HEIRS OF LORETO C. MARAMAG V MARAMAG (2009) G.R.
The company’s contention which was upheld by the
NO. 181132 JUNE 5, 2009
Lessons Applicable: To whom insurance proceeds payable
(Insurance)
FACTS:
 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
 If 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
insurer
 It 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.
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
petitioner for the amount covered by the supplemental
contract?
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.
FINMAN GENERAL ASSURANCE CORPORATION v. CA, GR No.
100970, 1992-09-02
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
as... he and his cousin, Winston Surposa, were waiting for a
ride on their way home along Rizal-Locsin Streets, Bacolod City
after attending the celebration of the "Maskarra Annual
Festival."... 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... policy.
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
same... 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
insurance policy... since death resulting from murder and/or
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... of
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.
Issue:
WON the death of the insured was committed...... with
deliberate intent which, by the very nature of a personal
accident insurance policy, cannot be indemnified
Ruling:
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
any of the... 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... circumstances
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.
Thus, the failure of the petitioner insurance company... to
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.
Principles:
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
which happen by chance or... 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
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... injury.
SUN INSURANCE OFFICE LTD. V CA G.R. NO. 92383 JULY 17,
1992
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.
Issue:
1. Was Lim’s widow eligible to receive the benefits?
2. Were the other damages valid?
Held:
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.
2. “In order that a person may be made liable to the payment
of 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.
Issues:
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
Ratio:
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
Lessons Applicable: Stipulations Cannot Be Segregated
(Insurance)
FACTS:
 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 others. . . .
 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."
ENRIQUEZ V. SUNLIFE 41 PHIL 269
Facts:
 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)
Facts:
 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
paid
 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.
GREAT PACIFIC LIFE ASSURANCE COMPANY VS COURT OF
APPEALS (1979)
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 20-
year endowment policy for the life of his one-year old
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.
PACIFIC TIMBER V. CA 112 SCRA 199
Facts:
 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.
Issues:
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.”
VALENZUELA V CA G.R. NO. 83122 OCTOBER 19, 1990
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.
Issues:
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
Ratio:
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
P1,758,185.43.
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
insurance shall not “be . . . in force until the premium has been
fully paid,” and that it “shall be deemed effective, valid and
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.
AMERICAN HOME V CHUA G.R. NO. 130421. JUNE 28, 1999
C.J. DAVIDE
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.
Issues:
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.
MERCANTILE INSURANCE CO VS. YSMAEL
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
or compensation for something it has not paid in its capacity
as surety would constitute unjust enrichment at the expense
of another.
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.
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.
MAKATI TUSCANY V CA G.R. NO. 95546 NOVEMBER 6, 1992
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.
Ratio:
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.
When South Sea delivered to Mr. Chua the
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.
 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?

The court followed the factual evidence of the lower courts
and held that they didn’t try questions of fact.
FILIPINAS CIA DE SEGUROS V. CHRISTERN HUENFELD & CO. 80
PHIL 54
Facts:
 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
P92T.
 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.
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.

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.

INSULAR LIFE V. EBRADO 80 SCRA 181

Facts:
 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.