of the second wife, this Court observed that although the second marriage can be presumed to be void ab initio as it was celebrated
while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal
partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "[t]he only lust and equitable solution in
this case would be to recognize the right of the second wife to her share of one-half in the property acquired by her and her husband and
consider the other half as pertaining to the conjugal partnership of the first marriage."

WHEREFORE, the decision appealed from is affirmed, with costs against petitioners-appellants. It is so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
 UCPB GENERAL INSURANCE CO., INC., Petitioner, v. MASAGANA TELAMART, INC., Respondent.

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision 1 of the Court of Appeals, which affirmed with
modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for
the renewal of the five insurance policies on Respondents properties; (b) declaring the replacement-renewal policies effective and binding
from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial courts declaration that
three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10%
of the total amount due the Respondent.chanrob1es virtua1 1aw 1ibrary

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its assailed
decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record, pp. 158-
175) on its properties [in Pasay City and Manila] . . . .

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13,
1992, plaintiffs properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff
tendered, and defendant accepted, five (5) Equitable Bank Managers Checks in the total amount of P225,753.45 as renewal premium
payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992,
Masagana made its formal demand for indemnification for the burned insured properties. On the same day, defendant returned the five (5)
managers checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it was rejecting Masaganas claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of premium
payment.

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioners stand that Respondents 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 Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured insurance coverage
from Petitioner 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. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid more than 90
days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance Risk Coverage
from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or
more than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657
covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under
O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued on
May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1"). Fire Insurance Policy No. 34688 for
insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990 under
O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was
issued on May 22, 1989 but premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire
Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masaganas
sister company) dated December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB"
and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No.
40800 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued
on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to
May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only
on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire
Insurance Policy No. 26303 was issued on November 22, 1988 but premium therefor was collected only on March 15, 1989 under O.R.
NO. 38573 for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely notice of non-
renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from Ultramar Reinsurance Brokers that plaintiffs
reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit "11." Apparently, the notice of non-
renewal (Exhibit "7," Record, p. 320) was sent not earlier than said date, or within 45 days from the expiry dates of the policies as provided
under Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the premium payment on
July 1[3], 1992 which indicates defendants willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant
insurer appointed Esteban Adjusters and Valuers to investigate plaintiffs claim as shown by the letter dated July 17, 1992 (Exhibit "11",
Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies issued by petitioner to the respondent
covering the period from May 22, 1991 to May 22, 1992 . . . had been extended or renewed by an implied credit arrangement though
actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured against." We resolved this issue
in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v. Court of Appeals; 2 South Sea Surety and
Insurance Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set aside the decision of the
Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had made in the
decision our own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The courts below correctly
found that no notice of non-renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire insurance
policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June 1992 when the fire
occurred, since the premiums were paid within the 60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of credit or time to
pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice of the fact that despite the
express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment has been the prevalent practice in
the insurance industry. Most insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is
not a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code itself, in Section 78,
authorizes the validity of a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner persuaded and
induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments
within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to 90 days from the effective dates of
the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the provision therein that it would pay
only for the loss or damage in case the same occurred after payment of the premium.

Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court and the Court of Appeals
overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal
delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully aware of the notice
of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in order for an insured to be entitled to a renewal of a
non-life policy, payment of the premium due on the effective date of renewal should first be made. Respondents argument that Section 77
is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the pleadings filed
thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by the trial court and the Court
of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was
received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the 60- to 90-day
credit term and were duly accepted and received by Petitioners cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly
applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

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

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In turn, this
Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21
June 1963, which read:

SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless
there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and
binding unless and until the premium thereof has been paid. (Emphasis supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the period to
pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision
applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SECTION 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation v. Court of Appeals, 5 wherein we ruled that Section 77 may
not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss.
We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the petitioners
and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the
premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer
accepted all the installment payments. Such acceptance of payments speaks loudly of the insurers intention to honor the policies it issued
to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the
motion for reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not
prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance
from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely
precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement
granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to Section
77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted
the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should
be allowed even though the premium is paid after the loss but within the credit term.

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

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

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

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby entered
DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the Court of Appeals in
its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost. SO ORDERED. Bellosillo, Kapunan, Mendoza, Panganiban, Buena, Gonzaga-Reyes, Ynares-Santiago, De
Leon, Jr. and Sandoval-Gutierrez, JJ., concur.

TIBAY V CA

[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.

BELLOSILLO, J.:

May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No.
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati
City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23
January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the
balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly
referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the
necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-
waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made
by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the
amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant,
nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on
the part of said companies or any of them.[1]

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance
Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners sued
FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per
annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and personal
properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment,
and attorneys fees equivalent to 20% of the total amount claimed plus costs of suit. [2]

On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein but
ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment. [3]

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE remains
liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in full.

We find no merit in the petition; hence, we affirm the Court of Appeals.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.[4] The consideration is the premium, which must be paid at the time and in the way and manner specified in
the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.[5]

The pertinent provisions in the Policy on premium read

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

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

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

xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force provide for the
payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared, agreed and warranted that this
policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and
duly acknowledged in a receipt signed by any authorized official or representative/agent of the Company in such manner as provided
herein, (Italics supplied).[6]

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance
paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the
policy. This is fully supported by Sec. 77 of the Insurance Code which provides

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

Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has been paid. This leads us to the manner
of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded
the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish the court
should neither distinguish assumes that the legislature made no qualification on the use of a general word or expression. In Escosura v.
San Miguel Brewery, inc.,[7] the Court through Mr. Justice Jesus G. Barrera, interpreting the phrase with pay used in connection with leaves
of absence with pay granted to employees, ruled -

x x x the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the modifying term is
used x x x

Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of women and
children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. 1695 of
the New Civil Code providing that every househelp shall be allowed four (4) days vacation each month, which laws simply stated with pay,
the Court concluded that it was undisputed that in all these laws the phrase with pay used without any qualifying adjective meant that the
employee was entitled to full compensation during his leave of absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express
stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks,
Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made
the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for
the unpaid balance on a fire insurance policy. In its defense the insured claimed that nonpayment of premium produced the cancellation of
the insurance contract. Ruling otherwise the Court held

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on
September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due
thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of
insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the
insurer to pay the insured the amount, for which the policy was issued in case the conditions therefor had been complied with, arose and
became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became
demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it
was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance
contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in force
until the premium has been fully paid and duly receipted by the Company x x x. Resultantly, it is correct to say that in Phoenix a contract
was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full
was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other
precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of
insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By
express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the
occurrence of the risk insured against.

In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed that the premiums could be paid in installments,
which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect to the policy, the Court
quoted with approval the Court of Appeals

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the parties x x x agreed to
make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract
binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the
previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and
binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of
the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium. Otherwise we would allow
the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium,
despite its voluntary acceptance of partial payments, a result eschewed by basic considerations of fairness and equity x x x.

These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the
insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by agreeing to make premiums payable in
installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench.
Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon
is not in force until the premium has been fully paid to and duly receipted by the Company x x x and that this policy shall be deemed
effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment of
partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of
the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has
been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk
occurs for the policy to be considered effective and in force.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional
payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in
full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be
insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as
expressed in the policy.[10] Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in
favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement
ambiguous and then construe it in favor of the insured.[11] Verily, it is elemental law that the payment of premium is requisite to keep the
policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is
ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year
as the part payment bears to the whole payment.[12]

Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable. The case
of South Sea Surety and Insurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutory exceptions to the requirement of
payment of the entire premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the insurance
coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when the insurer makes a written
acknowledgment of the receipt of premium, this acknowledgment being declared by law to, be then conclusive evidence of the premium
payment.[14]

A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firm at regulim in
casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the
enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and
the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of
prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of insurance is primarily a risk-distributing
device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these
contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the
insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting
with the amount required as premium, without receiving anything therefor in case the contingency does not happen. To ensure payment for
these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies.[15] It
should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to
be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what could prevent
the insurance applicant from deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire and
then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? Worse, what if the insured
makes an initial payment of only 10%, or even 1%, of the required premium, and when the risk occurs simply points to the proceeds from
where to source the balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium
stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the insurance should the risk insured against
occur?

Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly defined obligations of
the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak, kill the goose that lays the golden
egg. We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to all kinds
of excuses to deny or delay payment of just insurance claims. But, in this case, the law is manifestly on the side of the insurer. For as long
as the current Insurance Code remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions
provided in Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must
maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full
satisfaction.[16] It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks
insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to
offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured,
as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the
balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength
of the vinculumjuris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to
naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer
and the insured.

The terms of the insurance policy constitute the measure of the insurers liability. In the absence of statutory prohibition to the contrary,
insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon
their obligations not inconsistent with public policy.[17] The validity of these limitations is by law passed upon by the Insurance
Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance which insurers intend to issue or
deliver. That the policy contract in the case at bench was approved and allowed issuance simply reaffirms the validity of such policy,
particularly the provision in question.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.

SO ORDERED.

Kapunan, and Hermosisima, Jr., JJ., concur.

Padilla (Chairman), J., joins Mr. Justice Vitugs dissent.

Vitug, J., see dissenting opinion.

 INSULAR LIFE V EBRADO

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Plaintiff-Appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, Defendants-Appellants.

MARTIN, J.:chanrobles virtual law library

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?chanrobles virtual law library

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for
P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable
beneficiary in his policy. He to her as his wife.chanroblesvirtualawlibrarychanrobles virtual law library

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was in
force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value of the
policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of
P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969,
in the sum of P36.27.chanroblesvirtualawlibrarychanrobles virtual law library

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits
that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of
marriage.chanroblesvirtualawlibrarychanrobles virtual law library

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.chanroblesvirtualawlibrarychanrobles virtual law library

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for
Interpleader before the Court of First Instance of Rizal on April 29, 1970.chanroblesvirtualawlibrarychanrobles virtual law library

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading as
follows:

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement. Hence, the Court
proceeded to have the parties submit their evidence for the purpose of the pre-trial and make admissions for the purpose of pretrial. During
this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six - (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all
surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929
whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado,
he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal
wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his
death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala
Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action
against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds
of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the insured made
reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was never changed up to
the time of his death and the wife did not have any opportunity to write the company that there was reservation to change the designation
of the parties agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to the
policy.chanroblesvirtualawlibrarychanrobles virtual law library

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this
order.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming
beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased
insured. The trial court held:
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not essential in
order to establish the disqualification mentioned therein. Neither is it also necessary that a finding of such guilt or commission of those acts
be made in a separate independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance
of evidence in the same proceeding (the action brought to declare the nullity of the donation).chanroblesvirtualawlibrarychanrobles virtual
law library

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made beneficiary in the
policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be established by
preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted that the deceased insured and defendant
Carponia T. Ebrado were living together as husband and wife without being legally married and that the marriage of the insured with the
other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not
entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case to
Us as involving only questions of law.chanroblesvirtualawlibrarychanrobles virtual law library

We affirm the judgment of the lower court.chanroblesvirtualawlibrarychanrobles virtual law library

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended) does
not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that
"(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized upon
to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and not to
the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against illicit relationships
especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather,
the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The
contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code."
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. 4 Common-law
spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides:

The following donations shall be void: chanrobles virtual law library

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof; chanrobles virtual law library

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.chanroblesvirtualawlibrarychanrobles
virtual law library

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the
donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the
same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of
liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new
Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot
receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. 5 Under
American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will
and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6 chanrobles virtual law library

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to Property
relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason to hold that
the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since
the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different from a donee.
Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said:

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit
donations in favor of the other consort and his descendants because of and undue and improper pressure and influence upon the donor, a
prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno'
(According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk,
24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as
husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years
bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest
the condition 6f those who incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law,
reason and morality alike demand that the disabilities attached to marriage should likewise attach to
concubinage.chanroblesvirtualawlibrarychanrobles virtual law library

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny.
It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be
distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is just and
what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits.
Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory
construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose
discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation purely literal of the
language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate.
More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article
739 itself provides:

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of
the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be from
the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved "in
the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for
the offense indicated. The quantum of proof in criminal cases is not demanded.chanroblesvirtualawlibrarychanrobles virtual law library

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently
supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and stipulated therein that the
deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations
are nothing less than judicial admissions which, as a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the
basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the
illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on
this agreement and stipulation of facts as to who among the two claimants is entitled to the policy." chanrobles virtual law library

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held
payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.

Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.
PHILAMLIFE V VALENCIA-BAGALASCA

[G.R. No. 139776. August 1, 2002.]

PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner, v. JUDGE LORE R. VALENCIA-BAGALACSA,
Regional Trial Court of Libmanan, Camarines Sur, Branch 56, and EDUARDO Z. LUMANIOG, CELSO Z. LUMANIOG and RUBEN Z.
LUMANIOG, Respondents.

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner Philippine American Life and General
Insurance Company prays that the decision of the Court of Appeals promulgated on April 30, 1999 be reversed and set aside and that the
Complaint filed against it by private respondents Eduardo Z. Lumaniog, Celso Z. Lumaniog and Ruben Z. Lumaniog before the Regional
Trial Court of Libmanan, Camarines Sur, docketed as Civil Case No. L-787 be ordered dismissed on ground of prescription of action.

The facts of the case:

On June 20, 1995, private respondents, as legitimate children and forced heirs of their late father, Faustino Lumaniog, filed with the
aforesaid RTC, a complaint for recovery of sum of money against petitioner alleging that: their father was insured by petitioner under Life
Insurance Policy No. 1305486 with a face value of P50,000.00; their father died of "coronary thrombosis" on November 25, 1980; on June
22, 1981, they claimed and continuously claimed for all the proceeds and interests under the life insurance policy in the amount of
P641,000.00, despite repeated demands for payment and/or settlement of the claim due from petitioner, the last of which is on December
1, 1994, petitioner finally refused or disallowed said claim on February 14, 1995; 1 and so, they filed their complaint on June 20, 1995.

Petitioner filed an Answer with Counterclaim and Motion to Dismiss, contending that: the cause of action of private respondents had
prescribed and they are guilty of laches; it had denied private respondents claim in a letter dated March 12, 1982, signed by its then
Assistant Vice President, Amado Dimalanta, on ground of concealment on the part of the deceased insured Faustino when he asserted in
his application for insurance coverage that he had not been treated for indication of "chest pain, palpitation, high blood pressure, rheumatic
fever, heart murmur, heart attack or other disorder of the heart or blood vessel" when in fact he was a known hypertensive since 1974;
private respondents sent a letter dated May 25, 1983 2 requesting for reconsideration of the denial; in a letter dated July 11, 1983, it
reiterated its decision to deny the claim for payment of the proceeds; 3 more than ten (10) years later, or on December 1, 1994, it received
a letter from Jose C. Claro, a provincial board member of the province of Camarines Sur, reiterating the early request for reconsideration
which it denied in a letter dated February 14, 1995. 4 Private respondents opposed the motion to dismiss. 5 On June 7, 1996, the RTC
issued an Order which reads:

"After a perusal of the motion to dismiss filed by defendants counsel and the objection submitted by plaintiffs counsel, the Court finds that
the matters treated in their respective pleadings are evidentiary in nature, hence, the necessity of a trial on the merits.

"Set therefore the hearing in this case on August 1, 1996 at 8:30 a.m., considering that the calendar of the Court is already filled up until
the end of July. Notify parties and counsels.

"SO ORDERED." 6

Petitioners motion for reconsideration was denied by the RTC in its Order dated December 12, 1997 upholding however in the same Order
the claim of private respondents counsel that the running of the 10-year period was "stopped" on May 25, 1983 when private respondents
requested for a reconsideration of the denial and it was only on February 14, 1995 when petitioner finally decided to deny their claim that
the 10-year period began to run. 7

Petitioner filed a petition for certiorari (docketed as CA-G.R. SP No. 47885) under Rule 65 of the Rules of Court in the Court of Appeals
and after the comment of the private respondents and reply of petitioner, the appellate court rendered its Decision, dated April 30, 1999,
portions of which read as follows:

"Thus, this Court of the opinion and so holds that the prescriptive period to bring the present action commences to run only on February
14, 1995 (Rollo, pp. 25-26), the date when the petitioner finally rejected the claim of private respondents and not in 1983. The ten year
period should instead be counted from the date of rejection by the insurer in this case February 14, 1995 since this is the time when the
cause of action accrues.

"This fact was supported further by the letter of the petitioner to Atty. Claro dated December 20, 1994, stating that they were reviewing the
claim and shall advise Atty. Claro of their action regarding his request for reconsideration (Id., p. 53).

"In the case of Summit Guaranty and Insurance Co., Inc. Vs. De Guzman (151 SCRA 389, 397-398), citing the case of Eagle Star
Insurance Co., Ltd., Et. Al. v. Chia Yu, the Supreme Court held that:
The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such
final rejection, there was no real necessity for bringing suit.

"In the same case, the case of ACCFA v. Alpha Insurance and Surety Co., was likewise cited where the Supreme Court ruled in this wise:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative of the defendant but also an
act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the party obligated refuses,
expressly or impliedly, to comply with its duty.

"Hence, We find no grave abuse of discretion committed by the court a quo when it issued the Orders dated June 7, 1996 and dated
December 12, 1997.

"WHEREFORE, the instant petition for certiorari with prayer for issuance of temporary restraining order and/or preliminary injunction is
DENIED DUE COURSE and is accordingly DISMISSED by this Court for lack of merit.

"Costs against the petitioner.

"SO ORDERED." 8

Hence, the present petition for review. Petitioner posits the following issues:jgc:chanrobles.com.ph

"A. Whether or not the complaint filed by private respondents for payment of life insurance proceeds is already barred by prescription of
action.

"B. Whether or not an extrajudicial demand made after an action has prescribed shall cause the revival of the action." 9

Private respondents filed their Comment and petitioners, their Reply.

Before we determine whether the Court of Appeals had committed any reversible error, we must necessarily first ascertain whether or not
the RTC committed grave abuse of discretion in issuing the Orders dated June 7, 1996 and December 12, 1997.

Notably, the RTC was initially correct in issuing the Order dated June 7, 1996 when it set the case below for hearing as there are matters
in the respective pleadings of the parties "that are evidentiary in nature, hence the necessity of a trial on the merits "10 , in effect, denying
the motion to dismiss, pursuant to the then prevailing Section 3, Rule 16, of the Rules of Court, to wit:
"Sec. 3. Hearing and order. After hearing the court may deny or grant the motion or allow amendment of pleading, or may defer the
hearing and determination of the motion until the trial if the ground alleged therein does not appear to be indubitable. before it was
amended by the 1997 Rules of Civil Procedure, effective July 1, 1997. 11 It must be emphasized that petitioner had specifically alleged in
the Answer that it had denied private respondents claim per its letter dated July 11, 1983. 12 Hence, due process demands that it be given
the opportunity to prove that private respondents had received said letter, dated July 11, 1983. Said letter is crucial to petitioners defense
that the filing of the complaint for recovery of sum of money in June, 1995 is beyond the 10-year prescriptive period. 13

It is for the above reason that the RTC committed a grave abuse of discretion when, in resolving the motion for reconsideration of
petitioner, it arbitrarily ruled in its Order dated December 12, 1997, that the period of ten (10) years had not yet lapsed. It based its finding
on a mere explanation of the private respondents counsel and not on evidence presented by the parties as to the date when to reckon the
prescriptive period. Portions of the Order dated December 12, 1997 read:

"A perusal of the record will likewise reveal that plaintiffs counsel explained that the running of the ten (10) year period was stopped on
May 25, 1983, upon demand of Celso Lomaniog for the compliance of the contract and reconsideration of the decision. Counsel also wrote
the President of the Company on December 1, 1994, asking for reconsideration. The letter was answered by the Assistant Vice President
of the Claims Department of Philamlife, with the advise that the company is reviewing the claim. On February 14, 1995, Atty. Abis sent a
letter to counsel, finally deciding the plaintiffs claim. Thus, the period of prescription should commence to run only from February 14, 1995,
when Atty. Abis finally decided plaintiffs claim.

"It is evident from the foregoing that the ten (10) year period for plaintiffs to claim the insurance proceeds has not yet prescribed. The final
determination denying the claim was made only on February 14, 1995. Hence, when the instant case was filed on June 20, 1995, the ten
year period has not yet lapsed. Moreover, defendants counsel failed to comply with the requirements of the Rules in filing his motion for
reconsideration." 14 (Emphasis supplied)

The ruling of the RTC that the cause of action of private respondents had not prescribed, is arbitrary and patently erroneous for not being
founded on evidence on record, and therefore, the same is void. 15

Consequently, while the Court of Appeals did not err in upholding the June 7, 1986 Order of the RTC, it committed a reversible error when
it declared that the RTC did not commit any grave abuse of discretion in issuing the Order dated December 12, 1997.

The appellate court should have granted the petition for certiorari assailing said Order of December 12, 1997. Certiorari is an appropriate
remedy to assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of
discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief. 16 Said Order was issued with grave abuse of discretion for being patently erroneous and arbitrary, thus, depriving
petitioner of due process, as discussed earlier.
WHEREFORE, the petition is partly GRANTED. The assailed decision of the Court of Appeals dated April 30, 1999 insofar only as it
upheld the Order dated December 12, 1997 is REVERSED and SET ASIDE. A new judgment is entered reversing and setting aside the
Order dated December 12, 1997 of the Regional Trial Court of Libmanan, Camarines Sur (Branch 56) and affirming its Order dated June
20, 1995. Said RTC is directed to proceed with dispatch with Civil Case No. L-787.

PACIFIC TIMBER V CA

G.R. No. L-38613 February 25, 1982

PACIFIC TIMBER EXPORT CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY, INC., respondents.

DE CASTRO, ** J.:

This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of First Instance of Manila in favor
of petitioner and against private respondent which ordered the latter to pay the sum of Pll,042.04 with interest at the rate of 12% interest
from receipt of notice of loss on April 15, 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the
costs 1 thereby dismissing petitioner s complaint with costs. 2

The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as shall be indicated in the
discussion of the opinion of this Court the substantial correctness of still particular finding having been disputed, thereby raising a question
of law reviewable by this Court 3 are as follows:

March 19, l963, the plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of Philippine Lauan
and Apitong logs to be shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant issued on said
date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner (Exhibit A).

The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2, 1963. The two marine policies bore the
numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of logs
equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The total
cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.

After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two marine policies Nos. 53 HO 1032 and 53 HO
1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the
'SS Woodlock' which docked about 500 meters from the shoreline of the Diapitan Bay. The logs were taken from the log pond of the
plaintiff and from which they were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while the logs were
alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident.

In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32 pieces of log's during loading of the
'SS Woodlock'. The said letter (Exhibit F) reads as follows:

April 4, 1963

Workmen's Insurance Company, Inc. Manila, Philippines

Gentlemen:

This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft. Philippine Lauan and Apitong Logs. We would like
to inform you that we have received advance preliminary report from our Office in Diapitan, Quezon that we have lost approximately 32
pieces of logs during loading of the SS Woodlock.

We will send you an accurate report all the details including values as soon as same will be reported to us.

Thank you for your attention, we wish to remain.

Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.

Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963, as shown by the stamp
impression appearing on the left bottom corner of said letter. The plaintiff subsequently submitted a 'Claim Statement demanding payment
of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total amount of P19,286.79 (Exhibit G).

On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. The
adjustment company submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the adjuster found that 'the loss of 30 pieces of
logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board
the 'SS Woodlock' However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for
$70,000.00.

On September 14, 1963, the adjustment company submitted a computation of the defendant's probable liability on the loss sustained by
the shipment, in the total amount of Pl1,042.04 (Exhibit 4).

On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the ground they defendant's investigation revealed that
the entire shipment of logs covered by the two marines policies No. 53 110 1032 and 713 HO 1033 were received in good order at their
point of destination. It was further stated that the said loss may be considered as covered under Cover Note No. 1010 because the said
Note had become 'null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The denial of the claim
by the defendant was brought by the plaintiff to the attention of the Insurance Commissioner by means of a letter dated March 21, 1964
(Exhibit K). In a reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and
equitable to indemnify the insured under Cover Note No. 1010', and advised early settlement of the said marine loss and salvage claim
(Exhibit L).

On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of their attorneys, the claim of the plaintiff is being
denied on the ground that the cover note is null and void for lack of valuable consideration (Exhibit M). 4

Petitioner assigned as errors of the Court of Appeals, the following:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR LACK OF VALUABLE
CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE
INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL
ITS COVER NOTES.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE
COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE
PROVEN FACT THAT PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE
GROUND OF DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE WAIVED UNDER
SECTION 84 OF THE INSURANCE ACT. 5

1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the cover note is made subject to
the terms and conditions of the marine policies, and the payment of premiums is one of the terms of the policies. From this undisputed fact,
We uphold petitioner's submission that the Cover Note was not without consideration for which the respondent court held the Cover Note
as null and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before the loss insured
against occurred, does not militate against the validity of petitioner's contention, for no such premium could have been paid, since by the
nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This
is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the respondent company
(p. 33, tsn, September 24, 1965).

At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by private respondent after
the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on the insurance coverage,
which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular
policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real
sense a contract, not a mere application for insurance which is a mere offer. 6

It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading
operations. This had to be so because the risk insured against is not for loss during operations anymore, but for loss during transit, the logs
having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned,
for the number or volume of logs lost can be determined independently as in fact it had been so ascertained at the instance of private
respondent itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies.

The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's liability on the insurance
coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be
assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask petitioner to pay
premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the
premium from the amount due the petitioner on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause
for the petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault.
Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already
arisen even before payment of premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve no
practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of
the premium, the presumption is that a credit was intended and policy is valid. 7

2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law requires this ground of delay to
be promptly and specifically asserted when a claim on the insurance agreement is made. The undisputed facts show that instead of
invoking the ground of delay in objecting to petitioner's claim of recovery on the cover note, it took steps clearly indicative that this
particular ground for objection to the claim was never in its mind. The nature of this specific ground for resisting a claim places the insurer
on duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground upon which to object to a
claim against it.

As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on April 15, 1963, was to set in motion
from July 1963 what would be necessary to determine the cause and extent of the loss, with a view to the payment thereof on the
insurance agreement. Thus it sent its adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report on August
23, 1963 and its computation of respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time was available for
private respondent to determine if petitioner was guilty of delay in communicating the loss to respondent company. In the proceedings that
took place later in the Office of the Insurance Commissioner, private respondent should then have raised this ground of delay to avoid
liability. It did not do so. It must be because it did not find any delay, as this Court fails to find a real and substantial sign thereof. But even
on the assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law, waiver can successfully be
raised against private respondent. Thus Section 84 of the Insurance Act provides:

Section 84.Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or if he omits to take
objection promptly and specifically upon that ground.

From what has been said, We find duly substantiated petitioner's assignments of error.

ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the affirmance
of this Court. No special pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez Guerrero, Melencio-Herrera and Plana, JJ., concur.
GREAT PACIFIC V CA

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58),
because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended decision
of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein
petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo
Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific
Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the
application form which was signed by private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to
the Company, but he reatined the amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the
payment of the insurance premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance
application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-year endowment plan is not available for minors below seven years old, but
Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent
Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year
endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage
(Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia.
Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for
the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier refered to against both
petitioners.

The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life
insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state
that:

A. If the Company or its agent, shan have received the premium deposit ... and the insurance application, ON or PRIOR to the date of
medical examination ... said insurance shan be in force and in effect from the date of such medical examination, for such period as is
covered by the deposit ..., PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates
under its rule for the amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or amount ..., the insurance shall not be in force and in effect until
the applicant shall have accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If the
applicant does not accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application the
insurance applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be reftmded; and (3) that if
the applicant is not ble according to the standard rates, and the company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject
for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the
applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this
Court, where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a
receipt is given by the agent. The acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence
of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in
the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated
in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between thenl Accordingly, the deposit
paid by private respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents ... The contract, to be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined, before it shall
take effect. There can be no contract of insurance unless the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In
this first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondet, being an
authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance
applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life
will approve the recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal that
the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless, the record
discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having an insurable interest on the life of his one-year
old daughter, aside from being an insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must
have known and followed the progress on the processing of such application and could not pretend ignorance of the Company's rejection
of the 20-year endowment life insurance application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the
original decision, the following:

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter
of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" and that it was the latter who "insisted that the
plan be placed on the 20-year endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of the
application was not brought home to his knowledge. He must have been duly apprised of the rejection of the application for a 20-year
endowment plan otherwise Mondragon would not have asserted that it was Ngo Hing himself who insisted on the application as originally
filed, thereby implictly declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies are available in the company for minors below 7
years old. What he and Mondragon were apparently trying to do in the premises was merely to prod the company into going into the
business of issuing endowment policies for minors just as other insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that it
could not have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had deliberately concealed
the state of health and piysical condition of his daughter Helen Go. Wher private regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact materal to the
risk to be assumed by the insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surely must have known. his
duty and responsibility to such a material fact. Had he diamond said significant fact in the insurance application fom Pacific Life would have
verified the same and would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally
so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which
a partY knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the
insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.
Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions
provided in the binding receipt, and concealment, as legally defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu
D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the
aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against
private respondent.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.

Fernandez, J., took no part.

 BONIFACIO BROTHERS V CA

G.R. No. L-20853 May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,

vs.
ENRIQUE MORA, ET AL., defendants-appellees.

G. Magsaysay for plaintiffs-appellants.

Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.
J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.

CASTRO, J.:

This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision of the
Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts
Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding &
Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.

Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the
condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23,
1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent
provisions of which read:

1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the Insured against
loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or
collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear,

xxx xxx xxx

2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the Motor Vehicle
or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the parts whichever is the
less. The Insured's estimate of value stated in the schedule will be the maximum amount payable by the Company in respect of any claim
for loss or damage.1wph1.t

xxx xxx xxx

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this
Policy provided that: (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the
cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the
fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any
loss was made payable to the H.S. Reyes, Inc. as Mortgagee;

xxx xxx xxx

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the
Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes,
Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For
the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company
after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to
the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to
the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment
to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on
May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the
collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio
Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in question. Enrique
Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel
for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of
which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount and ordering
State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated
the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court
rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for
reconsideration of the decision, but the trial court denied the motion. Hence, this appeal.

The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand
and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are parties to the repair of
the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the insurance
contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company
may be liable under the policy provided that (a) the estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a
detailed estimate of the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment Company's
recommendation of payment of the appellants' bill for materials and repairs for which the latter drew a check for P2,002.73 indicates that
Mora and the H.H. Bayne Adjustment Co. acted for and in representation of the insurance company.

This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the
appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the
insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the
State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is
there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the
cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific
instances provided by law where the contract contains some stipulation in favor of a third person.1 Such stipulation is known as
stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to
avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person.2Consequently, a third person not a party to the contract has no action against the parties thereto, and
cannot generally demand the enforcement of the same.3 The question of whether a third person has an enforcible interest in a contract,
must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in
their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule
that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract. 4 In the instant case the insurance contract does not
contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in
question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the
other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it
was only the H.S. Reyes, Inc. which they intended to benefit.

We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension
of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop
or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance
contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a
stipulation pour autrui must be clearly expressed by the parties, which we cannot do.

As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants
and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to
indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action
against the insurance company as such intention can never be inferred therefrom.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is
a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person."5 In
this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of
the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must
be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This conclusion is deducible not only
from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of
section 50 of the Insurance Act which read:

The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the
policy.

The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the intention of the
parties.

The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was loss and not
where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is
uncalled for, because the word "loss" in insurance law embraces injury or damage.

Loss in insurance, defined. The injury or damage sustained by the insured in consequence of the happening of one or more of the
accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1 Bouv. Ins.
No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

Footnotes

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.

DECISION

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of the decision[1] of
the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial Court, Makati City, Branch 150
(hereafter trial court), in Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from petitioner a fire
insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to
expire on 25 March 1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioners agent, James Uy, as payment for
the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn against a
Manila bank and deposited in petitioners bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10
April. Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent
for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000
and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance and Surety
Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the
Philippines. Petitioner refused to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action against
petitioner before the trial court.

In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not pay the
premium. It also alleged that even assuming there was a contract, respondent violated several conditions of the policy, particularly: (1) his
submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which petitioner assessed
at P70,000; and (3) his failure to notify to petitioner of any insurance already effected to cover the insured goods. These violations,
petitioner insisted, justified the denial of the claim.

The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire occurred. The check, which
was deposited in petitioners bank account, was even acknowledged in the renewal certificate issued by petitioners agent. It declared that
the alleged fraudulent documents were limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR)
and the income tax returns for the years 1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence
to the BIR certification that respondent paid the corresponding taxes due for the questioned years.

As to respondents failure to notify petitioner of the other insurance contracts covering the same goods, the trial court held that petitioner
failed to show that such omission was intentional and fraudulent.Finally, it noted that petitioners investigation of respondent's claim was
done in collaboration with the representatives of other insurance companies who found no irregularity therein. In fact, Pioneer Insurance
and Surety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.

The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the [petitioner] ordering the latter to pay the former the
following:

1. P200,000.00, representing the amount of the insurance, plus legal interest from the date of filing of this case;

2. P200,000.00 as moral damages;

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary damages;

5. P50,000.00 as attorneys fees; and

6. Cost of suit.

On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that respondents claim was
substantially proved and petitioners unjustified refusal to pay the claim entitled respondent to the award of damages.
Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case. Petitioner reiterates its stand
that there was no existing insurance contract between the parties. It invokes Section 77 of the Insurance Code, which provides:

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

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[2] where we ruled that unless and until the premium is paid there is no
insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant to Article
1249[3] of the Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although respondent testified
that he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City
bank, could not have been cleared by 6 April, the date of the fire. In fact, the official receipt issued for respondents check payment was
dated 10 April 1990, four days after the fire occurred.

Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts rendered the policy
void. It underscores the trial courts neglect in considering the Commission on Audits certification that the BIR receipts submitted by
respondent were, in effect, fake since they were issued to other persons. Finally, petitioner argues that the award of damages was
excessive and unreasonable considering that it did not act in bad faith in denying respondents claim.

Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. The trial courts
finding on the matter, which was affirmed by the Court of Appeals, is conclusive.

Respondent refutes the reason for petitioners denial of his claim. As found by the trial court, petitioners loss adjuster admitted prior
knowledge of respondents existing insurance contracts with the other insurance companies. Nonetheless, the loss adjuster recommended
the denial of the claim, not because of the said contracts, but because he was suspicious of the authenticity of certain documents which
respondent submitted in filing his claim.

To bolster his argument, respondent cites Section 66 of the Insurance Code, [5] which requires the insurer to give a notice to the insured of
its intention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner opted not to terminate the
policy. Instead, it renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon delivery of his check
payment for the renewal of premium. At this precise moment the contract of insurance was executed and already in effect. Respondent
also claims that it is standard operating procedure in the provinces to pay insurance premiums by check when collected by insurance
agents.

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips he had to make from
Cagayan de Oro City to Manila to follow up his rightful claim. He imputes bad faith on petitioner who made enforcement of his claim difficult
in the hope that he would eventually abandon it. He further emphasizes that the adjusters of the other insurance companies recommended
payment of his claim, and they complied therewith.

In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and the Court of Appeals.

Petitioner invokes respondents admission that his check for the renewal of the policy was received only on 10 April 1990, taking into
account that the policy period was 25 March 1990 to 25 March 1991.The official receipt was dated 10 April 1990. Anent respondents
testimony that the check was given to petitioners agent, a certain James Uy, the latter points out that even respondent was not sure if Uy
was indeed its agent. It faults respondent for not producing Uy as his witness and not taking any receipt from him upon presentment of the
check. Even assuming that the check was received a day before the occurrence of the fire, there still could not have been any payment
until the check was cleared.

Moreover, petitioner denies respondents allegation that it intended a renewal of the contract for the renewal certificate clearly specified the
following conditions:

Subject to the payment by the assured of the amount due prior to renewal date, the policy shall be renewed for the period stated.

Any payment tendered other than in cash is received subject to actual cash collection.

Subject to no loss prior to premium payment. If there be any loss, and is not covered [sic].

Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which should have been made
before the renewal period.

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was limited to a liability
of P200,000; but the trial court granted the following monetary awards: P200,000 as actual damages; P200,000 as moral
damages; P100,000 as exemplary damages; and P50,000 as attorneys fees.

The following issues must be resolved: first, whether there was a valid payment of premium, considering that respondents check was
cashed after the occurrence of the fire; second, whether respondent violated the policy by his submission of fraudulent documents and
non-disclosure of the other existing insurance contracts; and finally, whether respondent is entitled to the award of damages.
The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are
life and industrial life insurance.[6] Whether payment was indeed made is a question of fact which is best determined by the trial court. The
trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the
rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not
be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would
substantially affect the disposition of the case.[7] We see no reason to depart from this ruling.

According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had been paid. It is
not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored when presented and
petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized
such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its
issuance or delivery or which becomes due thereon.[8] In the instant case, the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for the payment. It is, as well, bound by its 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.

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.[9]

Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners arguments. The 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. The trial court and the Court of Appeals gave credence to the certification
and it being a question of fact, we hold that said finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation
that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the other insurance clause.
The purpose for the inclusion of this clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case
of Geagonia v. Court of Appeals[10] clearly illustrates such principle. However, we see an exception in the instant case.

Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not intentional and
fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. The relevant provision is
Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not
avoid the policy.

To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same interest and
risk.[12] Indeed, respondent acquired several co-insurers and he failed to disclose this information to petitioner. Nonetheless, petitioner is
estopped from invoking this argument. The trial court cited the testimony of petitioners loss adjuster who admitted previous knowledge of
the co-insurers. Thus,

COURT:

Q The matter of additional insurance of other companies, was that ever discussed in your investigation?

A Yes, sir.

Q In other words, from the start, you were aware the insured was insured with other companies like Pioneer and so on?

A Yes, Your Honor.

Q But in your report you never recommended the denial of the claim simply because of the non-disclosure of other insurance? [sic]

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the denial of the claim, you found three documents to be
spurious. That is your only basis?

A Yes, Your Honor.[13] [Emphasis supplied]

Indubitably, 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. Petitioners loss adjuster had known all along of the other existing insurance
contracts, yet, he did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed
a representative of the latter whose awareness of the other insurance contracts binds petitioner. We, therefore, hold that there was no
violation of the other insurance clause by respondent.
Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding P200,000 for this. There is,
however, merit in petitioners grievance against the damages and attorneys fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally gutted respondents
business; thus, respondent no longer had any business to operate.His loss of profit cannot be shouldered by petitioner whose obligation is
limited to the object of insurance, which was the stock-in-trade, and not the expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioners alleged breach of its obligation
under a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts where the
defendant acted fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages are
emphatically not intended to enrich a plaintiff at the expense of the defendant. Such damages are awarded only to enable the injured party
to obtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendants
culpable action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be
proportional to the suffering inflicted.[14] When awarded, moral damages must not be palpably and scandalously excessive as to indicate
that it was the result of passion, prejudice or corruption on the part of the trial court judge. [15]

The law[16] is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.Nothing thereof can be attributed to petitioner which merely tried to resist
what it claimed to be an unfounded claim for enforcement of the fire insurance policy.

As to attorneys fees, the general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate.[17] In short, the grant of attorneys fees as part of damages is the exception rather than the rule;
counsels fees are not awarded every time a party prevails in a suit. It can be awarded only in the cases enumerated in Article 2208 of the
Civil Code, and in all cases it must be reasonable.[18] Thereunder, the trial court may award attorneys fees where it deems just and
equitable that it be so granted. While we respect the trial courts exercise of its discretion in this case, the award of P50,000 is
unreasonable and excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-G.R. No. 40751 is hereby
MODIFIED by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary damages,
and b) reducing the award of attorneys fees from P50,000 to P10,000.

No pronouncement as to costs.

SO ORDERED.

Melo, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.