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HEIRS OF LORETO C. MARAMAG V MARAMAG (2009) G.R. NO. 181132 JUNE 5, 2009 Lessons Applicable: To whom insurance proceeds payable (Insurance)


Loreto Maramag designated as beneficiary his concubine Eva de Guzman Maramag

Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto Maramag) and his concubine Eva de Guzman Maramag, also suspected in the killing of Loreto and his illegitimate children are claiming for his insurance.

Vicenta alleges that Eva is disqualified from claiming

RTC: Granted - civil code does NOT apply

CA: dismissed the case for lack of jurisdiction for filing beyond reglementary period

ISSUE: W/N Eva can claim even though prohibited under the civil code against donation

HELD: YES. Petition is DENIED.

Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him

a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the


concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary.

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.

EX: situation where the insurance contract was intended to benefit third persons who are not parties to the same

in the form of favorable stipulations or indemnity. In such

a case, third parties may directly sue and claim from the




is only in cases where the insured has not designated

any beneficiary, or when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of

the estate of the insured

CALANOC V. CA G.R. NO. L-8151 DECEMBER 16, 1955 Doctrine: In case of ambiguity in an insurance contract covering accidental death, the Supreme Court held that such terms shall be construed strictly against the insurer and liberally in favor of the insured in order to effect the purpose of indemnity.

Facts: Melencio Basilio, a watchman of the Manila Auto Supply, secured a life insurance policy from the Philippine American Insurance Company in the amount of P2,000 to which was attached a supplemental contract covering death by accident. He later died from a agunshot wound on the occasion of a robbery committed; subsequently, his widow was paid P2,000 representing the face value of the policy. The widow demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy which the company refused because the deceased died by murder during the robbery and while making an arrest as an officer of the law which were expressly excluded in the

contract. The company’s contention which was upheld by the Court of Appeals provides that the circumstances surrounding Basilio’s death was caused by one of the risks excluded by the supplementary contract which exempts the company from liability.

Issue: Is the Philippine American Life Insurance Co. liable to the










Held: Yes.

The circumstances of Basilio’s death cannot be taken as purely intentional on the part of Basilio to expose himself to the danger. There is no proof that his death was the result of intentional killing because there is the possibility that the malefactor had fired the shot merely to scare away the people around. In this case, the company’s defense points out that Basilio’s is included among the risks excluded in the supplementary contract; however, the terms and phraseology of the exception clause should be clearly expressed within the understanding of the insured. Art. 1377 of the New Civil Code provides that in case ambiguity, uncertainty or obscurity in the interpretation of the terms of the contract, it shall be construed against the party who caused such obscurity. Applying this to the situation, the ambiguous or obscure terms in the insurance policy are to be construed strictly against the insurer and liberally in favor of the insured party. The reason is to ensure the protection of the insured since these insurance contracts are usually arranged and employed by experts and legal advisers acting exclusively in the interest of the insurance company. As long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured.


Facts: October 22, 1986, deceased Carlie Surposa was insured with petitioner Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa and brothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as beneficiaries.

While said insurance policy was in full force and effect, the insured Carlie Surposa, died on October 18, 1988 as a result of

a stab wound inflicted by one of the three (3) unidentified men without provocation and warning on the part of the former


ride on their way home along Rizal-Locsin Streets, Bacolod City

after attending the celebration of the "Maskarra Annual

private respondent and the other beneficiaries of

said insurance policy filed a written notice of claim with the

petitioner insurance company which denied said claim

contending that murder and assault are not within the scope

of the coverage of the insurance


he and his cousin, Winston Surposa, were waiting for a


Insurance Commission ruled in favor of insured/beneficiaries

On February 24, 1989, private respondent filed a complaint with the Insurance Commission

"In the light of the foregoing, we find respondent liable to pay complainant the sum of P15,000.00 representing the proceeds of the policy with interest. As no evidence was submitted to

prove the claim for mortuary aid in the sum of P1,000.00, the


cannot be entertained.

On July 11, 1991, the appellate court affirmed said decision.

petitioner filed this petition alleging grave abuse of discretion on the part of the appellate court in applying the principle of "expresso unius exclusion alterius" in a personal accident

since death resulting from murder and/or

insurance policy

assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was not

accidental but rather a deliberate and intentional act of the


assailant in killing the former as indicated by the location the lone stab wound on the insured.

Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified.


WON the death of the insured was committed

deliberate intent which, by the very nature of a personal

accident insurance policy, cannot be indemnified



We do not agree.

In the case at bar, it cannot, be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes.

The personal accident insurance policy, involved herein specifically enumerated only ten (10) circumstances wherein

no liability attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a result of

stipulated causes. The principle of "expresso unius

exclusio alterius" -- the mention of one thing implies the exclusion of another thing -- is therefore applicable in the

instant case since murder and assault, not having been

expressly included in the enumeration of the

that would negate liability in said insurance policy cannot be considered by implication to discharge the petitioner insurance company from liability for any injury, disability Or loss suffered by the insured.


any of the


include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Thus, the failure of the petitioner insurance company


The terms 'accident' and 'accidental', as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that

fortuitously, without intention

and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation -- an event that proceeds from an unknown cause, or is an unusual effect of a known cause

which happen by chance or

and, therefore,

not expected."

The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except

the death or




Facts: Lim accidentally killed himself with his gun after removing the magazine, showing off, pointing the gun at his secretary, and pointing the gun at his temple. The widow, the beneficiary, sued the petitioner and won 200,000 as indemnity with additional amounts for other damages and attorney’s fees. This was sustained in the Court of Appeals then sent to the Supreme court by the insurance company.



Was Lim’s widow eligible to receive the benefits?


Were the other damages valid?


1. Yes 2. No

Ratio: 1. There was an accident.

De la Cruz v. Capital Insurance says that "there is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about their injury or death." This was true when he fired the gun.

Under the insurance contract, the company wasn’t liable for bodily injury caused by attempted suicide or by one needlessly exposing himself to danger except to save another’s life.

Lim wasn’t thought to needlessly expose himself to danger due

to the witness testimony that he took steps to ensure that the

gun wasn’t loaded. He even assured his secretary that the gun

was loaded.

There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident.


“In order that a person may be made liable to the payment


moral damages, the law requires that his act be wrongful.

The adverse result of an action does not per se make the act wrongful and subject the act or to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. For these the law taxes costs.”

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in Art. 2208. Otherwise, every time

a defendant wins, automatically the plaintiff must pay

attorney's fees thereby putting a premium on the right to litigate which should not be so. For those expenses, the law

deems the award of costs as sufficient.”

GEAGONIA V CA G.R. NO. 114427 FEBRUARY 6, 1995

Facts: Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year policy and covered thestock trading of dry goods. The policy noted the requirement that "3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or

insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent. The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with interest and attorney’s fees. CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC.


1. WON the petitioner had not disclosed the two insurance

policies when he obtained the fire insurance and thereby violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted


1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original.

2. Stated differently, provisions, conditions or exceptions in

policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to operate. With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed

P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00.

What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured.

FORTUNE INSURANCE AND SURETY CO., INC. V. CA (1995) G.R. No. 115278 May 23, 1995









Producers Bank of the Philippines insured with Fortune Insurance and Surety Co. P725,000 which was lost during a robbery of Producer's armored vehicle while it was in transit from Pasay City City to its Makati head office.

The armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete.

After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law)

Upon claiming, Fortune refused stating that it is not liable since under the general exceptions of the policy:

any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with

RTC: favored Producers Bank since Driver and Security Guard were merely assigned

CA: Affirmed RTC

ISSUE: W/N the driver and security guard are employees under the general exception

HELD: YES. Petition is granted.

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer

Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;

Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions.

A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent."



On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity.

2 days later, he paid the sum of 6T to the company’s manager in its Manila office and was given a receipt.

On Nov. 26, 1917, the head office gave notice of acceptance

by cable to Manila. On the same date, the Manila office prepared a letter notifying Herrer that his application has been

accepted and this was placed in the ordinary channels of transmission, but as far as known was never actually mailed and never received by Herrer.

Herrer died on Dec. 20, 1917. The plaintiff as administrator

of Herrer’s estate brought this action to recover the 6T paid by

the deceased.

Issue: WON the insurance contract was perfected.

Held: NO.The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. An acceptance of an offer of insurance NOT actually or constructively communicated to the proposer does NOT make a contract of insurance, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the insurance company, and if after a certain period of time the insured is stil living, he is entitled to regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life Insurance on the other hand, the insured during the period of the coverage makes small regular payments and upon his death, the insurer pays a big amount to his beneficiaries.

PEREZ V. CA 323 SCRA 613 (2000)


Primitivo Perez had been insured with the BF Lifeman

Insurance Corporation since 1980 for P20,000.00.

In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid

annually. Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."

Unfortunately, Lalog lost the application form accomplished

by Perez and so on October 28, 1987, he asked the latter to fill

up another application form. On November 1, 1987, Perez was made to undergo the required medical examination, which he passed.

Lalog forwarded the application for additional insurance of

Perez, together with all its supporting papers, to the office of

BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died while he was riding a

banca which capsized during a storm.

At the time of his death, his application papers for the

additional insurance were still with the Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he personally brought

the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila.

Without knowing that Perez died on November 25, 1987, BF

Lifeman Insurance Corporation approved the application and

issued the corresponding policy for the P50,000.00 on December 2, 1987

Virginia went to Manila to claim the benefits under the

insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy.

In its letter of January 29, 1988 to Virginia A. Perez, the

insurance company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had


Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present.

RTC ruled in favor of Perez. CA reversed.

Issue: WON there was a perfected additional insurance contract. Held: The contract was not perfected. Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form:

"there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health."

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays

the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead.


89 SCRA 543 Mercantile Law Insurance Law Concealment Insurance Contract as an Uberrima Fides Contract

In March

1957, Ngo Hing

filed an application for a










daughter with the Great Pacific Life Assurance Company (Grepalife). Lapulapu Mondragon was the insurance agent who assisted Ngo Hing. The insurance policy was for P50,000.00. The proper form was filled out and Ngo Hing paid the insurance premium. He received a binding deposit receipt in return. Said receipt however was subject to certain conditions, among which is the acceptance of Grepalife.

Grepalife eventually denied the insurance application because the endowment plan by Grepalife is not offered for minors below seven years old. Grepalife, instead made a counter-offer which Ngo Hing failed to accept because Mondragon, instead of communicating the said denial to Ngo Hing, wrote a letter to Grepalife trying to convince Grepalife to allow one-year olds to be covered by endowment plans.

In May 1957, Ngo Hing’s one-year old daughter died. Ngo Hing tried to collect the insurance claim but Grepalife refused as it claimed that the insurance contract was never perfected sans their acceptance.

ISSUE: Whether or not Grepalife should pay the insurance claim.

HELD: No. As properly ruled by the lower court as well as the Court of Appeals, the insurance contract was never completed because Grepalife never accepted the insurance offer. The binding deposit receipt issued to Ngo Hing is only acknowledgement of his application and receipt of his payment for the insurance premium.

The Supreme Court also noted that Ngo Hing failed to disclose the fact that his one-year old daughter was a mongoloid. Such congenital defect was withheld by Ngo Hing with bad faith and such risk to be assumed by the insurance company.

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 not for the insured alone but equally so for the insurer. Concealment is a neglect to communicate that which a party knows and ought to communicate. Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance.



On March 13, 1963, Pacific secured temporary insurance

from the Workemen’s Insurance Co. for its exportation of logs

to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo.

The regular marine policies were issued by the company in

favor of Pacific on Apr 2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033.

After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs intended to be exported were lost due to a typhoon.

Pacific filed its claim with the company, but the latter

refused, contending that said loss may not be considered as

covered under the cover note because such became null and void by virtue of the issuance of the marine policies.

Issue: WON the cover not was without consideration, thus null and void.

Held: It was with consideration. SC upheld Pacific’s contention that said cover not was with consideration. The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacific’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 required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application.

AREOLA V CA G.R. NO. 95641 SEPTEMBER 22, 1994

Facts: Prudential Guarantee cancelled Areola’s personal accident insurance on the grounds that the latter failed to pay his premiums 7 months after issuing the policy. Areola was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. The statement of account had a stipulation not considering it a receipt. It also reminded the customer to ask for a receipt after payment. There was also a stipulation calling for a demand for a provisional receipt after payment to an agent. A provisional receipt was sent to petitioner telling him that the provisional receipt would be confirmed by an official one. The company then cancelled the policy for non-payment of premiums. After being surprised, Areola confronted a company agent and demanded an official receipt. The latter told him that it was a mistake, but never gave him an official receipt. Areola sent a letter demanding that he be reinstated or he would file for damages if his demand was not met. The company then told him that his payments weren’t in full yet. The company replied to Areola by telling him that there was reason to believe that no payment has been made since no official receipt was issued. The company then told him that they would still hold him under the policy. The company then confirmed that he paid the premium and that they would extend the policy by one year. Thereby, the company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime on finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by the company’s branch manager, Mr. Malapit.

However, they were too late for Areola already filed an action for breach of contract in the trial court. The company’s defense lay in rectifying its omission; hence, there was no breach of contract. The court ruled in favor of Areola and asked Prudential to pay 250,000 pesos in moral and exemplary damages. The court held that the company was in bad faith in cancelling the policy. Had the insured met an accident at that time, he wouldn’t be covered by the policy.

This ruling was challenged on appeal by respondent insurance company, denying bad faith in unilaterally cancelling the policy. The AC absolved Prudential on the grounds that it was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed. The court even added that the errant manager who didn’t remit the profits was forced to resign. Areola then filed for a petition in the Supreme Court.


1. Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages? 2. Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it?

Held: Yes. No. Petition granted. Ratio:

1. Petitioner alleged that the manager’s misappropriation of his premium payments is the proximate cause of the cancellation of the insurance policy. Subsequent reinstatement could not possibly absolve respondent insurance company from liability, due to the breach of contract. He contended that damage had already been done. Prudential averred that the equitable relief sought by petitioner-insured was granted to the filing of the complaint, petitioner-insured is left without a cause of action. Reinstatement effectively restored petitioner-insured to all his rights under the policy.

The court held that Malapit’s fraudulent act of misappropriating the premiums paid by petitioner-insured is directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters’ acts are considered as its own. Malapit represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law is bound by the acts of its agent.

Article 1910 thus reads: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit’s failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals “A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an

agent acting within the general scope of his authority even though the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person.” Prudential is liable for damages for the fraudulent acts committed by Malapit. Reinstating the insurance policy cannot obliterate the injury inflicted. A contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.

2. Due to the agreement to enter into a contract of insurance where Prudential promised to extend protection to petitioner- insured against the risk insured, there was a debtor creditor relationship between the two parties. Under Article 1191, the injured party is given a choice between fulfillment or rescission of the obligation in case one of the obligors fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. The damages would be nominal because the insurance company took steps to rectify the contract. There was also no actual or substantial damage inflicted. Nominal damages are “recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown.”


Facts: Petitioner Valenzuela, a General Agent respondent Philamgen, was authorized to solicit and sell all kinds of non- life insurance. He had a 32.5% commission rate. From 1973 to 1975, Valenzuela solicited marine insurance from Delta Motors, Inc. in the amount of P4.4 Million from which he was entitled to a commission of 32%. However, Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4 Million. Premium payments amounting to P1,946,886.00 were paid directly to Philamgen. Valenzuela’s commission amounted to P632,737.00. Philamgen wanted to cut Valenzuela’s commission to 50% of the amount. He declined. When Philamgen offered again, Valenzuela firmly reiterated his objection. Philamgen took drastic action against Valenzuela. They: reversed the commission due him, threatened the cancellation of policies issued by his agency, and started to leak out news that Valenzuela has a substantial debt with Philamgen. His agency contract was terminated. The petitioners sought relief by filing the complaint against the private respondents. The trial court found that the principal cause of the termination as agent was his refusal to share his Delta commission. The court considered these acts as harassment and ordered the company to pay for the resulting damage in the value of the commission. They also ordered the company to pay 350,000 in moral damages. The company appealed. The CA ordered Valenzuela to pay the entire amount of the commission. Hence, this appeal by Valenzuela.


1. WON the agency contract is coupled with interest on the

part of agent Valenzuela.

2. Whether or not Philamgen can be held liable for damages

due to the termination of the General Agency Agreement it

entered into with the petitioners.

3. WON Valenzuela should pay the premiums he collected.

Held: Yes. Yes. Petition granted


1. In any event the principal’s power to revoke an agency at will is so pervasive, that the Supreme Court has consistently held that termination may be effected even if the principal acts in bad faith, subject only to the principal’s liability for damages. The Supreme Court accorded great weight on the trial court’s factual findings and found the cause of the conflict to be Valenzuela’s refusal to share the commission. Philamgen told the petitioners of its desire to share the Delta Commission with them. It stated that should Delta back out from the agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta. Philamgen proposed reducing the petitioners’ commissions by 50% thus giving them an agent’s commission of 16.25%. The company insisted on the reduction scheme. The company pressured the agents to share the income with the threat to terminate the agency. The petitioners were also told that the Delta commissions would not be credited to their account. This continued until the agency was terminated.

Records also show that the agency is one “coupled with an interest,” and, therefore, should not be freely revocable at the unilateral will of the company. The records sustain the finding that the private respondent started to covet a share of the insurance business that Valenzuela had built up, developed and nurtured. The company appropriated the entire insurance business of Valenzuela. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid premiums.

Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only because of the commissions he procured, but also Philamgen’s stipulation liability against him for unpaid premiums. The respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. There is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the principal but also for the mutual interest of the principal and the agent. The principal may not defeat the agent’s right to indemnification by a termination of the contract of agency. Also, if a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for the breach of that duty.

2. Hence, if a principal acts in bad faith and with abuse of right

in terminating the agency, then he is liable in damages. The Civil Code says that “every person must in the exercise of his rights and in the performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art. 20, Civil Code).

3. As to the issue of whether or not the petitioners are liable

to Philamgen for the unpaid and uncollected premiums which the appellate court ordered Valenzuela to pay, the respondent court erred in holding Valenzuela liable. Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the insurance policy not binding. Philippine Phoenix- non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract. Section 776 of the insurance Code says that no contract of insurance by an insurance company is

valid and binding unless and until the premium has been paid, notwithstanding any agreement to the contrary Since the premiums have not been paid, the policies issued have lapsed.

The insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Philam can’t demand from or sue Valenzuela for the unpaid premiums. The court held that the CA’s giving credence to an audit that showed Valenzuela owing Philamgen P1,528,698.40 was unwarranted. Valenzuela had no unpaid account with Philamgen. But, facts show that the beginning balance of Valenzuela’s account with Philamgen amounted to P744,159.80. 4 statements of account were sent to the agent.

It was only after the filing of the complaint that a radically different statement of accounts surfaced in court. Certainly, Philamgen’s own statements made by its own accountants over a long period of time and covering examinations made on four different occasions must prevail over unconfirmed and unaudited statements made to support a position made in the course of defending against a lawsuit. The records of Philamgen itself are the best refutation against figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency agreement. After off-setting the amount, Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it committed a mistake in its computation. The alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions where Philamgen was duly represented by its account executives. On the basis of these admissionsand representations, Philamgen cannot later on assume a different posture and claim that it was mistaken in its representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The audit reportcommissioned by Philamgen is unreliable since its results are admittedly based on an unconfirmed and unaudited beginning balance of


Philamgen has been appropriating for itself all these years the gross billings and income that it took away from the petitioners. A principal can be held liable for damages in cases of unjust termination of agency. This Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith.

The circumstances of the case, however, require that the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency shall be entertained by the courts after that date.

TIBAY V CA G.R. NO. 119655. MAY 24, 1996

Facts: Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at Zobel Street, Makati City. The insurance was for P600,000.00 covering the period from January 23, 1987 to January 23, 1988. On January 23 1987, Tibay only paid P600.00 of 3,000 peso premium and left a balance. The insured building was completely destroyed by fire. Tibay then paid the balance. On the same day, she filed a claim on the policy. Her claim was accordingly referred to the adjuster, Goodwill, which immediately wrote Violeta requesting her tofurnish it with the necessary documents for the investigation and processing of her claim. Petitioner complied, and she signed a non-waiver agreement. Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the amount of P600,000.00 representing

the total coverage of the policy. The trial court ruled for petitioners and made fortune liable for the total value of the insured building and personal properties. The Court of Appeals reversed the court by removing liability from Fortune after returning the premium. Hence this petition for review. The petitioner contended that Fortune remained liable under the subject fire insurance policy in spite of the failure of petitioners to pay their premium in full.

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

Held: No. Petition dismissed. Ratio: The pertinent provisions read: 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. 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 of the company 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. The Insurance Code which says that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid. What does “unless and until the premium thereof has been paid” mean? Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the intention of distinguishbetween full and partial payment, where the modifying term is used. Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made the policy effective during the whole period of the policy. The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual scenario. In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in installments, hence, this Court refused to invalidate the insurance policy. Nothing in Article 77 of the Code suggested 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. Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In this case however, there was no waiver. There was a stipulation that the policy wasn’t in force until the premium has been fully paid and receipted. There was no juridical tie of indemnification 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. 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. South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These are when in case the insurance coverage relates to life or insurance when a grace period applies, and when the insurer makes a written acknowledgment of the receipt of premium to be conclusive evidence of payment. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy. “The terms of the insurance policy constitute the measure of the insurer’s 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.” Dissent: J. Vitug “All the calculations of the company

are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums when due, but on the compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable rates they do.” The failure of appellants to fully pay their premium prevented the contract of insurance from becoming binding an Fortune. This series of acts is tainted with misrepresentation and violates the uberrimae fidae principle of insurance contracts. Tibay had entered into a “Non-Waiver Agreement” with the adjuster which permitted Fortune to claim non- payment of premium as a defense. The law neither requires, nor measures the strength of the vinculum juris by any specific amount of premium payment. Payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy follows. This is a partially performed contract. The non- payment of the balance shouldn’t result in an automatic cancellation of the contract; otherwise, the right to decide the effectivity of the contract would become potestative. Instead, the parties should be able to demand from each other the performance of whatever obligations they had assumed or, if desired, sue timely for the rescission of the contract. In the meanwhile, the contract endures, and an occurrence of the risk insured riggers the insurer’s liability. Also, legal compensation arises where insurer’s liability to the insured would simply be reduced by the balance of the premium. It must here be noted that the insured had made, and the insurer had accepted partial premium payment on the policy weeks before the risk insured against took place. An insurance is an aleatory contract effective upon its perfection although the occurrence of a condition or event may later dictate the demandability of certain obligations. Fortune’s stipulation that

in force until the premium has been

fully paid,” and that it “shall be deemed effective, valid and

insurance shall not “be

binding upon the company only when the premiums therefor have actually been paid in full and duly acknowledged,” override the efficaciousness of the insurance contract despite the payment and acceptance. Article 78 of the Insurance Code “An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid“ Even if a portion was paid in the premium, the insurance coverage becomes effective and binding, any stipulation in the policy to the contrary notwithstanding.


Facts: Chua obtained from American Home a fire insurance covering the stock-in-trade of his business. The insurance was due to expire on March 25, 1990.

On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James Uy, as payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the latter a renewal certificate. A new insurance policy was issued where petitioner undertook to indemnify respondent for any damage or loss arising from fire up to P200,000 March 20, 1990 to March 25, 1991. On April 6, 1990, the business was completely razed by fire. Total loss was estimated between P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and Domestic Insurance. Petitioner refused to honor the claim hence, the respondent filed an action in the trial court.

American Home claimed there was no existing contract because respondent did not pay the premium. Even with a contract, they contended that he was ineligible bacue of his fraudulent tax returns, his failure to establish the actual loss and his failure to notify to petitioner of any insurance already effected. The trial court ruled in favor of respondent because the respondent paid by way of check a day before the fire occurred and that the other insurance companies promptly paid the claims. American homes was made to pay 750,000 in damages.

The Court of Appeals found that respondent’s claim was substantially proved and petitioner’s unjustified refusal to pay the claim entitled respondent to the award of damages.

American Home filed the petition reiterating its stand that there was no existing insurance contract between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid and the case of Arce v. Capital Insurance that until the premium is paid there is no insurance.


1. Whether there was a valid payment of premium, considering that respondent’s check was cashed after the occurrence of the fire

2. Whether respondent violated the policy by his submission

of fraudulent documents and non-disclosure of the other

existing insurance contracts

3. Whether respondent is entitled to the award of damages.

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

Ratio: 1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. The court respected this. The renewal certificate issued to respondent contained the acknowledgment that premium had been paid. In the instant case, the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides: An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

2. Submission of the alleged fraudulent documents pertained

to respondent’s income tax returns for 1987 to 1989. Respondent, however, presented a BIR certification that he had paid the proper taxes for the said years. Since this is a question of fact, the finding is conclusive. Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose for the inclusion of this clause is to prevent an increase in the moral hazard. The relevant provision is Section 75, which provides that: A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy. Respondent acquired several co- insurers and he failed to disclose this information to petitioner. Nonetheless, petitioner is estopped from invoking this argument due to the loss adjuster’s admission of previous

knowledge of the co-insurers. It cannot be said that petitioner was deceived by respondent by the latter’s non-disclosure of the other insurance contracts when petitioner actually had

prior knowledge thereof. The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner.

3. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance against the damages and attorney’s fees awarded. There was no basis for an award for loss of profit. This cannot be shouldered by petitioner whose obligation is limited to the object of insurance. There was no fraud to justify moral damages. Exemplary damages can’t be awarded because the defendant never acted in a reckless manner to claim insurance. Attorney’s fees can’t be recovered as part of damages because no premium should be placed on the right to litigate.


Facts: Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. anindemnity agreement. The defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound jointly and severally to indemnify the plaintiff, from and against any and all payments, damages, costs, losses, penalties, charges and expenses which said company as surety (MERICO Bond No. 0007) shall incur or become liable to pay. Paragraph 3 of the indemnity agreement expressly provides:

3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph, where the obligation involves a liquidated amount for the payment of which the company has become legally liable under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or otherwise to enforce payment even prior to making payment to the obligee which may hereafter be done by the COMPANY. Tordesillas and Torres in their official capacities and the defendantsexecuted another indemnity agreement with the plaintiff in consideration of the surety bond (MERICO Bond No. G (16) 0030. In the indemnity agreement the same provisions of paragraph 3 is found. Later on, the amount of the Bond was reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction is P100,000.00, P60,000.00 onSurety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030. The defendants failed to pay the overdraft and credit line with the Philippine National Bank demanded from Mercantil, settlement of itsobligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) Attached to the demand letter is a statement of account. By letter of December 17, 1970, plaintiff company wrote a letter of demand to the defendants regarding the the letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the defendants the settlement of said account. The defendants failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff brought the present action. Lower court dismissed case for lack of cause of action, the plaintiffhas paid nothing in the surety bonds, therefore, they have not suffered any actual damage and held that paragraph 3 of contract is void.

Defendants argued that to allow surety to receive indemnity


compensation for something it has not paid in its capacity


surety would constitute unjust enrichment at the expense



Issue: Whether or not surety can be allowed indemnification fromthe defendants-appellants, upon the latter's default

Issue: Whether or not surety can be allowed indemnification fromthe defendants-appellants, upon the latter's default even

before the former has paid to the creditor.

fromthe defendants-appellants, upon the latter's default even before the former has paid to the creditor.
Held: The overdraft line of Php1M and the credit line of Php1M applied for by

Held: The overdraft line of Php1M and the credit line of Php1M applied for by the defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as Bond No. G(16) 0007 and Bond No. G(16) 0030. As security and in consideration of the execution of the surety bonds,the defendants executed with the plaintiff identical indemnityagreements which provide that payment of indemnity or compensation may be claimed whether or not plaintiff company has actually paid the same as provided in paragraph 3 of contract. The cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof. By virtue of the provisions of theIndemnity Agreement, defendants-appellants have undertaken to hold plaintiff- appellee free and harmless from any suit, damage or liability which may be incurred by reason of non-performance by the defendantsappellants of their obligation with the Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. There is no dispute as to meaning of the terms of the Indemnity Agreement. Having voluntarily entered into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force and effect of law. The principal debtors, defendants-appellants herein, are the same persons who executed the Indemnity Agreement. Thus, the positionoccupied by them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not apply. There is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed

against defendants-appellants.

to exhaust all the properties of the principal debtor before it may proceed against defendants-appellants.


Facts: American International Underwriters issued a policy in favor of Makati Tuscany Condominium Corporation with a total premium of P466,103.05. The company issued a replacement policy. Premium was again paid. In 1984, the

policy was again renewed and private respondent issued to petitioner another policy. The petitioner paid 152,000 pesos then refused to furnish the balance. The company filed an action to recover the unpaid balance of P314,103.05. The condominium administration explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and that the acceptance of premiums didn’t waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy and prior to premium payment, loss wasn’t covered. Petitioner sought for

a refund. The trial court dismissed the complaint and

counterclaim owing to the argument that payment of the premiums of the policies were made during the lifetime or

term of said policies, so risk attached under the policies. The

Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reason that it was part of an indivisible obligation. Petitioner now asserts that its payment by installment of the premiums for the insurance policies invalidated them because

of the provisions of Sec. 77 of the Insurance Code disclaiming

liability for loss for occurring before payment of premiums.

Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612

Held: Judgment affirmed. Ratio: Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no

policy or contract of insurance issued by an insurance company

is valid and binding unless and until the premium thereof has

been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. Petitioner concluded that there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As

a consequence, petitioner seeks a refund of all premium

payments made on the alleged invalid insurance policies. We hold that the subject policies are valid even if the premiums

were paid on installments. The records clearly show that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks

loudly of the insurer’s intention to honor the policies it issued

to petitioner.

Quoting the CA 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. So is an understanding to allow insured to pay premiums in installments not so proscribed.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the facts therein are

substantially different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. Here, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment

of the 1982 and 1983 insurance policies. For the 1984 policy,

petitioner paid two (2) installments although it refused to pay

the balance. It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the

premium after the expiration of the whole term. Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary

UCPB General Insurance Co. Inc vs Masagana Telamart Inc G.R. No. 137172 June 15, 1999

Facts: On April 15, 1991, petitioner issued five (5) insurance policies covering respondent’s various property described therein against fire, for the period from May 22, 1991 to May 22, 1992. In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22, 1992. Petitioner advised respondent’s broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies. On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in the policies. On June 13, 1992, fire razed respondent’s property covered by three of the insurance policies petitioner issued. On July 13, 1992, respondent presented to petitioner’s cashier at its head office five (5) manager’s checks in the total amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by fire. On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager’s checks that it tendered, and at the same time rejected respondent’s claim for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on June 13, 1992, before respondent’s tender of premium payment.

Issue: Whether or not respondent is entitled to compensation despite the renewal of the insurance policy after the occurrence of the event insured.

Held: No. An insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. 11 The parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding before actual payment.

Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire.

SOUTH SEA V CA G.R. NO. 102253 JUNE 2, 1995

Facts: Valenzuela Hardwood entered into an agreement with the defendant Seven Brothers whereby the latter undertook to load the former's 940 lauan logs for shipment to Manila.

South Sea insured the logs for P2,000,000.00 in its marine policy. Valenzuela then gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.

Seven Brothers’ ship sank resulting in the loss of the logs.

A check for P5,625.00 to cover payment of the premium tendered to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception for

non-payment of the premium due in accordance with Section 77 of the Insurance Code.

Valenzuela demanded from South Sea the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.

Valenzuela filed a complaint a complaint for the recovery of the value of lost logs and freight charges from Seven Brothers Shipping Corporation or from South Sea Surety and Insurance Company, the insurer.

The trial court rendered judgment in favor of plaintiff Valenzuela. The Court of Appeals affirmed the judgment only against the insurance corporation and absolved the shipping entity from liability. The court held that there was a stipulation in the charterparty exempted the ship owner from liability in case of loss.

In the SC petition, petitioner argues that it should have been freed from any liability to Hardwood. It faults the appellate court (a) for having disregarded Section 77 of the insurance Code and (b) for holding Victorio Chua to have been an authorized representative of the insurer.

Issue: WON Mr. Chua acted as an agent of the surety company or of the insured when he received the check for insurance premiums.

Held: Agent of the surety. Petition denied.


To determine if there was a valid contract of insurance, it must be determine if the premium was validly paid to the company or its agents at the time of the loss. The appellate and trial courts have found that Chua acted as an agent.

South Sea insisted that Chua has been an agent for less than ten years of the Columbia Insurance Brokers, a different company. Appellant argued that Mr. Chua, having received the premiums, acted as an agent under Section 301 of the Insurance Code which provides:

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties requirements, liabilities and penalties to which an insurance broker is subject.

Valenzuela claimed that the second paragraph of Section 306 of the Insurance Code provided:

Sec. 306 Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy of contract of insurance at the time of its issuance or delivery or which becomes due thereon.

Mr. Chua testified that the marine cargo insurance policy logs was by South Sea to be given to the wood company.


marine cargo insurance policy for Valenzuela’s logs, he is








deemed to have been authorized by former to receive the premium which is due on its behalf.

When the logs were lost, the insured had already paid the premium to an agent of the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the policy it issued to the insured.

The court followed the factual evidence of the lower courts and held that they didn’t try questions of fact.



Oct. 1, 1941, Domestic Corp Christern, after payment of the

premium, obtained from Filipinas, fire policy no. 29333 for P100T covering merchandise contained in a building located in Binondo.

On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were burned. Christern submitted to Filipinas its claim.

Salvaged goods were sold and the total loss of Christern was


Filipinas denied liability on the ground that Christern was an enemy corp and cannot be insured.

Issue: WON Filipinas is liable to Christern, Huenfeld & Co.

Held: NO. Majority of the stockholders of Christern were German subjects. This being so, SC ruled that said corporation became an enemy corporation upon the war between the US and Germany. The Phil Insurance Law in Sec. 8 provides that anyone except a public enemy may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy or render it aid. All individuals who compose the belligerent powers, exist as to each other, in a state of utter exclusion and are public enemies. Christern having become an enemy corporation on Dec. 10. 1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid and enforceable, and since the insured goods were burned after Dec. 10, 1941, and during the war, Christern was NOT entitled to any indemnity under said policy from Filipinas. Elementary rules of justice require that the premium paid by Christern for the period covered by the policy from Dec. 10, 1941 should be returned by Filipinas.



Buenaventura Ebrado was issued by Insular Life Assurance

Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount.

Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.

Ebrado died when he was accidentally hit by a falling branch

of tree.

Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage.

Pascuala Ebrado also filed her claim as the widow of the

deceased insured.

Insular life filed an interpleader case and the lower court found in favor of Pascuala.

Issue: Between Carponia and Pascuala, who is entitled to the proceeds?

Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC 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 in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract.