Republic of the Philippines Except for the controversy as to the amount for which the carrier could be

SUPREME COURT held liable under the terms of the bill of lading, the only question presented
Manila for determination is whether plaintiff's action has prescribed.
EN BANC On the part of the carrier the defense of prescription is made to rest on the
G.R. No. L-5915             March 31, 1955 following stipulation of the bill of lading:
EAGLE STAR INSURANCE CO., LTD., KURR STEAMSHIP CO., INC., In any event the carrier and the ship shall be discharged from all liability in
ROOSEVELT STEAMSHIP AGENCY, INC., and LEIF HOEGH & COMPANY, respect of loss or damage unless suit is brought within one year after the
A/S., petitioners, delivery of the goods or the date when the goods should have been
vs. delivered.
CHIA YU, respondent. The stipulation is but a repetition of a provision contained in section 3 (6) of
Ross, Selph, Carrascoso and Janda and Delfin L. Gonzales for petitioner. the United States Carriage of Goods by Sea, Act of 1936, which was adopted
Nabong and Sese for respondent. and made applicable to the Philippines by Commonwealth Act 65 and by
REYES, A., J.: express agreement incorporated by reference in the bill of lading. Following
our decision in Chua Kuy vs. Everett Steamship Corporation,1 G. R. No L-5554
On January 15, 1946, Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight
(May 27, 1953) and in E. R. Elser, Inc., et al., vs. Court of Appeals,. et al., 2 G.
owned and operated by Leigh Hoegh & Co., A/S, of San Francisco California,
R. No. L-6517 (November 29, 1954) giving force and effect to this kind of
14 bales of assorted underwear valued at P8,085.23 consigned to Chia Yu in
stipulation in bills of lading covering shipments from the United States to
the City of Manila. The shipment was insured against all risks by Eagle Star
the Philippines, we have to hold that plaintiff's failure to bring his action
Ins. Co. of San Francisco, California, under a policy issued to the shipper and
"within one year after the delivery of the goods or the date when the goods
by the latter assigned to the consignee. The vessel arrived in Manila on
should have been delivered" discharged the carrier from all liability. This
February 10, 1946, and on March 4 started discharging its cargo into the
dispenses with the necessity of deciding how much could be recovered from
custody of the Manila Terminal Co., Inc., which was then operating the
the carrier under the terms of the bill of lading.
arrastre service for the Bureau of Customs. But the 14 bales consigned to
Chia Yu only 10 were delivered to him as the remaining 3 could not be The case for the insurer stands on a different footing, for its claim of
found. Three of those delivered were also found damaged to the extent of prescription is founded upon the terms of the policy and not upon the bill of
50 per cent. lading. Under our law the time limit for bringing a civil action upon a written
contract is ten years after the right of action accrues. (Sec. 43, Act 190; Art.
Chia Yu claimed indemnity for the missing and damaged bales. But the claim
1144, New Civil Code.) But counsel for the insurer claim that this statutory
was declined, first, by the carrier and afterward by the insurer, whereupon
in the policy:
Chia Yu brought the present action against both, including their respective
agents in the Philippines. Commenced in the Court of First Instance of No suit action on this Policy, for the recovery of any claim, shall be
Manila on November 16, 1948, or more than two years after delivery of the sustainable in any Court of law or equity unless the insured shall have fully
damaged bales and the date when the missing bales should have been complied with all the terms and conditions of this Policy nor unless
delivered, the action was resisted by the defendants principally on the commenced with twelve (12) months next after the happening of the
ground of prescription. But the trial court found for plaintiff and rendered loss . . .
judgment in his favor for the sum claimed plus legal interest and costs. The To this we cannot agree.
judgment was affirmed by the Court of Appeals, and the case is now before In the case of E. Macias & Co. vs. China Fire Insurance & Co., Ltd., et al., 46
us on appeal by certiorari. Phil. 345, relied upon by the insurer, this Court held that a clause in an
insurance policy providing that an action upon the policy by the insured rejected by the insurance company. This is because, before such final
must be brought within a certain time is, if reasonable, valid and will prevail rejection, there was no real necessity for bringing suit. As the policy
over statutory limitations of the action. That decision, however, was provides that the insured should file his claim, first, with the carrier and
rendered before the passage of Act 4101, which amended the Insurance Act then with the insurer, he had a right to wait for his claim to be finally
by inserting the following section in chapter one thereof: decided before going to court. The law does not encourage unnecessary
SEC. 61-A. — Any condition, stipulation or agreement in any policy of litigation.
insurance, limiting the time for commencing an action thereunder to a At this junction it should be explained that while the decision of the Court of
period of less than one year from the time when the cause of action Appeals states that the claim against the insurance company "was finally
accrues, is void. rejected o April 22, 1947, as correctly concluded by the court below," it is
As "matters respecting a remedy, such as the bringing of suit, admissibility obvious from the context and we find it to be a fact that the date meant
of evidence, and statute of limitations, depend upon the law of the place was April 22, 1948, for this was the date when, according to the finding of
where the suit is brought" (Insular Government vs. Frank, 13 Phil. 236), any the trial court, the insurance company in London rejected the claim. The
policy clause repugnant to this amendment to the Insurance Act cannot be trial court's decision says:
given effect in an action in our courts. On September 21, 1946, after Roosevelt Steamship Agency Inc., and Manila
Examining the policy sued upon in the present case, we find that its Terminal Co., Inc., denied plaintiff's claim, a formal insurance claim was filed
prescriptive clause, if given effect in accordance with the terms of the with Kerr & Co., Ltd., local agents of Eagle Star Insurance Co., Ltd., (Exh.
policy, would reduce the period allowed the insured for bringing his action L.)Kerr & Co., Ltd., referred the insurance claim to Eagle Star Insurance Co.,
to less than one year. This is so because the said clause makes the Ltd. in London but the latter, after insistent request of plaintiffs for action,
prescriptive period begin from the happening of the loss and at the same rejected the claim on April 22, 1948, giving as its reasons the lapse of the
time provides that the no suit on the policy shall be sustainable in any court expiry day of the risks covered by the policy and returned the claim
unless the insured shall have first fully complied with all the terms and documents only in August of 1948. (pp. 87-88, Record on Appeal.)
conditions of the policy, among them that which requires that, as so as the Furthermore, there is nothing in the record to show that the claim was
loss is determined, written claim therefor be filed with the carrier and that rejected in the year 1947, either by the insurance company in London or its
the letter to the carrier and the latter's reply should be attached to the claim settling agents in the Philippines, while on the other hand defendant's own
papers to be sent to the insurer. It is obvious that compliance with this Exhibit L-1 is indisputable proof that it was on 22nd April 1948" that the
condition precedent will necessarily consume time and thus shorten the settling agents informed the claimant "that after due and careful
period for bringing suit to less than one year if the period is to begin, as consideration, our Principals confirm our declination of this claim." It not
stated in the policy, from "the happening of the loss." Being contrary to the appearing that the settling agents' decision on claims against their principals
law of the forum, such stipulation cannot be given effect. were not subject to reversal or modification by the latter, while on the
It may perhaps be suggested that the policy clause relied on by the insurer contrary the insurance policy expressly stipulates, under the heading
for defeating plaintiff's action should be given the construction that would "Important Notice," that the said agents "have authority to certify only as to
harmonize it with section 61-A of the Insurance Act by taking it to mean that the nature, cause and extent of the damage," and it furthermore appearing
the time given the insured for bringing his suit is twelve months after the that a reiteration of plaintiffs claim was made to the principals and the latter
cause of action accrues. But the question then would be: When did the gave it due course since only "after due and careful consideration" did they
cause of action accrue? On that question we agree with the court below confirm the action taken by the agents, we conclude that, for the purpose of
that plaintiff's cause of action did not accrue until his claim was finally the present action, we should consider plaintiff's claim to have been finally
rejected by the insurer on April 22, 1948. Having been filed within twelve year from the making of a claim for the loss upon which the action is based,
months form that date, the action cannot be deemed to have prescribed is valid or void, in view of Section 61-A of the Insurance Act invalidating
even on the supposition that the period given the insured for bringing suit stipulations limiting the time for commencing an action thereon to less than
under the prescriptive clause of the policy is twelve months after the one year from the time the cause of action accrues.
accrual of the cause of action. Material to this decision are the following facts: 1äwphï1.ñët
In concluding, we may state that contractual limitations contained in According to the allegations of the complaint, in order to guarantee the
insurance policies are regarded with extreme jealousy by courts and will be Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against
strictly construed against the insurer and should not be permitted to loss on account of "personal dishonesty, amounting to larceny or estafa of
prevent a recovery when their just and honest application would not its Secretary-Treasurer, Ricardo A. Ladines, the appellee, Alpha Insurance &
produce that result. (46 C. J. S. 273.) Surety Company had issued, on 14 February 1958, its bond, No. P-FID-15-58,
Wherefore, the judgment appealed from is reversed with respect to the for the sum of Five Thousand Pesos (P5,000.00) with said Ricardo Ladines as
carrier and its agents but affirmed with respect to the insurance company principal and the appellee as solidary surety. On the same date, the Asingan
and its agents, with costs against the latter. FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative
Pablo, Bengzon, Padilla, Jugo, Bautista Angelo, Concepcion, and Reyes, and Financing Administration (ACCFA for short), with approval of the
J.B.L., concur. principal and the surety.
During the effectivity of the bond, Ricardo Ladines converted and
misappropriated, to his personal benefit, some P11,513.22 of the FACOMA
funds, of which P6,307.33 belonged to the ACCFA. Upon discovery of the
Republic of the Philippines
loss, ACCFA immediately notified in writing the survey company on 10
SUPREME COURT
October 1958, and presented the proof of loss within the period fixed in the
Manila
bond; but despite repeated demands the surety company refused and failed
EN BANC
to pay. Whereupon, ACCFA filed suit against appellee on 30 May 1960.
G.R. No. L-24566           July 29, 1968
Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to
AGRICULTURAL CREDIT & COOPERATIVE FINANCING ADMINISTRATION dismiss the complaint for failure to state a cause of action, giving as reason
(ACCFA), plaintiff-appellant, that (1) the same was filed more than one year after plaintiff made claim for
vs. loss, contrary to the eighth condition of the bond, providing as follows: .
ALPHA INSURANCE & SURETY CO., INC., defendant-appellee,
EIGHT LIMITATION OF ACTION
RICARDO A. LADINES, ET AL., third party-defendants-appellees.
No action, suit or proceeding shall be had or maintained upon this Bond
Deogracias E. Lerma and Esmeraldo U. Guloy for plaintiff-appellant.
unless the same be commenced within one year from the time of making
L. L. Reyes for defendant-appellee.
claim for the loss upon which such action, suit or proceeding, is based, in
Geronimo F. Abellera for third party defendants-appellees.
accordance with the fourth section hereof.
REYES, J.B.L., J.:
(2) the complaint failed to show that plaintiff had filed civil or criminal
Appeal, on points of law, against a decision of the Court of First Instance of action against Ladines, as required by conditions 4 and 11 of the bond; and
Manila, in its Case No. 43372, upholding a motion to dismiss. (3) that Ladines was a necessary and indispensable party but had not been
At issue is the question whether or not the provision of a fidelity bond that joined as such.
no action shall be had or maintained thereon unless commenced within one
At first, the Court of First Instance denied dismissal; but, upon It may perhaps be suggested that the policy clause relied on by the insurer
reconsideration, the court reversed its original stand, and dismissed the for defeating plaintiff's action should be given the construction that would
complaint on the ground that the action was filed beyond the contractual harmonize it with section 61-A of the Insurance Act by taking it to mean that
limitation period (Record on Appeal, pages 56-59). the time given the insured for bringing his suit is twelve months after the
Hence, this appeal. cause of action accrues. But the question then would be: When did the
We find the appeal meritorious. cause of action accrue? On that question we agree with the court below
that plaintiff's cause of action did not accrue until his claim was finally
A fidelity bond is, in effect, in the nature of a contract of insurance against
rejected by the insurance company. This is because, before such final
loss from misconduct, and is governed by the same principles of
rejection, there was no real necessity for bringing suit. As the policy
interpretation: Mechanics Savings Bank & Trust Co. vs. Guarantee Company,
provides that the insured should file his claim, first, with the carrier and
68 Fed. 459; Pao Chan Wei vs. Nemorosa, 103 Phil. 57. Consequently, the
then with the insurer, he had a right to wait for his claim to be finally
condition of the bond in question, limiting the period for bringing action
decided before going to court. The law does not encourage unnecessary
thereon, is subject to the provisions of Section 61-A of the Insurance Act
litigation.
(No. 2427), as amended by Act 4101 of the pre-Commonwealth Philippine
Legislature, prescribing that — The discouraging of unnecessary litigation must be deemed a rule of public
policy, considering the unrelieved congestion in the courts.
 
As a consequence of the foregoing, condition eight of the Alpha bond is null
SEC. 61-A — A condition, stipulation or agreement in any policy of
and void, and action may be brought within the statutory period of
insurance, limiting the time for commencing an action thereunder to a
limitation for written contracts (New Civil Code, Article 1144). The case of
period of less than one year from the time when the cause of action accrues
Ang vs. Fulton Fire Insurance Co., 2 S.C.R.A. 945 (31 July 1961), relied upon
is void.
by the Court a quo, is no authority against the views herein expressed, since
Since a "cause of action" requires, as essential elements, not only a legal
the effect of Section 61-A of the Insurance Law on the terms of the Policy or
right of the plaintiff and a correlative obligation of the defendant but also
contract was not there considered.
"an act or omission of the defendant in violation of said legal right" (Maao
The condition of previous conviction (paragraph b, clause 4, of the contract)
Sugar Central vs. Barrios, 79 Phil. 666), the cause of action does not accrue
having been deleted by express agreement and the surety having assumed
until the party obligated refuses, expressly or impliedly, to comply with its
solidary liability, the other grounds of the motion to dismiss are equally
duty (in this case, to pay the amount of the bond). The year for instituting
untenable. A creditor may proceed against any one of the solidary debtors,
action in court must be reckoned, therefore, from the time of appellee's
or some or all of them simultaneously (Article 1216, New Civil Code).
refusal to comply with its bond; it can not be counted from the creditor's
filing of the claim of loss, for that does not import that the surety company WHEREFORE, the appealed order granting the motion to dismiss is reversed
will refuse to pay. In so far, therefore, as condition eight of the bond and set aside, and the records are remanded to the Court of First Instance,
requires action to be filed within one year from the filing of the claim for with instructions to require defendant to answer and thereafter proceed in
loss, such stipulation contradicts the public policy expressed in Section 61-A conformity with the law and the Rules of Court. Costs against appellee. So
of the Philippine Insurance Act. Condition eight of the bond, therefore, is ordered.
null and void, and the appellant is not bound to comply with its provisions.
In  Eagle Star Insurance Co. vs. Chia Yu, 96 Phil. 696, 701, this Court ruled: .
1äwphï1.ñët
 alleged ground that the action had already prescribed. Said motion was
denied in an order dated November 3, 1987; and petitioner's motion for
reconsideration was also denied in an order dated January 14, 1988.
Republic of the Philippines Petitioner went to the Court of Appeals and sought the nullification of the
SUPREME COURT said Nov. 3, 1987 and January 14, 1988 orders, but the Court of Appeals, in
Manila its June 20, 1989 decision denied the petition and held that the court  a
quo may continue until its final termination.
SECOND DIVISION
A motion for reconsideration was filed, but the same was denied by the
G.R. No. 89741             March 13, 1991
Court of Appeals in its resolution of August 22, 1989 (Rollo, pp. 42-43).
SUN INSURANCE OFFICE, LTD., petitioner,
Hence, the instant petition.
vs.
COURT OF APPEALS and EMILIO TAN, respondents. The Second Division of this Court, in its resolution of December 18, 1989
resolved to give due course to the petition and to require the parties to
Alfonso Felix, Jr., for petitioner.
submit simultaneous memoranda (Ibid., p. 56).
William B. Devilles for private respondent.
Petitioner raised two (2) issues which may be stated in substance, as
PARAS, J.:
follows:
This is a petition for review on certiorari of the June 20, 1989 decision 1 of
I
the Court of Appeals in CA-G.R. SP. Case No. 13848 affirming the November
3, 1987 and January 14, 1988 orders of the Regional Trial Court 2 of Iloilo, WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION
Branch 27, in Civil Case No. 16817, denying the motion to dismiss and the INTERRUPTS THE TWELVE (12) MONTHS PRESCRIPTIVE PERIOD TO CONTEST
subsequent motion for reconsideration; and the August 22, 1989 resolution THE DENIAL OF THE INSURANCE CLAIM; and
of the same court denying the motion for reconsideration. II
On August 15, 1983, herein private respondent Emilio Tan took from herein WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL
petitioner a P300,000.00 property insurance policy to cover his interest in ONLY IF IT CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.
the electrical supply store of his brother housed in a building in Iloilo City. The answer to the first issue is in the negative.
Four (4) days after the issuance of the policy, the building was burned While it is a cardinal principle of insurance law that a policy or contract of
including the insured store. On August 20, 1983, Tan filed his claim for fire insurance is to be construed liberally in favor of the insured and strictly
loss with petitioner, but on February 29, 1984, petitioner wrote Tan denying against the insurer company, yet, contracts of insurance, like other
the latter's claim. On April 3, 1984, Tan wrote petitioner, seeking contracts, are to be construed according to the sense and meaning of the
reconsideration of the denial of his claim. On September 3, 1985, Tan's terms which the parties themselves have used. If such terms are clear and
counsel wrote the Insurer inquiring about the status of his April 3, 1984 unambiguous, they must be taken and understood in their plain, ordinary
request for reconsideration. Petitioner answered the letter on October 11, and popular sense (Pacific Banking Corp. v. Court of Appeals, 168 SCRA 1
1985, advising Tan's counsel that the Insurer's denial of Tan's claim [1988]).
remained unchanged, enclosing copies of petitioners' letters of February 29, Condition 27 of the Insurance Policy, which is the subject of the conflicting
1984 and May 17, 1985 (response to petition for reconsideration). On contentions of the parties, reads:
November 20, 1985, Tan filed Civil Case No. 16817 with the Regional Trial
27. Action or suit clause — If  a claim be made and rejected and an action or
Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the
suit be not commenced either in the Insurance Commission or in any court
of competent jurisdiction within twelve (12) months from receipt of notice The condition contained in an insurance policy that claims must be
of such rejection, or in case of arbitration taking place as provided herein, presented within one year after rejection is not merely a procedural
within twelve (12) months after due notice of the award made by the requirement but an important matter essential to a prompt settlement of
arbitrator or arbitrators or umpire, then the claim shall for all purposes be claims against insurance companies as it demands that insurance suits be
deemed to have been abandoned and shall not thereafter be recoverable brought by the insured while the evidence as to the origin and cause of
hereunder. destruction have not yet disappeared.
As the terms are very clear and free from any doubt or ambiguity In enunciating the above-cited principle, this Court had definitely settled the
whatsoever, it must be taken and understood in its plain, ordinary and rationale for the necessity of bringing suits against the Insurer within one
popular sense pursuant to the above-cited principle laid down by this Court. year from the rejection of the claim. The contention of the respondents that
Respondent Tan, in his letter addressed to the petitioner insurance the one-year prescriptive period does not start to run until the petition for
company dated April 3, 1984 (Rollo, pp. 50-52), admitted that he received a reconsideration had been resolved by the insurer, runs counter to the
copy of the letter of rejection on April 2, 1984. Thus, the 12-month declared purpose for requiting that an action or suit be filed in the
prescriptive period started to run from the said date of April 2, 1984, for Insurance Commission or in a court of competent jurisdiction from the
such is the plain meaning and intention of Section 27 of the insurance denial of the claim. To uphold respondents' contention would contradict
policy. and defeat the very principle which this Court had laid down. Moreover, it
While the question of whether or not the insured was definitely advised of can easily be used by insured persons as a scheme or device to waste time
the rejection of his claim through the letter (Rollo, pp. 48-49) of petitioner until any evidence which may be considered against them is destroyed.
dated February 29, 1984, may arise, the certainty of the denial of Tan's It is apparent that Section 27 of the insurance policy was stipulated
claim was clearly manifested in said letter, the pertinent portion of which pursuant to Section 63 of the Insurance Code, which states that:
reads: Sec. 63. A condition, stipulation or agreement in any policy of insurance,
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La limiting the time for commencing an action thereunder to a period of less
Paz, Iloilo City. than one year from the time when the cause of action accrues, is void.
We now have the report of our adjusters and after a thorough and careful The crucial issue in this case is: When does the cause of action accrue?
review of the same and the accompanying documents at hand, we are In support of private respondent's view, two rulings of this Court have been
rejecting, much to our regrets, liability for the claim under our policies for cited, namely, the case of Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696
one or more of the following reasons: (1955]), where the Court held:
1. xxx xxx xxx The right of the insured to the payment of his loss accrues from the
2. xxx xxx xxx happening of the loss. However, the cause of action in an insurance
For your information, we have referred all these matters to our lawyers for contract does not accrue until the insured's claim is finally rejected by
their opinion as to the compensability of your claim, particularly referring to the insurer. This is because before such final rejection there is no real
the above violations. It is their opinion and in fact their strong necessity for bringing suit.
recomendation to us to deny your claim. By this letter, we do not intend to and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151
waive or relinquish any of our rights or defenses under our policies of [1968], holding that:
insurance. Since "cause of action" requires as essential elements not only a legal right
It is also important to note the principle laid down by this Court in the case of the plaintiff and a correlated obligation of the defendant in violation of
of Ang v. Fulton Fire Insurance Co., (2 SCRA 945 [1961]), to wit:
the said legal right, the cause of action does not accrue until the party
obligated (surety) refuses, expressly or impliedly, to comply with its duty (in
this case to pay the amount of the bond).
Indisputably, the above-cited pronouncements of this Court may be taken
to mean that the insured's cause of action or his right to file a claim either in
the Insurance Commission or in a court of competent jurisdiction
commences from the time of the denial of his claim by the Insurer, either
expressly or impliedly. Republic of the Philippines
SUPREME COURT
But as pointed out by the petitioner insurance company, the rejection
Manila
referred to should be construed as the rejection, in the first instance, for if
what is being referred to is a reiterated rejection conveyed in a resolution of FIRST DIVISION
a petition for reconsideration, such should have been expressly stipulated. G.R. No. 152334               September 24, 2014
Thus, to allow the filing of a motion for reconsideration to suspend the H.H. HOLLERO CONSTRUCTION, INC., Petitioner,
running of the prescriptive period of twelve months, a whole new body of vs.
rules on the matter should be promulgated so as to avoid any conflict that GOVERNMENT SERVICE INSURANCE SYSTEM and POOL OF MACHINERY
may be brought by it, such as: INSURERS, Respondents.
a) whether the mere filing of a plea for reconsideration of a denial is DECISION
sufficient or must it be supported by arguments/affidavits/material PERLAS-BERNABE, J.:
evidence; Assailed in this petition for review on certiorari 1 are the Decision2 dated
b) how many petitions for reconsideration should be permitted? March 13, 2001 and the Resolution 3 dated February 21, 2002 of the Court of
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final Appeals (CA) in CA-G.R. CV No. 63175, which set aside and reversed the
rejection", the same cannot be taken to mean the rejection of a petition for Judgment4 dated February 3, 1999 of the Regional Trial Court of Quezon
reconsideration as insisted by respondents. Such was clearly not the City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner
meaning contemplated by this Court. The Insurance policy in said case H.H. Hollero Construction, Inc.' s (petitioner) Complaint for Sum of Money
provides that the insured should file his claim, first, with the carrier and and Damages under the insurance policies issued by public respondent, the
then with the insurer. The "final rejection" being referred to in said case is Government Service Insurance System (GSIS), on the ground of prescription.
the rejection by the insurance company. The Facts
PREMISES CONSIDERED, the questioned decision of the Court of Appeals is On April 26, 1988, the GSIS and petitioner entered into a Project Agreement
REVERSED and SET ASIDE, and Civil Case No. 16817 filed with the Regional (Agreement) whereby the latter undertook the development of a GSIS
Trial Court is hereby DISMISSED. housing project known as Modesta Village Section B (Project). 5 Petitioner
SO ORDERED. obligated itself to insure the Project, including all the improvements, upon
the execution of the Agreement under a Contractors’ All Risks (CAR)
Insurance with the GSIS General Insurance Department for an amount equal
to its cost or sound value, which shall not be subject to any automatic
annual reduction.6
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/0857 in 1991 on the ground that the causes of action stated therein are barred by
the amount of ₱1,000,000.00 for land development, which was later the twelve-month limitation provided under the policies, i.e., the complaint
increased to ₱10,000,000.00,8 effective from May 2, 1988 to May 2, was filed more than one(1) year from the rejection of the indemnity claims.
1989.9 Petitioner likewise secured CAR Policy No. 88/08610 in the amount of The RTC, in an Order29 dated May 13, 1993, denied the said motion; hence,
₱1,000,000.00 for the construction of twenty (20) housing units, which the GSIS filed its answer30 with counterclaims for litigation expenses,
amount was later increased to ₱17,750,000.0011 to cover the construction of attorney’s fees, and exemplary damages. Subsequently, the GSIS filed a
another 355 new units, effective from May 2, 1988 to June 1, 1989. 12 In turn, Third Party Complaint31 for indemnification against Pool, the reinsurer.
the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of The RTC Ruling
Machinery Insurers (Pool).13 In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s
Under both policies, it was provided that: (a) there must be prior notice of indemnity claims. It held that: (a) the average clauseprovision in the policies
claim for loss, damage or liability within fourteen (14) days from the which did not contain the assentor signature of the petitioner cannot limit
occurrence of the loss or damage;14 (b) all benefits thereunder shall be the GSIS’ liability, for being inefficacious and contrary to public policy;33 (b)
forfeited if no action is instituted within twelve(12) months after the petitioner has established that the damages it sustained were due to the
rejection of the claim for loss, damage or liability; 15 and (c) if the sum peril insured against;34 and (c) CAR Policy No. 88/086 was deemed renewed
insured is found to be less than the amount required to be insured, the when the GSIS withheld the amount of 35,855.00 corresponding to the
amount recoverable shall be reduced to such proportion before taking into premium payable,35 from the retentions it released to petitioner. 36 The RTC
account the deductibles stated in the schedule (average clause provision).16 thereby declared the GSIS liable for petitioner’s indemnity claims for the
During the construction, three (3) typhoons hit the country, namely, damages brought about by the said typhoons, less the stipulated deductions
Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29, under the policies,plus 6% legal interest from the dates of extrajudicial
1988, and Typhoon Saling on October 11, 1989, which caused considerable demand, as well as for attorney’s fees and costs of suit. It further dismissed
damage to the Project.17 Accordingly, petitioner filed several claims for for lack of merit GSIS’s counterclaim and third party complaint. 37
indemnity with the GSIS on June 30, 1988,18 August 25, 1988,19 and October Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling In a
18, 1989,20 respectively. Decision38 dated March 13, 2001, the CAset aside and reversed the RTC
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity Judgment, thereby dismissing the complaint. It ruled that the complaint
claims for the damages wrought by Typhoons Biring and Huaning, finding filed on September 27, 1991 was barred by prescription, having been
that no amount is recoverable pursuant to the average clause provision commenced beyond the twelve-month limitation provided under the
under the policies.22 In a letter23 dated June 21, 1990, the GSIS similarly policies, reckoned from the final rejection of the indemnity claims on April
rejected petitioner’s indemnity claim for damages wrought by Typhoon 26, 1990 and June 21, 1990. The Issue Before the Court
Saling on a "no loss" basis, itappearing from its records that the policies The essential issue for the Court’s resolution is whether or not the CA
were not renewed before the onset of the said typhoon.24 committed reversible error in dismissing the complaint on the ground of
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its prescription.
claims for damages/loss on accountof Typhoon Saling, and reiterated its The Court’s Ruling
demand for the settlement of its claims. The petition lacks merit.
On September 27, 1991, petitioner filed a Complaint26 for Sum of Money Contracts of insurance, like other contracts, are to be construed according
and Damages before the RTC, docketed as Civil Case No. 91-10144, 27 which to the sense and meaning of the terms which the parties themselves have
was opposed by the GSIS through a Motion to Dismiss 28 dated October 25,
used. If such terms are clear and unambiguous, they must be taken and The same conclusion obtains for the letter 45 dated June 21, 1990 denying
understood in their plain, ordinary, and popular sense. 39 petitioner’s indemnity claim caused by Typhoon Saling on a "no loss" basis
Section 1040 of the General Conditions of the subject CAR Policies commonly due to the non-renewal of the policies therefor before the onset of the said
read: typhoon. The fact that petitioner filed a letter 46 of reconsideration
10. If a claim is in any respect fraudulent, or if any false declaration is made therefrom dated April 18, 1991, considering too the inaction of the GSIS on
or used in support thereof, or if any fraudulent means or devices are used the same similarly shows that the June 21, 1990 letter was also a final
by the Insured or anyone acting on his behalf to obtain any benefit under rejection of petitioner’s indemnity claim.
this Policy, or if a claim is made and rejected and no action or suit is As correctly observed by the CA, "final rejection" simply means denial by the
commenced within twelve months after such rejection or, in case of insurer of the claims of the insured and not the rejection or denial by the
arbitration taking place as provided herein, within twelve months after the insurer of the insured’s motion or request for reconsideration. 47 The
Arbitrator or Arbitrators or Umpire have made their award, all benefit under rejection referred to should be construed as the rejection in the first
this Policy shall be forfeited. (Emphases supplied) instance,48 as in the two instances above-discussed.
In this relation, case law illumines that the prescriptive period for the Comparable to the foregoing is the Court’s action in the case of Sun
insured’s action for indemnity should be reckoned from the "final rejection" Insurance Office, Ltd. v. CA 49 wherein it debunked "[t]he contention of the
of the claim.41 respondents [therein] that the one-year prescriptive period does not start
Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June to run until the petition for reconsideration had been resolved by the
21, 1990 did not amount to a "final rejection" of its claims, arguing that they insurer," holding that such view "runs counter to the declared purpose for
were mere tentative resolutions pending further action on petitioner’s part requiring that an action or suit be filed in the Insurance Commission or in a
or submission of proof in refutation of the reasons for rejection. 42 Hence, its court of competent jurisdiction from the denial of the claim." 50 In this
causes of action for indemnity did not accrue on those dates. regard, the Court rationalized that "uphold[ing]respondents' contention
would contradict and defeat the very principle which this Court had laid
The Court does not agree.
down. Moreover, it can easily be used by insured persons as a scheme or
A perusal of the letter 43 dated April 26, 1990 shows that the GSIS denied
device to waste time until any evidence which may be considered against
petitioner’s indemnity claims wrought by Typhoons Biring and Huaning, it
them is destroyed."51 Expounding on the matter, the Court had this to say:
appearing that no amount was recoverable under the policies. While the
The crucial issue in this case is: When does the cause of action accrue?
GSIS gave petitioner the opportunity to dispute its findings, neither of the
parties pursued any further action on the matter; this logically shows that In support of private respondent’s view, two rulings of this Court have been
they deemed the said letter as a rejection of the claims. Lest it cause any cited, namely, the case of Eagle Star Insurance Co.vs.Chia Yu ([supra note
confusion, the statement in that letter pertaining to any queries petitioner 41]), where the Court held:
may have on the denial should be construed, at best, as a form of notice to The right of the insured to the payment of his loss accrues from the
the former that it had the opportunity to seek reconsideration of the GSIS’s happening of the loss. However, the cause of action in an insurance contract
rejection. Surely, petitioner cannot construe the said letter to be a mere does not accrue until the insured’s claim is finally rejected by the insurer.
"tentative resolution." In fact, despite its disavowals, petitioner admitted in This is because before such final rejection there is no real necessity for
its pleadings44 that the GSIS indeed denied its claim through the bringing suit.
aforementioned letter, but tarried in commencing the necessary action in and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151
court. [1968], holding that:
Since "cause of action" requires as essential elements not only a legal right
of the plaintiff and a correlated obligation of the defendant in violation of
the said legal right, the cause of action does not accrue until the party
obligated (surety) refuses, expressly or impliedly, to comply with its duty (in
this case to pay the amount of the bond)."
Indisputably, the above-cited pronouncements of this Court may be taken
to mean that the insured' s cause of action or his right to file a claim either
in the Insurance Commission or in a court of competent jurisdiction [as in
this case] commences from the time of the denial of his claim by the
Insurer, either expressly or impliedly.1âwphi1
But as pointed out by the petitioner insurance company, the rejection EN BANC
referred to should be construed as the rejection, in the first instance, for if June 30, 1987
what is being referred to is a reiterated rejection conveyed in a resolution of G.R. No. L-50997
a petition for reconsideration, such should have been expressly stipulated.52 SUMMIT GUARANTY AND INSURANCE COMPANY, INC., petitioner,
In light of the foregoing, it is thus clear that petitioner's causes of action for vs.
indemnity respectively accrued from its receipt of the letters dated April 26, HON. JOSE C. DE GUZMAN, in his capacity as Presiding Judge of Branch III,
1990 and June 21, 1990, or the date the GSIS rejected its claims in the first CFI of Tarlac, GERONIMA PULMANO and ARIEL PULMANO, respondents.
instance. Consequently, given that it allowed more than twelve (12) months June 30, 1987
to lapse before filing the necessary complaint before the R TC on September
No. L-48679
27, 1991, its causes of action had already prescribed.
SUMMIT GUARANTY AND INSURANCE COMPANY, INC., petitioner,
WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001
vs.
and the Resolution dated February 21, 2002 of the Court of Appeals (CA) in
THE HONORABLE GREGORIA C. ARNALDO, in her capacity as Insurance
CA-G.R. CV No. 63175 are hereby AFFIRMED.
Commissioner, and JOSE G. LEDESMA, JR., respondents.
SO ORDERED.
June 30, 1987
No. L-48758
SUMMIT GUARANTY AND INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE RAMON V. JABSON, in his capacity as Presiding Judge of
Branch XXVI, Court of First Instance of Rizal, Pasig, Metro Manila and
AMELIA GENERAO, respondents.

GANCAYCO, J.:
These three consolidated cases arose from three separate complaints filed
against Summit Guaranty and Insurance Company, Inc., herein petitioner,
for the payment of insurance on insurance policies issued by the latter.
The facts are as follows: Private respondent immediately filed a notice of accident and claim with the
G.R. No. L-48679 petitioner company and diligently submitted all the required documents
Private respondent Jose Ledesma was the owner of a tractor which was with it. 7 However, petitioner company did not take any steps to process the
bumped by a minibus insured with petitioner company for purposes of Third claim.
Party Liability. The incident took place on March 10, 1977. Because of this, private respondents brought their claim to the Insurance
Immediately thereafter, private respondent made a notice of claim with Commission and the latter wrote petitioner company three letters dated
petitioner company for the damage and loss suffered by the tractor. October 11, 13 and 21, 1977. 8 On December 22, 1977, the heirs of the
Petitioner company then advised private respondent to have the tractor victim themselves filed a letter-complaint with the Insurance Commission 9 a
repaired at GA Machineries which estimated the job at Twenty-One copy of which was sent to petitioner company by registered mail. 10 Still
Thousand Pesos (P21,000.00). 1 Later, petitioner company through its petitioner company failed to settle the claim.
officials, made an assurance of payment of the said amount. 2 Since all the waiting for petitioner company to act proved to be futile,
When G.A. Machineries was finally through with the repair, private private respondents were constrained to file a complaint with the Court of
respondent made several demands on petitioner company because of the First Instance of Tarlac dated October 5, 1978. Petitioner company moved
repair shop's warning that failure to pay would result in the auctioning of to dismiss on the ground of prescription but respondent Judge Jose C. de
the tractor to cover the mechanic's lien. However, private respondent only Guzman denied the motion. Hence, this petition for certiorari and
received additional assurances of payment. prohibition.
On June 8, 1977, due to the failure of petitioner company to settle his claim, G.R. No. L-48758
private respondent submitted a letter-complaint to the Insurance Private respondent Amelia Generao owned a passenger jeepney that was
Commission. 3 The latter, in turn, wrote petitioner company to inquire about insured with petitioner company under a Vehicle Comprehensive Policy. On
the status of the claim. 4 June 23, 1976, while being driven by private respondent Carlos
Again, in March, 1978, petitioner company promised to pay. 5 Pagkalinawan, this jeepney struck the van of a certain Mr. Hahn.
On April 26, 1978, for not having received any payment of its credit, private Two days after the accident or on June 25, 1976, Generao notified petitioner
respondent filed a formal complaint with the Insurance Commission 6 which company of the vehicular accident and demanded from it payment of
petitioner company moved to dismiss on the ground of prescription. The damages on both vehicles. 11 Thereafter, Generao submitted to petitioner
Commission, through an order of respondent Commissioner Gregoria company all the necessary papers in support of the claim and required of
Arnaldo, deferred the resolution of the motion to dismiss causing petitioner her by the latter.12 Following this, Generao and petitioner company had a
company to file a motion for reconsideration which was later denied. dialogue at the office of the insurance company to settle the claim. 13 Then,
Hence, this petition for certiorari and prohibition. in the initial hearing of the criminal case that arose out of the incident,
accused Pagkalinawan was represented by a lawyer of petitioner
G.R. No. 50997
company. 14
Private respondent Geronima Pulmano was the owner of a jeep insured
Nonetheless, time passed without petitioner company taking any final
with petitioner company in the amount of Twenty Thousand Pesos
action on Generao's claim.
(P120,000.00). On Sept. 5, 1977, while being driven by private respondent
Ariel Pulmano this jeep got involved in a vehicular accident which resulted On August 3, 1977, Mr. Hahn filed a complaint for damages against herein
in the death of one of the victims. respondents Generao and Pagkalinawan with the Court of First Instance of
Rizal, Branch XXVI. Private respondents, on the other hand, filed a third
party complaint against petitioner company which in turn filed a motion to
dismiss on the ground of prescription. Respondent Judge Ramon V. Jabson, inserted. At this point, it is but appropriate for Us to reiterate our ruling in
however, denied the said motion. Subsequently, petitioner company filed a Aisporna vs. Court of Appeals, 16 to wit:
motion for reconsideration which again was denied. Hence, this petition for Legislative intent must be ascertained from a consideration of the statute as
certiorari and prohibition, a whole. The particular words, clauses and phrases should not be studied as
The only issue at bar is whether or not the causes of action of private detached and isolated expressions, but the whole and every part of the
respondents have already prescribed. statute must be considered in fixing the meaning of any of its parts and in
According to the petitioner company, the complaints of private order to produce a harmonious whole. A statute must be so construed as to
respondents, having been filed beyond the one-year period provided in harmonize and give effect to all its provisions whenever possible.
Section 384 of the Insurance Code, can no longer prosper. Said law reads as It is very obvious that petitioner company is trying to use Section 384 of the
follows: Insurance Code as a cloak to hide itself from its liabilities. The facts of these
SECTION 384. Any person having any claim upon the policy issued pursuant cases evidently reflect the deliberate efforts of petitioner company to
to this chapter shall, without any unnecessary delay, present to the prevent the filing of a formal action against it. Bearing in mind that if it
insurance company concerned a written notice of claim setting forth the succeeds in doing so until one year lapses from the date of the accident it
amount of his loss, and/or the nature, extent and duration of the injuries could set up the defense of prescription, petitioner company made private
sustained as certified by a duly licensed physician. Notice of claim must be respondents believe that their claims would be settled in order that the
filed within six months from date of the accident, otherwise, the claim shall latter will not find it necessary to immediately bring suit. In violation of its
be deemed waived Action or suit for recovery of damage due to loss or injury duties to adopt and implement reasonable standards for the prompt
must be brought, in proper cases, with the Commission or the Courts within investigation of claims and to effectuate prompt, fair and equitable
one year from date of accident, otherwise the claimant's right of action  shall settlement of claims, 17 and with manifest bad faith, petitioner company
be prescribe. (Emphasis supplied.)15 devised means and ways of stalling the settlement proceedings. In G.R, No.
Petitioner company contends that the two periods prescribed in the L-50997, no steps were taken to process the claim and no rejection of said
aforementioned law-that is, the six-month period for filing the notice of claim was ever made even if private respondent had already complied with
claim and the one-year period for bringing an action or suit-are mandatory all the requirements. In G.R. No. L-48758-petitioner company even provided
and must always concur. Petitioner company argues that under this law, legal assistance to one of the private respondents in the criminal case filed
even if the notice of claim was timely filed with the insurance company against him leading private respondents to believe that it was ready to pay.
within the six-month period, as what happened in the three cases before In the same case, petitioner company admits that it took no final action or
Us, the action or suit that follows, if filed beyond the one-year period should adjudication of the claim. 18 Worse still, in G.R. No. L-48679, assurances of
necessarily be dismissed on the ground of prescription. payment were constantly given and petitioner company even said that a
check was ready for release.
We find no merit in the contention of petitioner company. There is
absolutely nothing in the law which mandates that the two periods must This Court has made the observation that some insurance companies have
always concur. On the contrary, it is very clear that the one-year period is been inventing excuses to avoid their just obligations 19 and it is only the
only required "in proper cases." It appears that petitioner company State that can give the protection which the insuring public needs from
disregarded this very significant phrase when it made its own interpretation possible abuses of the insurers. 20
of the law. Had the lawmakers intended it to be the way petitioner company In view of the foregoing, We hold that these three cases do not fall within
assumes it to be, then the phrase "in proper cases" would not have been the meaning of "proper cases" as contemplated in Section 384 of the
Insurance Code. To hold otherwise would enable petitioner company to cause of action does not accrue until the party obligated refuses, expressly
evade its responsibility through a clever scheme it had contrived. or impliedly, to comply with its duty.
To strengthen its position, petitioner company cites the following principle Finally, We are pleased to note that the now defunct Batasang Pambansa,
laid down in the case of Ang vs. Fulton Fire Insurance, 21 to wit: after having recognized that Section 384 of the Insurance Code, has created
The condition contained in an insurance policy that claims must be so many problems for the insured 24 amended the law to read as follows:
presented within one year after rejection is not merely a procedural SEC. 384. Any person having any claim upon the policy issued pursuant to
requirement but an important matter essential to a prompt settlement of this chapter shall, without any unnecessary delay, present to the insurance
claims against insurance companies as it demands that insurance suits be company concerned a written notice of claim setting forth the nature,
brought by the insured while the evidence as to the origin and cause of extent and duration of the injuries sustained as certified by a duly licensed
destruction have not yet disappeared. It is in the nature of a condition physician. Notice of claim must be filed within six months from date of the
precedent to the liability of the insurer, or in other terms, a resolutory accident otherwise, the claim shall be deemed waived. Action or suit for
clause, the purpose of which is to terminate all liabilities in case the action is recovery of damage due to loss or injury must be brought in proper cases,
not filed by the insured within the period stipulated. with the Commissioner or the Courts within one year from denial of the
Suffice it to say that the aforementioned case has no application to the claim, otherwise the claimant's right of action shall prescribe. (Emphais
present cases as in that case the claim of the plaintiffs was denied as early supplied.) 25
as April 18, 1956 and the action was brought only on May 5, 1958 or almost WHEREFORE, the instant petitions are hereby dismissed for lack of merit.
2 years after. As we have already noted earlier, in the cases at bar, no denial The temporary restraining order dated July 18, 1979 issued in G.R. No.
of the claims was ever made and on the contrary, private respondents were 50997 is hereby lifted. With costs against petitioner company. Let the
made to believe that they will be paid by petitioner company. The alleged records of these cases be immediately remanded for prompt determination
delay, which is quite insignificant compared to the length of time that the of the claims. This decision is immediately executory.
plaintiffs took in the Ang case in bringing suit, was not caused by herein SO ORDERED.
private respondents but by the petitioner company itself.
The one-year period should instead be counted from the date of rejection
by the insurer as this is the time when the cause of action accrues. Since in
Republic of the Philippines
these cases there has yet been no accrual of cause of action, We hold that
SUPREME COURT
prescription has not yet set in.
Manila
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, 22 this Court ruled:
THIRD DIVISION
The plaintiff's cause of action did not accrue until his claim was finally
G.R. No. 82509 August 16, 1989
rejected by the insurance company. This is because, before such final
COUNTRY BANKERS INSURANCE CORP. (Formerly Country Bankers
rejection, there was no real necessity for bringing suit.
Insurance & Surety Co. Inc.), petitioner,
The philosophy of the above pronouncement was pointed out in the case
vs.
of ACCFA  vs. Alpha Insurance and Surety Co., 23 viz:
THE TRAVELLERS INSURANCE AND SURETY CORP., and THE HONORABLE
Since a "cause of action" requires, as essential elements, not only a legal COURT OF APPEALS, respondents.
right of the plaintiff and a correlative obligation of the defendant but also
Romeo G. Velasquez for petitioner.
"an act or omission of the defendant in violation of said legal right," the
Espinas & Associates Law Office for private respondent.
 1. Ordering defendant corporation to pay plaintiff corporation the total
CORTES, J.: amount of P83,470.00 with interest thereon at the legal rate computed
In the instant case, the Court is once again asked to resolve the issue of from the time of the filing of this case until full payment is made;
whether the one-year prescriptive period under Section 384 of the 2. Ordering defendant corporation to pay plaintiff corporation twenty (20%)
Insurance Code, prior to its amendment by Batas Pambansa Blg. 874, should percent of the principal amount awarded, as attorney's fees; and
commence to run from the date of the accident or from the rejection of the 3. Ordering defendant corporation to pay costs of this suit. [Rollo, p. 13.]
claim by the insurer. On appeal, the Court of Appeals (CA) affirmed the finding of the RTC that it
The Court, after a careful examination of the pleadings filed in this case, i.e., was the negligence and recklessness of Alfredo Sion, the driver of the Isuzu
the Petition and its Annexes, the Comment, Reply, Rejoinder and Sur- Cargo Truck, which led to the vehicular accident. The CA also held that as
Rejoinder, considered the issues joined and the case submitted for decision. the insurer of the truck, private respondent is liable to herein petitioner as
The pertinent facts of this case are undisputed: the subrogee to all the rights and causes of action of the owner of the
On May 24, 1979, a vehicular accident occurred involving a Toyota Land damaged Toyota Land Cruiser. Nevertheless, the CA dismissed the
Cruiser with Plate No. KE-890 H '78 owned by Philippine Technical complaint on the ground that petitioner's cause of action had prescribed.
Consultants Inc. (PTCI) and an Isuzu Cargo Truck bearing Plate No. 6M-116 T Respondent court held that:
Phil. '78 registered in the name of Avelino Matundan. The Toyota Land xxx xxx xxx
Cruiser, which was driven by Norlito R. Limen had stopped at a red light Defendant's defense that the action has prescribed is found meritorious.
along Epifanio de los Santos Avenue when it was bumped from behind by The accident occurred on 24 May 1979, but the complaint was not filed until
the Isuzu Cargo Truck driven by Alfredo Sion. The Toyota Land Cruiser 14 October 1980, or almost seventeen (17) months after the accident.
suffered extensive damage so that its owner declared a total loss and Section 384 of the Insurance Code mandates that the "(a)ction or suit for
claimed the proceeds of the insurance policy issued by petitioner Country recovery of damage due to loss or injury must be brought, in proper cases,
Bankers Insurance Corporation. Finding the claim to be meritorious, with the courts within one year from the date of the accident, otherwise the
petitioner paid PTCI the amount of eighty-three thousand four hundred claimant's right of action shall prescribe.". . .
seventy pesos (P83,470.00).lâwphî1.ñèt  As subrogee to all rights and causes xxx xxx xxx
of action of PTCI, petitioner demanded reimbursement from the driver and [CA Decision, p. 4; Rollo, p. 26]
owner of the Isuzu Cargo truck and from private respondent travellers
Petitioner moved to reconsider the CAs decision but on March 14,1988 the
Insurance as the insurer of the truck, but the latter failed to act on
CA issued a resolution denying petitioner's motion for reconsideration.
petitioner's claim.
Petitioner now comes before this Court by way of petition for review on
On October 14, 1980, petitioner filed a complaint in the Regional Trial Court certiorari.
(RTC) of Manila against the private respondent, the driver and the owner of
There is no dispute that respondent insurance company is liable as the
the truck. On August 2,1985, the RTC rendered a decision in favor of the
insurer of the Isuzu Cargo Truck and should reimburse to petitioner the
petitioner and ordered private respondent to pay petitioner the amount
amount paid by the latter to PTCI for the damage sustained by the Toyota
paid to PTCI, but dismissed the complaint as against the other two
Land Cruiser. The sole issue in the instant case is whether or not petitioner's
defendants. The dispositive portion of the decision reads as follows:
cause of action had prescribed.
WHEREFORE, judgment is hereby rendered:
Section 384 of the Insurance Code (prior to its amendment by B.P. 874)
provides that:
Any person having any claim upon the policy issued pursuant to this chapter Petitioner company is trying to use Section 384 of the Insurance Code as a
shall, without any unnecessary delay, present to the insurance company cloak to hide itself from its liabilities. The facts of these cases * evidently
concerned a written notice of claim setting forth the amount of his loss, reflect the deliberate efforts of petitioner company to prevent the filing of a
and/or the nature, extent and duration of the injuries sustained as certified formal action against it. Bearing in mind that if it succeeds in doing so until
by a duly licensed physician. Notice of claim must be filed within six months one year lapses from the date of the accident it could set up the defense of
from date of the accident, otherwise, the claim shall be deemed waived. prescription, petitioner company made private respondents believe that
Action or suit for recovery of damage due to loss or injury must be brought their claims would be settled in order that the latter will not find it
in proper cases, with the Commission or the Courts within one year from necessary to immediately bring suit. In violation of its duties to adopt and
date of accident, otherwise the claimant's right of action shall prescribe. implement reasonable standards for the prompt investigation of claims, and
[Emphasis supplied]. with manifest bad faith, petitioner company devised means and ways of
In its decision, the CA held that the two periods provided for in Section 384 stalling settlement proceedings [Summit, supra, at 395].
are mandatory and must always concur. Respondent Court argues that no To prevent the insurance company from evading its responsibility to the
claim will prosper even if a notice of claim is filed within six (6) months from insured through this clever scheme, and to protect the insuring public
the date of the accident if the action in court is filed more than one year against similar acts by other insurance companies, the Court held that the
therefrom. Neither will an action filed within one year from the date of the one-year period under Section 384 should be counted not from the date of
accident prosper, if no claim was filed with the insurer within six (6) months the accident but from the date of the rejection of the claim by the insurer
from the said accident. The CA then concluded that since the complaint was [Summit, supra, at 397]. The Court further held that it is only from the
filed after almost seventeen (17) months from the date of the accident, rejection of the claim by the insurer that the insured's cause of action
petitioner's cause of action had prescribed. accrued since a cause of action does not accrue until the party obligated
On the other hand, petitioner company contends that the finding of refuse, expressly or impliedly, to comply with its duty [ACCFA v. Alpha
respondent court that its cause of action had prescribed is erroneous since Insurance and Surety Co., G.R. No. L-24566, July 29,1968, 24 SCRA 151].
the one-year prescriptive period under Section 384 of the Insurance Code is In the instant case, petitioner sent a notice of claim to respondent insurance
counted not from the date of the accident but from the date of the rejection company as early as July 26, 1979 or two months after the accident. This
of the claim by the insurer. Petitioner further argues that even assuming was followed by a letter dated August 3, 1979 urging respondent insurance
that the one-year prescriptive period should be counted from the date of company to take it appropriate action" on petitioner's claim. However, it
the accident, the running of the period of prescription was interrupted was only a year later, on August 3, 1980 that respondent replied to
when petitioner filed a notice of claim with respondent insurance company petitioner's letter informing it that they could not take appropriate action
since under the Civil Code an extra-judicial demand is sufficient to interrupt on petitioners claim because the attending adjuster was still negotiating the
the running of the prescriptive period. case. Two months later, when respondent insurance company still failed to
The Court finds merit in the petition. act on its claim, petitioner filed the present case in court. During the hearing
The controversy on the proper interpretation of Section 384 of the before the RTC, respondent insurance company never raised the defense of
Insurance Code before its amendment by B.P. 874 has already been settled prescription. It was only on appeal that Section 384 of the Insurance Code
by this Court in the case of Summit Guaranty & Insurance Co., Inc. v. De was invoked by respondent insurance company and the CA, relying on the
Guzman  [G.R. Nos. 50997, L-48679, L-48758, June 30,1987,151 SCRA 389.] plain language of the law, dismissed the case on the ground of prescription.
which involves similar facts. In rejecting the insurance company's defense of In the light of the Court's decision in the Summit case, respondent insurance
prescription, the Court held that: company can no longer invoke Section 384 to defeat petitioner's claim. As
aforestated, it was precisely to prevent unscrupulous insurance companies Commissioner or the Courts within one year from denial of the claim,
from using Section 384 in evading their responsibilities that the Court otherwise the claimant's right of action shall prescribe. [Emphasis supplied].
applied Section 384 strictly against insurance companies in WHEREFORE, the petition for certiorari is GRANTED. The appealed decision
the Summit  case. of the Court of Appeals is hereby REVERSED and that of the Regional Trial
The requirement that any claim or action for recovery of damage under an Court REINSTATED.
insurance policy must be brought within one year from the date of the SO ORDERED.
accident was intended to ensure that suits be brought by the insured while
evidence as to the origin and cause of destruction have not yet disappeared
[See Ang v. Fulton Fire Ins., Co., G.R. No. L-15862, July 31, 1961, 2 SCRA
945.).lâwphî1.ñèt  This is to enable the insurance companies to make proper
assessment of whether or not the insured can recover and, if so, to
determine the amount recoverable. However, where, as in this case, the
delay in bringing the suit against the insurance company was not caused by
the insured or its subrogee but by the insurance company itself, it is unfair
to penalize the insured or its subrogee by dismissing its action against the
insurance company on the ground of prescription. The latter should bear
the consequences of its failure to act promptly on the insured's claim. Under
the law, insurance companies are duty bound to adopt and implement
reasonable standards for the prompt, fair and equitable settlement of
claims [Section 241, Insurance Code].
Therefore, considering the attendant facts of this case, the Court finds that
the doctrine laid down in the Summit case is applicable, and accordingly Republic of the Philippines
holds that petitioner's cause of action has not prescribed. SUPREME COURT
It might not be amiss to state that Section 384 was amended in 1985 by Baguio City
Batas Pambansa Blg. 874. The amendment was inserted by the then SECOND DIVISION
Batasang Pambansa after realizing that Section 384 of the Insurance Code
has created so many problems for the insuring public [Summit, supra at p. G.R. No. 110597 May 8, 1996
398]. Thus, as amended, the law now provides that: SERVICEWIDE SPECIALIST, INCORPORATED, petitioner,
Any person having any claim upon the policy issued pursuant to this chapter vs.
shall, without any unnecessary delay, present to the insurance company THE HON. COURT OF APPEALS, RICARDO TRINIDAD and ELISA
concerned a written notice of claim setting forth the nature, extent and TRINIDAD, respondents.
duration of the injuries sustained as certified by a duly licensed physician.  
Notice of claim must be filed within six months from date of the accident
ROMERO, J.:p
otherwise, the claim shall be deemed waived. Action or suit for recovery of
Petitioner seeks review of the decision 1 of the Court of Appeals affirming the
damage due to loss or injury must be brought in proper cases, with the
decision of the Regional Trial Court of Manila which (1) dismissed the
complaint for replevin and damages filed by petitioner before the
Metropolitan Trial Court of Manila and (2) ordered petitioner to pay private After informing private respondents that they failed to pay the last two
respondents P10,000.00 as attorney's fees, P2,000.00 as litigation expenses consecutive monthly installments, petitioner demanded that either they pay
plus costs of the suit. the whole remaining balance of P6,977.67, including accrued interest, or
The facts show that on August 1, 1983, private respondent spouses Ricardo return possession of the car to petitioner.
and Elisa Trinidad purchased one unit Isuzu Gemini car, 1983 model, yellow When private respondents refused to pay the amount demanded or to
in color, from Autoworld Sales Corporation. The price was P98,156.00 return the car, petitioner filed an action for replevin and damages with the
payable in 24 equal monthly installments of P4,089.00 every 15th of each Metropolitan Trial Court, Branch V, Manila. The sole issue resolved by the
month beginning September 1983 to August 15, 1985. trial court was whether private respondents were liable for the payment of
To secure payment thereof, the Trinidads executed on the same date a the insurance premiums effected by petitioner.
promissory note and a deed of chattel mortgage on the subject car in favor On July 24, 1990, a decision was rendered by the trial court in favor of
of Autoworld Sales Corporation. petitioner, the dispositive portion of which states:
Also on the same date, Autoworld assigned its interests on the promissory WHEREFORE, judgment is hereby rendered in favor of the plaintiff ordering
note and chattel mortgage to Filinvest Credit Corporation (Filinvest). These the defendants to pay plaintiff jointly and severally the sum of P16,977.67
assignments were made with due notice to private respondents. plus interest thereon at the rate of 24%  per annum from January 8, 1986
On April 15, 1984, private respondents delivered seventeen (17) checks to until fully paid. To pay the sum of P4,773.04 as attorney's fees.
Filinvest Credit Corporation in full payment of the car. The checks were in SO ORDERED.2
the same amount of P3,969.00 each, sixteen of which were postdated to be Private respondents appealed to the Regional Trial Court of Manila, Branch
applied for the remaining installments from April 15, 1984 to August 15, 46. The RTC found that a renewal of insurance (caused by Filinvest on the
1985. Proper receipts were issued by Filinvest Credit Corporation to private mortgaged chattel) was issued twice by Perla Compania de Seguros, Inc. in
respondents and all documents regarding ownership of the car were the name of Ricardo Trinidad for private ear loss and damage. On both
released to them. Private respondents immediately used the car as a taxi, a occasions, no notice was made whatsoever to private respondents that
fact known to the vendor. Filinvest was applying the installment payments made by them for the car
On November 8, 1985, Filinvest assigned all its rights and interests on the to the payment of the insurance premiums. Furthermore, no notice was
promissory note and chattel mortgage in favor of petitioner. made to private respondents that Filinvest had assigned the promissory
On November 18, 1985, private respondent Ricardo Trinidad received a note and chattel mortgage to petitioner.
demand letter from petitioner dated November 8, 1985 stating that an The RTC held that petitioner had no cause of action against private
assignment of credit had been made by Filinvest in its favor and that the respondents because the latter issued the checks with the understanding
Trinidads had not paid two successive installments on the car which had that they were to be applied to the payment in full of the car and that the
matured on July 15 and August 15, 1985. No mention was made in the letter same were all duly encashed by petitioner. No prior demand having been
that Filinvest had paid insurance premiums to Perla Compania de Seguros to made on private respondents for the payment of the insurance premiums,
insure the car against loss and damage corresponding to two years, i.e., the RTC held that the complaint was not a just suit and dismissed the
from July 29, 1984 to July 29, 1985 and July 29, 1985 to July 29, 1986. complaint, awarding P10,000.00 for attorney's fees, P2,000.00 as expenses
Private respondents were also never informed by Filinvest that their for litigation plus costs of the suit to private respondents.
installment payments on the car were converted to premium payments on Petitioner appealed to the Court of Appeals, which affirmed the decision of
the insurance. the Regional Trial Court.
Hence, this petition.
The central issue in this case is: whether or not petitioner should have payment of the said premiums. From the records of the case, it is clear that
applied the installment payments made by private respondents for the private respondents had fully paid for the car. This fact was never rebutted
payment of the car to the payment of the insurance premiums without prior by petitioner; it was the insurance premiums pertaining to the two-year
notice to private respondents. period from July 29, 1984 to July 29, 1986 that petitioner claims were not
The provision in the Chattel Mortgage subject of the controversy states: paid.
The said MORTGAGOR covenants and agrees that he will cause the Both the Regional Trial Court and the Court of Appeals found that before
property/ies herein above mortgaged to be insured against loss or damage the mortgagee (petitioner) may effect the renewal of insurance, two
by accident, theft and fire for a period of one year from date thereof and conditions must be met: (1) Default by the mortgagor (private respondents)
every year thereafter until the mortgage obligation is fully paid with an in effecting renewal of the insurance and (2) failure to deliver the policy
insurance company, or companies acceptable to the MORTGAGEE in an with endorsement to petitioner.
amount not less than the outstanding balance of the mortgage obligation; The Court notes an additional element of the provisions regarding the
that he will make all loss, if any, under such policy or policies, payable to the renewal of the insurance; specifically, that petitioner was under no
MORTGAGEE or its assigns as its interest may appear and forewith deliver obligation to effect the same. In other words, petitioner as mortgagee was
such policy or policies to the MORTGAGEE, the said MORTGAGOR further not duty-bound to renew the insurance in the event that private
covenants and agrees that default of his effecting or renewing such respondents failed to do so; it was merely optional on its part.
insurance and delivering the policies so endorsed to the MORTGAGEE within The question now arises whether private respondents were in default for
five (5) days after the execution of this mortgage or the expiry date of the failing to have the car covered by insurance for the period in question.
insurance the MORTGAGEE, may, at his option, but without any obligation Private respondents claim that the car was duly covered and the Court finds
to do so effect such insurance or obtain such renewal for the account of the no evidence on record showing this assertion to be false. Petitioner has
MORTGAGOR and that any money so disbursed the MORTGAGEE shall be averred, however, that the insurance taken by private respondents was only
added to the principal indebtedness hereby secured and shall become due for third-party liability and not the comprehensive insurance required.
and payable at the time for the payment of the immediately coming or If petitioner was aware that the insurance coverage was inadequate, why
following installment to be due under the note aforesaid after the date of did it not inform private respondent about it? After all, since petitioner was
such insurance renewal and shall bear interest at the same rate as the under no obligation to effect renewal thereof, it is but logical that it should
principal indebtedness.3 (Emphasis supplied) relay to private respondents any defect of the insurance coverage before
Petitioner contends that the matter about the notice is deemed waived by itself assuming the same.
private respondents because the car should be fully covered at all times. Furthermore, even if the car were not covered with the proper insurance,
Petitioner claims that if, as stated in the Chattel Mortgage, private there is nothing in the provisions of the Chattel Mortgage that authorizes
respondents failed to renew the insurance, petitioner is entitled to renew petitioner to apply previous payments for the car to the insurance. What is
the same for the account of private respondents without any notice to stated is: ". . . that any money so disbursed by the mortgagee shall be added
them. to the principal indebtedness hereby secured . . . " (emphasis supplied).
The petition is unmeritorious. Clear is it that petitioner is not obligated to convert any of the installments
While it is true that the Chattel Mortgage does not say that notice to the made by private respondents for the car to the payment for the renewal of
mortgagor of the renewal of the insurance premium by the mortgagee is the insurance. Should it decide to do so, it has to send notice to private
necessary, at the same time, there is no provision that authorizes petitioner respondents who had already paid in full the principal indebtedness in
to apply the payments made to it for the payment of the chattel to the question.
When petitioner wrote private respondents the November 8, 1985 demand ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners,
letter regarding non-payment of the installments, no mention was made of vs.
unpaid insurance premiums. Thus, private respondents were quite justified THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT
in ignoring the same since, to the best of their knowledge, they had already E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN
paid for the car in full. GENERAL INSURANCE COMPANY, INC., respondents.
Finally, while we agree with the appellate court that the complaint against Albino B. Achas for petitioners.
private respondent should be dismissed, we find that the award of Angara, Abello, Concepcion, Regala & Cruz for private respondents.
P10,000.00 as attorney's fees to them to be erroneous.
Article 2208 of the Civil Code allows attorney's fees to be awarded by a GUTIERREZ, JR., J.:
court when its claimant is compelled to litigate with third persons or to
This is a petition for review of the January 29, 1988 decision of the Court of
incur expenses to protect his interest by reason of an unjustified act or
Appeals and the April 27, 1988 resolution denying the petitioners' motion
omission on the part of the party from whom it is sought. To be sure,
for reconsideration, which decision and resolution reversed the decision
private respondents were forced to litigate to protect their rights but as we
dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in
have previously held: "where no sufficient showing of bad faith would be
Civil Case No. 121126 upholding the petitioners' causes of action and
reflected in a party's persistence in a case other than an erroneous
granting all the reliefs prayed for in their complaint against private
conviction of the righteousness of his cause, attorney's fee shall not be
respondents.
recovered as cost."4
The antecedent facts of the case are as follows:
Attorney's fees cannot be awarded to a party simply because the judgment
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of
was favorable to it, for that amounts to imposing a premium on the right to
private respondent Philippine American General Insurance Company, Inc.
redress grievances in Court.5
(Philamgen for short) since 1965. As such, he was authorized to solicit and
When it has not been sufficiently established that the complaint was filed to
sell in behalf of Philamgen all kinds of non-life insurance, and in
harass the other party or when an action was filed in the sincere belief that
consideration of services rendered was entitled to receive the full agent's
the cause was meritorious, an award of attorney's fees is not proper. 6
commission of 32.5% from Philamgen under the scheduled commission
The Court, therefore, deletes the award of P10,000.00 to private rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine
respondents as attorney's fees. insurance from one of his clients, the Delta Motors, Inc. (Division of
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED with Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million
the modification that the award of P10,000.00 as attorney's fees is hereby from which he was entitled to a commission of 32% (Exhibit "B"). However,
DELETED. Valenzuela did not receive his full commission which amounted to P1.6
SO ORDERED. Million from the P4.4 Million insurance coverage of the Delta Motors.
During the period 1976 to 1978, premium payments amounting to
Republic of the Philippines P1,946,886.00 were paid directly to Philamgen and Valenzuela's commission
SUPREME COURT to which he is entitled amounted to P632,737.00.
Manila In 1977, Philamgen started to become interested in and expressed its intent
THIRD DIVISION to share in the commission due Valenzuela (Exhibits "III" and "III-1") on a
fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
G.R. No. 83122 October 19, 1990
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon Civil Code and the conditions of the General Agency Agreement. But the
insisted on the sharing of the commission with Valenzuela (Exhibit E). This records will show that the principal cause of the termination of the plaintiff
was followed by another sharing proposal dated June 1, 1978. On June as General Agent of defendant PHILAMGEN was his refusal to share his
16,1978, Valenzuela firmly reiterated his objection to the proposals of Delta commission.
respondents stating that: "It is with great reluctance that I have to decline That it should be noted that there were several attempts made by
upon request to signify my conformity to your alternative proposal defendant Bienvenido M. Aragon to share with the Delta commission of
regarding the payment of the commission due me. However, I have no plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing
choice for to do otherwise would be violative of the Agency Agreement scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to
executed between our goodselves." (Exhibit B-1) make matters worse, defendants made it appear that plaintiff Arturo P.
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Valenzuela had substantial accounts with defendant PHILAMGEN.
Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action Not only that, defendants have also started (a) to treat separately the Delta
against Valenzuela. They: (a) reversed the commission due him by not Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta
crediting in his account the commission earned from the Delta Motors, Inc. commission due plaintiff Arturo P. Valenzuela by not crediting or applying
insurance (Exhibit "J" and "2"); (b) placed agency transactions on a cash and said commission earned to the account of plaintiff Arturo P. Valenzuela, (c)
carry basis; (c) threatened the cancellation of policies issued by his agency placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and
(Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has carry basis", (d) sending threats to cancel existing policies issued by plaintiff
a substantial account with Philamgen. All of these acts resulted in the Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's
decline of his business as insurance agent (Exhibits "N", "O", "K" and "K-8"). insurance business to other agencies, and (f) to spread wild and malicious
Then on December 27, 1978, Philamgen terminated the General Agency rumors that plaintiff Arturo P. Valenzuela has substantial account with
Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing
June 23, 1986, Civil Case No. 121126, Annex I, Petition). with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1,
The petitioners sought relief by filing the complaint against the private Petition).
respondents in the court a quo (Complaint of January 24, 1979, Annex "F" xxx xxx xxx
Petition). After due proceedings, the trial court found: These acts of harrassment done by defendants on plaintiff Arturo P.
xxx xxx xxx Valenzuela to force him to agree to the sharing of his Delta commission,
Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela which culminated in the termination of plaintiff Arturo P. Valenzuela as one
as one of defendant PHILAMGEN's General Agent by making it appear that of defendant PHILAMGEN's General Agent, do not justify said termination of
plaintiff Arturo P. Valenzuela has a substantial account with defendant the General Agency Agreement entered into by defendant PHILAMGEN and
PHILAMGEN particularly Delta Motors, Inc.'s Account, thereby prejudicing plaintiff Arturo P. Valenzuela.
defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A"). That since defendants are not justified in the termination of plaintiff Arturo
Defendants also invoked the provisions of the Civil Code of the Philippines P. Valenzuela as one of their General Agents, defendants shall be liable for
(Article 1868) and the provisions of the General Agency Agreement as their the resulting damage and loss of business of plaintiff Arturo P. Valenzuela.
basis for terminating plaintiff Arturo P. Valenzuela as one of their General (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
Agents. The court accordingly rendered judgment, the dispositive portion of which
That defendants' position could have been justified had the termination of reads:
plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and IV
against defendants ordering the latter to reinstate plaintiff Arturo P. ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST
Valenzuela as its General Agent, and to pay plaintiffs, jointly and severally, DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN
the following: AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO
1. The amount of five hundred twenty-one thousand nine hundred sixty four ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR
and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's AUTHORITY.
Delta Commission with interest at the legal rate from the time of the filing V
of the complaint, which amount shall be adjusted in accordance with Article ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF
1250 of the Civil Code of the Philippines; PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE LOWER COURT
2. The amount of seventy-five thousand pesos (P75,000.00) per month as ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA,
compensatory damages from 1980 until such time that defendant WHO, NOT BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.
Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general On January 29, 1988, respondent Court of Appeals promulgated its decision
agents; in the appealed case. The dispositive portion of the decision reads:
3. The amount of three hundred fifty thousand pesos (P350,000.00) for each WHEREFORE, the decision appealed from is hereby modified accordingly
plaintiff as moral damages; and judgment is hereby rendered ordering:
4. The amount of seventy-five thousand pesos (P75,000.00) as and for 1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the
attorney's fees; sum of one million nine hundred thirty two thousand five hundred thirty-
5. Costs of the suit. (Ibid., P. 12) two pesos and seventeen centavos (P1,902,532.17), with legal interest
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. thereon from the date of finality of this judgment until fully paid.
Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and 2. Both plaintiff-appellees to pay jointly and severally defendants-appellants
defendants-appellants below, interposed an appeal on the following: the sum of fifty thousand pesos (P50,000.00) as and by way of attorney's
ASSIGNMENT OF ERRORS fees.
I No pronouncement is made as to costs. (p. 44, Rollo)
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. There is in this instance irreconcilable divergence in the findings and
VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT conclusions of the Court of Appeals, vis-a-vis those of the trial court
PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY. particularly on the pivotal issue whether or not Philamgen and/or its officers
II can be held liable for damages due to the termination of the General
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. Agency Agreement it entered into with the petitioners. In its questioned
VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE decision the Court of Appeals observed that:
DELTA ACCOUNT. In any event the principal's power to revoke an agency at will is so
III 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
THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF
principal's liability for damages (Danon v. Antonio A. Brimo & Co., 42 Phil.
PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT
133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil. 691,
CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL
cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986] 696).
DAMAGES, ATTORNEYS FEES AND COSTS.
The lower court, however, thought the termination of Valenzuela as General Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals,
Agent improper because the record will show the principal cause of the 147 SCRA 82 [1987]). In the case at bar, the records show that the findings
termination of the plaintiff as General Agent of defendant Philamgen was and conclusions of the trial court are supported by substantial evidence and
his refusal to share his Delta commission. (Decision, p. 9; p. 13, Rollo, 41) there appears to be no cogent reason to disturb them (Mendoza v. Court of
Because of the conflicting conclusions, this Court deemed it necessary in the Appeals. 156 SCRA 597 [1987]).
interest of substantial justice to scrutinize the evidence and records of the As early as September 30,1977, Philamgen told the petitioners of its desire
cases. While it is an established principle that the factual findings of the to share the Delta Commission with them. It stated that should Delta back
Court of Appeals are final and may not be reviewed on appeal to this Court, out from the agreement, the petitioners would be charged interests
there are however certain exceptions to the rule which this Court has through a reduced commission after full payment by Delta.
recognized and accepted, among which, are when the judgment is based on On January 23, 1978 Philamgen proposed reducing the petitioners'
a misapprehension of facts and when the findings of the appellate court, are commissions by 50% thus giving them an agent's commission of 16.25%. On
contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA February 8, 1978, Philamgen insisted on the reduction scheme followed on
236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the June 1, 1978 by still another insistence on reducing commissions and
findings of the Court of Appeals and the trial court are contrary to each proposing two alternative schemes for reduction. There were other
other, this Court may scrutinize the evidence on record (Cruz v. Court of pressures. Demands to settle accounts, to confer and thresh out differences
Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 regarding the petitioners' income and the threat to terminate the agency
[1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the followed. The petitioners were told that the Delta commissions would not
Court of Appeals is grounded entirely on speculation, surmises or be credited to their account (Exhibit "J"). They were informed that the
conjectures, or when the inference made is manifestly mistaken, absurd or Valenzuela agency would be placed on a cash and carry basis thus removing
impossible, or when there is grave abuse of discretion, or when the the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-57).
judgment is based on a misapprehension of facts, and when the findings of Existing policies were threatened to be cancelled (Exhibits "H" and "14";
facts are conflict the exception also applies (Malaysian Airline System TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened
Bernad v. Court of Appeals, 156 SCRA 321 [1987]). with diversion to other agencies. (Exhibit "NNN"). Rumors were also spread
After a painstaking review of the entire records of the case and the findings about alleged accounts of the Valenzuela agency (TSN., January 25, 1980, p.
of facts of both the court a quo and respondent appellate court, we are 41). The petitioners consistently opposed the pressures to hand over the
constrained to affirm the trial court's findings and rule for the petitioners. agency or half of their commissions and for a treatment of the Delta
We agree with the court a quo that the principal cause of the termination of account distinct from other accounts. The pressures and demands,
Valenzuela as General Agent of Philamgen arose from his refusal to share however, continued until the agency agreement itself was finally
his Delta commission. The records sustain the conclusions of the trial court terminated.
on the apparent bad faith of the private respondents in terminating the It is also evident from the records that the agency involving petitioner and
General Agency Agreement of petitioners. It is axiomatic that the findings of private respondent is one "coupled with an interest," and, therefore, should
fact of a trial judge are entitled to great weight (People v. Atanacio, 128 not be freely revocable at the unilateral will of the latter.
SCRA 22 [1984]) and should not be disturbed on appeal unless for strong In the insurance business in the Philippines, the most difficult and
and cogent reasons, because the trial court is in a better position to frustrating period is the solicitation and persuasion of the prospective
examine the evidence as well as to observe the demeanor of the witnesses clients to buy insurance policies. Normally, agents would encounter much
while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. embarrassment, difficulties, and oftentimes frustrations in the solicitation
and procurement of the insurance policies. To sell policies, an agent exerts The principal may not defeat the agent's right to indemnification by a
great effort, patience, perseverance, ingenuity, tact, imagination, time and termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185
money. In the case of Valenzuela, he was able to build up an Agency from NC 479, 117 SE 706, 32 ALR 196).
scratch in 1965 to a highly productive enterprise with gross billings of about Where the principal terminates or repudiates the agent's employment in
Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per violation of the contract of employment and without cause ... the agent is
annum. The records sustain the finding that the private respondent started entitled to receive either the amount of net losses caused and gains
to covet a share of the insurance business that Valenzuela had built up, prevented by the breach, or the reasonable value of the services rendered.
developed and nurtured to profitability through over thirteen (13) years of Thus, the agent is entitled to prospective profits which he would have made
patient work and perseverance. When Valenzuela refused to share his except for such wrongful termination provided that such profits are not
commission in the Delta account, the boom suddenly fell on him. conjectural, or speculative but are capable of determination upon some
The private respondents by the simple expedient of terminating the General fairly reliable basis. And a principal's revocation of the agency agreement
Agency Agreement appropriated the entire insurance business of made to avoid payment of compensation for a result which he has actually
Valenzuela. With the termination of the General Agency Agreement, accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal
Valenzuela would no longer be entitled to commission on the renewal of Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-
insurance policies of clients sourced from his agency. Worse, despite the Moore Co. [C.A. 2 NY] 273 F 2d 340)
termination of the agency, Philamgen continued to hold Valenzuela jointly If a principal violates a contractual or quasi-contractual duty which he owes
and severally liable with the insured for unpaid premiums. Under these his agent, the agent may as a rule bring an appropriate action for the breach
circumstances, it is clear that Valenzuela had an interest in the continuation of that duty. The agent may in a proper case maintain an action at law for
of the agency when it was unceremoniously terminated not only because of compensation or damages ... A wrongfully discharged agent has a right of
the commissions he should continue to receive from the insurance business action for damages and in such action the measure and element of damages
he has solicited and procured but also for the fact that by the very acts of are controlled generally by the rules governing any other action for the
the respondents, he was made liable to Philamgen in the event the insured employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500,
fail to pay the premiums due. They are estopped by their own positive 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)
averments and claims for damages. Therefore, the respondents cannot At any rate, the question of whether or not the agency agreement is
state that the agency relationship between Valenzuela and Philamgen is not coupled with interest is helpful to the petitioners' cause but is not the
coupled with interest. "There may be cases in which an agent has been primary and compelling reason. For the pivotal factor rendering Philamgen
induced to assume a responsibility or incur a liability, in reliance upon the and the other private respondents liable in damages is that the termination
continuance of the authority under such circumstances that, if the authority by them of the General Agency Agreement was tainted with bad faith.
be withdrawn, the agent will be exposed to personal loss or liability" (See Hence, if a principal acts in bad faith and with abuse of right in terminating
MEC 569 p. 406). the agency, then he is liable in damages. This is in accordance with the
Furthermore, there is an exception to the principle that an agency is precepts in Human Relations enshrined in our Civil Code that "every person
revocable at will and that is when the agency has been given not only for must in the exercise of his rights and in the performance of his duties act
the interest of the principal but for the interest of third persons or for the with justice, give every one his due, and observe honesty and good faith:
mutual interest of the principal and the agent. In these cases, it is evident (Art. 19, Civil Code), and every person who, contrary to law, wilfully or
that the agency ceases to be freely revocable by the sole will of the principal negligently causes damages to another, shall indemnify the latter for the
(See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following same (Art. 20, id). "Any person who wilfully causes loss or injury to another
citations are apropos:
in a manner contrary to morals, good customs and public policy shall Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331;
compensate the latter for the damages" (Art. 21, id.). Emphasis supplied)
As to the issue of whether or not the petitioners are liable to Philamgen for The foregoing findings are buttressed by Section 776 of the insurance Code
the unpaid and uncollected premiums which the respondent court ordered (Presidential Decree No. 612, promulgated on December 18, 1974), which
Valenzuela to pay Philamgen the amount of One Million Nine Hundred now provides that no contract of Insurance by an insurance company is
Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos valid and binding unless and until the premium thereof has been paid,
(P1,932,532,17) with legal interest thereon until fully paid (Decision-January notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)
20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent court Perforce, since admittedly the premiums have not been paid, the policies
erred in holding Valenzuela liable. We find no factual and legal basis for the issued have lapsed. The insurance coverage did not go into effect or did not
award. Under Section 77 of the Insurance Code, the remedy for the non- continue and the obligation of Philamgen as insurer ceased. Hence, for
payment of premiums is to put an end to and render the insurance policy Philamgen which had no more liability under the lapsed and inexistent
not binding — policies to demand, much less sue Valenzuela for the unpaid premiums
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or would be the height of injustice and unfair dealing. In this instance, with the
contract of insurance is valid and binding unless and until the premiums lapsing of the policies through the nonpayment of premiums by the insured
thereof have been paid except in the case of a life or industrial life policy there were no more insurance contracts to speak of. As this Court held in
whenever the grace period provision applies (P.D. 612, as amended the Philippine Phoenix Surety case, supra "the non-payment of premiums
otherwise known as the Insurance Code of 1974) does not merely suspend but puts an end to an insurance contract since the
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA time of the payment is peculiarly of the essence of the contract."
419 [1979]) we held that the non-payment of premium does not merely The respondent appellate court also seriously erred in according undue
suspend but puts an end to an insurance contract since the time of the reliance to the report of Banaria and Banaria and Company, auditors, that as
payment is peculiarly of the essence of the contract. And in Arce v. The of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This
Capital Insurance and Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated audit report of Banaria was commissioned by Philamgen after Valenzuela
the rule that unless premium is paid, an insurance contract does not take was almost through with the presentation of his evidence. In essence, the
effect. Thus: Banaria report started with an unconfirmed and unaudited beginning
It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. balance of account of P1,758,185.43 as of August 20, 1976. But even with
Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act that unaudited and unconfirmed beginning balance of P1,758,185.43,
before Sec. 72 was amended by the underscored portion. Supra. Prior to the Banaria still came up with the amount of P3,865.49 as Valenzuela's balance
Amendment, an insurance contract was effective even if the premium had as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of
not been paid so that an insurer was obligated to pay indemnity in case of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid
loss and correlatively he had also the right to sue for payment of the account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's
premium. But the amendment to Sec. 72 has radically changed the legal Memorandum). But even disregarding these annexes which are records of
regime in that unless the premium is paid there is no insurance. " (Arce v. Philamgen and addressed to Valenzuela in due course of business, the facts
Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied) show that as of July 1977, the beginning balance of Valenzuela's account
In Philippine Phoenix Surety case, we held: with Philamgen amounted to P744,159.80. This was confirmed by
Philamgen itself not only once but four (4) times on different occasions, as
Moreover, an insurer cannot treat a contract as valid for the purpose of
shown by the records.
collecting premiums and invalid for the purpose of indemnity. (Citing
On April 3,1978, Philamgen sent Valenzuela a statement of account with a As so aptly stated by the trial court in its decision:
beginning balance of P744,159-80 as of July 1977. Defendants also conducted an audit of accounts of plaintiff Arturo P.
On May 23, 1978, another statement of account with exactly the same Valenzuela after the controversy has started. In fact, after hearing plaintiffs
beginning balance was sent to Valenzuela. have already rested their case.
On November 17, 1978, Philamgen sent still another statement of account The results of said audit were presented in Court to show plaintiff Arturo P.
with P744,159.80 as the beginning balance. Valenzuela's accountability to defendant PHILAMGEN. However, the
And on December 20, 1978, a statement of account with exactly the same auditor, when presented as witness in this case testified that the beginning
figure was sent to Valenzuela. balance of their audit report was based on an unaudited amount of
It was only after the filing of the complaint that a radically different P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified
statement of accounts surfaced in court. Certainly, Philamgen's own and merely supplied by the officers of defendant PHILAMGEN.
statements made by its own accountants over a long period of time and Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P.
covering examinations made on four different occasions must prevail over Valenzuela's balance as of 1978 amounted to only P3,865.59, not
unconfirmed and unaudited statements made to support a position made in P826,128.46 as stated in defendant Bienvenido M. Aragon's letter dated
the course of defending against a lawsuit. December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in defendant's
It is not correct to say that Valenzuela should have presented its own Exhibit 46 (Audit Report of Banaria dated December 24, 1980).
records to refute the unconfirmed and unaudited finding of the Banaria These glaring discrepancy (sic) in the accountability of plaintiff Arturo P.
auditor. The records of Philamgen itself are the best refutation against Valenzuela to defendant PHILAMGEN only lends credence to the claim of
figures made as an afterthought in the course of litigation. Moreover, plaintiff Arturo P. Valenzuela that he has no outstanding account with
Valenzuela asked for a meeting where the figures would be reconciled. defendant PHILAMGEN when the latter, thru defendant Bienvenido M.
Philamgen refused to meet with him and, instead, terminated the agency Aragon, terminated the General Agency Agreement entered into by plaintiff
agreement. (Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff
After off-setting the amount of P744,159.80, beginning balance as of July Arturo P. Valenzuela has shown that as of October 31, 1978, he has
1977, by way of credits representing the commission due from Delta and overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit
other accounts, Valenzuela had overpaid Philamgen the amount of "EEE", which computation was based on defendant PHILAMGEN's balance of
P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to P744,159.80 furnished on several occasions to plaintiff Arturo P. Valenzuela
complain that it committed a mistake in its computation. The alleged error by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 ,
may be given credence if committed only once. But as earlier stated, the ZZ and , ZZ-2).
reconciliation of accounts was arrived at four (4) times on different Prescinding from the foregoing, and considering that the private
occasions where Philamgen was duly represented by its account executives. respondents terminated Valenzuela with evident mala fide it necessarily
On the basis of these admissions and representations, Philamgen cannot follows that the former are liable in damages. Respondent Philamgen has
later on assume a different posture and claim that it was mistaken in its been appropriating for itself all these years the gross billings and income
representation with respect to the correct beginning balance as of July 1977 that it unceremoniously took away from the petitioners. The preponderance
amounting to P744,159.80. The Banaria audit report commissioned by of the authorities sustain the preposition that a principal can be held liable
Philamgen is unreliable since its results are admittedly based on an for damages in cases of unjust termination of agency. In  Danon v. Brimo, 42
unconfirmed and unaudited beginning balance of P1,758,185.43 as of Phil. 133 [1921]), this Court ruled that where no time for the continuance of
August 20,1976. 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 Republic of the Philippines
principal to terminate his authority is absolute and unrestricted, except only SUPREME COURT
that he may not do so in bad faith. Manila
The trial court in its decision awarded to Valenzuela the amount of Seventy SECOND DIVISION
Five Thousand Pesos (P75,000,00) per month as compensatory damages G.R. No. L-28501 September 30, 1982
from June 1980 until its decision becomes final and executory. This award is PEDRO ARCE, plaintiff-appellee,
justified in the light of the evidence extant on record (Exhibits "N", "N-10", vs.
"0", "0-1", "P" and "P-1") showing that the average gross premium THE CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.
collection monthly of Valenzuela over a period of four (4) months from
December 1978 to February 1979, amounted to over P300,000.00 from
ABAD SANTOS, J.:
which he is entitled to a commission of P100,000.00 more or less per
month. Moreover, his annual sales production amounted to P2,500,000.00 In Civil Case No. 66466 of the Court of First Instance of Manila, the Capital
from where he was given 32.5% commissions. Under Article 2200 of the Insurance and Surety Co., Inc., (COMPANY) was ordered to pay Pedro Arce
new Civil Code, "indemnification for damages shall comprehend not only (INSURED) the proceeds of a fire insurance policy. Not satisfied with the
the value of the loss suffered, but also that of the profits which the obligee decision, the company appealed to this Court on questions of law.
failed to obtain." The INSURED was the owner of a residential house in Tondo, Manila, which
The circumstances of the case, however, require that the contractual had been insured with the COMPANY since 1961 under Fire Policy No.
relationship between the parties shall be terminated upon the satisfaction 24204. On November 27, 1965, the COMPANY sent to the INSURED Renewal
of the judgment. No more claims arising from or as a result of the agency Certificate No. 47302 to cover the period December 5, 1965 to December 5,
shall be entertained by the courts after that date. 1966. The COMPANY also requested payment of the corresponding
premium in the amount of P 38.10.
ACCORDINGLY, the petition is GRANTED. The impugned decision of January
29, 1988 and resolution of April 27, 1988 of respondent court are hereby Anticipating that the premium could not be paid on time, the INSURED, thru
SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil his wife, promised to pay it on January 4, 1966. The COMPANY accepted the
Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount promise but the premium was not paid on January 4, 1966. On January 8,
of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR 1966, the house of the INSURED was totally destroyed by fire.
AND 16/100 PESOS (P521,964.16) representing the petitioners Delta On January 10, 1966, INSURED's wife presented a claim for indemnity to the
commission shall earn only legal interests without any adjustments under COMPANY. She was told that no indemnity was due because the premium
Article 1250 of the Civil Code and that the contractual relationship between on the policy was not paid. Nonetheless the COMPANY tendered a check for
Arturo P. Valenzuela and Philippine American General Insurance Company P300.00 as financial aid which was received by the INSURED's daughter,
shall be deemed terminated upon the satisfaction of the judgment as Evelina R. Arce. The voucher for the check which Evelina signed stated that
modified. it was "in full settlement (ex gratia) of the fire loss under Claim No. F-554
SO ORDERED. Policy No. F-24202." Thereafter the INSURED and his wife went to the office
of the COMPANY to have his signature on the check Identified preparatory
to encashment. At that time the COMPANY reiterated that the check was
given "not as an obligation, but as a concession" because the renewal
premium had not been paid, The INSURED cashed the check but then sued
the COMPANY on the policy.
The court  a quo held that since the COMPANY could have demanded It is obvious from both the Insurance Act, as amended, and the stipulation
payment of the premium, mutuality of obligation requires that it should also of the parties that time is of the essence in respect of the payment of the
be liable on its policy. The court a quo  also held that the INSURED was not insurance premium so that if it is not paid the contract does not take effect
bound by the signature of Evelina on the check voucher because he did not unless there is still another stipulation to the contrary. In the instant case,
authorize her to sign the waiver. the INSURED was given a grace period to pay the premium but the period
The appeal is impressed with merit. having expired with no payment made, he cannot insist that the COMPANY
The trial court cited Capital Insurance and Surety Co., Inc. vs. Delgado, L- is nonetheless obligated to him.
18567, Sept. 30, 1963, 9 SCRA 177, to support its first proposition. In that It is to be noted that Delgado  was decided in the light of the Insurance Act
case, this Court said: before Sec. 72 was amended by the addition of the underscored
On the other hand, the preponderance of the evidence shows that appellee portion, supra, Prior to the amendment, an insurance contract was effective
issued fire insurance policy No. C-1137 in favor of appellants covering a even if the premium had not been paid so that an insurer was obligated to
certain property belonging to the latter located in Cebu City; that appellants pay indemnity in case of loss and correlatively he had also the right to sue
failed to pay a balance of P583.95 on the premium charges due, for payment of the premium. But the amendment to Sec. 72 has radically
notwithstanding demands made upon them. As with the issuance of the changed the legal regime in that unless the premium is paid there is no
policy to appellants the same became effective and binding upon the insurance.
contracting parties, the latter can not avoid the obligation of paying the With the foregoing, it is not necessary to dwell at length on the trial court's
premiums agreed upon. In fact, appellant Mario Delgado, in a letter marked second proposition that the INSURED had not authorized his daughter
in the record as Exhibit G, expressly admitted his unpaid account for Evelina to make a waiver because the INSURED had nothing to waive; his
premiums and asked for an extension of time to pay the same. It is clear policy ceased to have effect when he failed to pay the premium.
from the foregoing that appellants are under obligation to pay the amount We commiserate with the INSURED. We are wen aware that many
sued upon. (At p. 180.) insurance companies have fallen into the condemnable practice of
Upon the other hand, Sec. 72 of the Insurance Act, as amended by R.A. No. collecting premiums promptly but resort to all kinds of excuses to deny or
3540 reads: delay payment of just claims. Unhappily the instant case is one where the
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insurer has the law on its side.
insured is exposed to the perils insured against, unless there is clear WHEREFORE, the decision of the court  a quo  is reversed; the appellee's
agreement to grant credit extension for the premium due. No  policy issued complaint is dismissed. No special pronouncement as to costs.
by an insurance company is valid and binding unless and until the premium SO ORDERED.
thereof has been paid " (Italics supplied.) (p. 11, Appellant's Brief.)
Morever, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the
contrary contained in the within policy, this insurance will be deemed valid
and binding upon the Company only when the premium and documentary
stamps therefor have actually been paid in full and duly acknowledged in an
official receipt signed by an authorized official/representative of the
Company, " (pp. 45-46, Record on Appeal.)
 Republic of the Philippines has denied having made such a request. In said Indorsement, plaintiff
SUPREME COURT credited defendant with the amount of P3,110.25 for the unexpired period
Manila of 94 days, and claimed the balance of P7,483.11 representing ,learned
FIRST DIVISION premium from July 21, 1960 to 18th April 1961 or, say 271 days." On July 6,
G.R. No. L-25317 August 6, 1979 1961, plaintiff demanded in writing for the payment of said
amount. 2 Defendant, through counsel, disclaimed any liability in its reply-
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, plaintiff-appellee,
letter of August 15, 1961, contending, in essence, that it need not pay
vs.
premium "because the Insurer did not stand liable for any indemnity during
WOODWORKS, INC., defendant-appellant.
the period the premiums were not paid." 3
Zosimo Rivas for appellant.
On January 30, 1962, plaintiff commenced action in the Court of First
Manuel O. Chan for appellee.
Instance of Manila, Branch IV (Civil Case No. 49468), to recover the amount
of P7,483.11 as "earned premium." Defendant controverted basically on the
MELENCIO-HERRERA, J.: theory that its failure "to pay the premium after the issuance of the policy
This case was certified to this Tribunal by the Court of Appeals in its put an end to the insurance contract and rendered the policy
Resolution of October 4, 1965 on a pure question of law and "because the unenforceable." 4
issues raised are practically the same as those in CA-G.R. No. 32017-R" On September 13, 1962, judgment was rendered in plaintiff's favor
between the same parties, which case had been forwarded to us on April 1, "ordering defendant to pay plaintiff the sum of P7,483.11, with interest
1964. The latter case, "Philippine Phoenix Surety & Insurance Inc. vs. thereon at the rate of 6%, per annum from January 30, 1962, until the
Woodworks, Inc.," docketed in this Court as L-22684, was decided on August principal shall have been fully paid, plus the sum of P700.00 as attorney's
31, 1967 and has been reported in 20 SCRA 1270. fees of the plaintiff, and the costs of the suit." From this adverse Decision,
Specifically, this action is for recovery of unpaid premium on a fire insurance defendant appealed to the Court of Appeals which, as heretofore stated,
policy issued by plaintiff, Philippine Phoenix Surety & Insurance Company, in certified the case to us on a question of law.
favor of defendant Woodworks, Inc. The errors assigned read:
The following are the established facts: 1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A,
On July 21, 1960, upon defendant's application, plaintiff issued in its favor was a binding contract even if the premium stated in the policy has not
Fire Insurance Policy No. 9749 for P500,000.00 whereby plaintiff insured been paid.
defendant's building, machinery and equipment for a term of one year from 2. That the lower court erred in sustaining that the premium in Insurance
July 21, 1960 to July 21, 1961 against loss by fire. The premium and other Policy, Exhibit B, became an obligation which was demandable even after
charges including the margin fee surcharge of P590.76 and the documentary the period in the Policy has expired.
stamps in the amount of P156.60 affixed on the Policy, amounted to 3. The lower court erred in not deciding that a premium not paid is not a
P10,593.36. debt enforceable by action of the insurer.
It is undisputed that defendant did not pay the premium stipulated in the We find the appeal meritorious.
Policy when it was issued nor at any time thereafter.
Insurance is "a contract whereby one undertakes for a consideration to
On April 19, 1961, or before the expiration of the one-year term, plaintiff indemnify another against loss, damage or liability arising from an unknown
notified defendant, through its Indorsement No. F-6963/61, of the or contingent event." 5 The consideration is the "premium". "The premium
cancellation of the Policy allegedly upon request of defendant. 1 The latter
must be paid at the time and in the way and manner specified in the policy From the Policy provisions, we fail to find any clear agreement that a credit
and, if not so paid, the policy will lapse and be forfeited by its own terms." 6 extension was accorded defendant. And even if it were to be presumed
The provisions on premium in the subject Policy read: that plaintiff had extended credit from the circumstances of the
THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of — unconditional delivery of the Policy without prepayment of the premium,
MESSRS. WOODWORKS, INC. — hereinafter called the Insured, paying to yet it is obvious that defendant had not accepted the insurer's offer to
the PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., hereinafter called extend credit, which is essential for the validity of such agreement.
the Company, the sum of — PESOS NINE THOUSAND EIGHT HUNDRED An acceptance of an offer to allow credit, if one was made, is as essential to
FORTY SIX ONLY — the Premium for the first period hereinafter make a valid agreement for credit, to change a conditional delivery of an
mentioned. ... insurance policy to an unconditional delivery, as it is to make any other
xxx xxx xxx contract. Such an acceptance could not be merely a mental act or state of
mind, but would require a promise to pay made known in some manner to
THE COMPANY HEREBY AGREES with the Insured ... that if the Property
defendant. 9
above described, or any part thereof, shall be destroyed or damaged by Fire
or Lightning after payment of Premium, at any time between 4:00 o'clock in In this respect, the instant case differs from that involving the same parties
the afternoon of the TWENTY FIRST day of JULY One Thousand Nine entitled Philippine Phoenix Surety & Insurance Inc. vs. Woodworks,
Hundred and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST Inc., 10 where recovery of the balance of the unpaid premium was allowed
day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis inasmuch as in that case "there was not only a perfected contract of
supplied) insurance but a partially performed one as far as the payment of the agreed
premium was concerned." This is not the situation obtaining here where no
Paragraph "2" of the Policy further contained the following condition:
partial payment of premiums has been made whatsoever.
2. No payment in respect of any premium shall be deemed to be payment to
Since the premium had not been paid, the policy must be deemed to have
the Company unless a printed form of receipt for the same signed by an
lapsed.
Official or duly-appointed Agent of the Company shall have been given to
the Insured. The non-payment of premiums does not merely suspend but put, an end to
an insurance contract, since the time of the payment is peculiarly of the
Paragraph "10" of the Policy also provided:
essence of the contract. 11
10. This insurance may be terminated at any time at the request of the
... the rule is that under policy provisions that upon the failure to make a
Insured, in which case the Company will retain the customary short period
payment of a premium or assessment at the time provided for, the policy
rate for the time the policy has been in force. This insurance may also at any
shall become void or forfeited, or the obligation of the insurer shall cease,
time be terminated at the option of the Company, on notice to that effect
or words to like effect, because the contract so prescribes and because such
being given to the Insured, in which case the Company shall be liable to
a stipulation is a material and essential part of the contract. This is true, for
repay on demand a ratable proportion of the premium for the unexpired
instance, in the case of life, health and accident, fire and hail insurance
term from the date of the cancelment.
policies. 12
Clearly, the Policy provides for pre-payment of premium. Accordingly;
In fact, if the peril insured against had occurred, plaintiff, as insurer, would
"when the policy is tendered the insured must pay the premium unless
have had a valid defense against recovery under the Policy it had issued.
credit is given or there is a waiver, or some agreement obviating the
Explicit in the Policy itself is plaintiff's agreement to indemnify defendant
necessity for prepayment." 7 To constitute an extension of credit there must
for loss by fire only "after payment of premium," supra. Compliance by the
be a clear and express agreement therefor." 8
insured with the terms of the contract is a condition precedent to the right entitled "Plastic Era Manufacturing Co., Inc. versus The Capital Insurance
of recovery. and Surety Co., Inc."
The burden is on an insured to keep a policy in force by the payment of On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc.
premiums, rather than on the insurer to exert every effort to prevent the (hereinafter referred to as Capital Insurance) delivered to the respondent
insured from allowing a policy to elapse through a failure to make premium Plastic Era Manufacturing Co., Inc., (hereinafter referred to as Plastic Era) its
payments. The continuance of the insurer's obligation is conditional upon open Fire Policy No. 22760 1 wherein the former undertook to insure the
the payment of premiums, so that no recovery can be had upon a lapsed latter's building, equipments, raw materials, products and accessories
policy, the contractual relation between the parties having ceased. 13 located at Sheridan Street, Mandaluyong, Rizal. The policy expressly
Moreover, "an insurer cannot treat a contract as valid for the purpose of provides that if the property insured would be destroyed or damaged by fire
collecting premiums and invalid for the purpose of indemnity." 14 after the payment of the premiums, at anytime between the 15th day of
The foregoing findings are buttressed by section 77 of the Insurance Code December 1960 and one o'clock in the afternoon of the 15th day of
(Presidential Decree No. 612, promulgated on December 18, 1974), which December 1961, the insurance company shall make good all such loss or
now provides that no contract of insurance issued by an insurance company damage in an amount not exceeding P100,000.00. When the policy was
is valid and binding unless and until the premium thereof has been paid, delivered, Plastic Era failed to pay the corresponding insurance premium.
notwithstanding any agreement to the contrary. However, through its duly authorized representative, it executed the
following acknowledgment receipt:
WHEREFORE, the judgment appealed from is reversed, and plaintiff's
complaint hereby dismissed. This acknowledged receipt of Fire Policy) NO. 22760 Premium
x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date ---------------------
Republic of the Philippines (Date)
SUPREME COURT
On January 8, 1961, in partial payment of the insurance premium, Plastic Era
Manila
delivered to Capital Insurance, a check 2 for the amount of P1,000.00
FIRST DIVISION postdated January 16, 1961 payable to the order of the latter and drawn
against the Bank of America. However, Capital Insurance tried to deposit the
G.R. No. L-22375 July 18, 1975 check only on February 20, 1961 and the same was dishonored by the bank
THE CAPITAL INSURANCE & SURETY CO., INC., petitioner, for lack of funds. The records show that as of January 19, 1961 Plastic Era
vs. had a balance of P1,193.41 with the Bank of America.
PLASTIC ERA CO., INC., AND COURT OF APPEALS, respondents. On January 18, 1961 or two days after the insurance premium became due,
Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner. at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic
K.V. Faylona for Private respondent. Era was destroyed by fire. In due time, the latter notified Capital Insurance
of the loss of the insured property by fire 3 and accordingly filed its claim for
indemnity thru the Manila Adjustment Company.4 The loss and/or damage
MARTIN, J.:
suffered by Plastic Era was estimated by the Manila Adjustment Company to
Petition for review of a decision of the Court of Appeals affirming the be P283,875. However, according to the records the same property has
decision of the Court of First Instance of Manila in Civil Case No. 47934
been insured by Plastic Era with the Philamgen Insurance Company for The pivotal issue in this petition is whether or not a contract of insurance
P200,000.00. has been duly perfected between the petitioner, Capital Insurance, and
In less than a month Plastic Era demanded from Capital Insurance the respondent Plastic Era. Necessarily, the issue calls for a correct
payment of the sum of P100,000.00 as indemnity for the loss of the insured interpretation of the insurance policy which states:
property under Policy No. 22760 but the latter refused for the reason that, This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA
among others, Plastic Era failed to pay the insurance premium. MANUFACTURING COMPANY, INC. hereinafter called the Insured, paying to
On August 25, 1961, Plastic Era filed its complaint against Capital Insurance the Capital Insurance & Surety Co., Inc., hereinafter called the Company, the
for the recovery of the sum of P100,000.00 plus P25,000.00 for attorney's sum of PESOS TWO THOUSAND ONE HUNDRED EIGHTY EIGHT the premium
fees and P20,000.00 for additional expenses. Capital Insurance filed a for the first period hereinafter mentioned, for insuring against Loss or
counterclaim of P25,000.00 as and for attorney's fees. Damage by only Fire or Lightning, as hereinafter appears, the Property
On November 15, 1961, the trial court rendered judgment, the dispositive hereinafter described and contained, or described herein and not
portion of which reads as follows: elsewhere, in the several sums following namely: PESOS ONE HUNDRED
THOUSAND ONLY, PHILIPPINE CURRENCY; ... THE COMPANY HEREBY
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
AGREES with the Insured but subject to the terms and conditions endorsed
defendant for the sum of P88,325.63 with interest at the legal rate from the
or otherwise expressed hereon, which are to be taken as part of this Policy),
filing of the complaint and to pay the costs.
that if the Property described, or any part thereof, shall be destroyed or
From said decision, Capital Insurance appealed to the Court of Appeals.
damaged by Fire or Lightning after payment of the Premiums, at anytime
On December 5, 1963, the Court of Appeals rendered its decision affirming between the 15th day of December One Thousand Nine Hundred and Sixty
that of the trial court. Hence, this petition for review by certiorari to this and 1 'clock in the afternoon of the 15th day of December One Thousand
Court. Nine Hundred and Sixty-One of the last day of any subsequent period in
Assailing the decision of the Court of Appeals petitioner assigns the respect of which the insured, or a successor in interest to whom the
following errors, to wit: insurance is by an endorsement hereon declared to be or is otherwise
1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER TO PAY continued, shall pay to the Company and the Company shall accept the sum
PLASTIC ERA THE SUM OF P88,325.63 PLUS INTEREST, AND COST OF SUIT, required for the renewal of this Policy, the Company will pay or make good
ALTHOUGH PLASTIC ERA NEVER PAID PETITIONER THE INSURANCE all such loss or Damage, to an amount not exceeding during any one period
PREMIUM OF P2,220.88. of the insurance in respect of the several matters specified, the sum; set
2. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD opposite thereto respectively, and not exceeding the whole sum of PESOS,
HAVE INSTITUTED AN ACTION FOR RESCISSION OF THE INSURANCE ONE HUNDRED THOUSAND ONLY, PHIL. CUR....
CONTRACT ENTERED INTO BETWEEN IT AND PLASTIC ERA BEFORE In clear and unequivocal terms the insurance policy provides that it is only
PETITIONER COULD BE RELIEVED OF RESPONSIBILITY UNDER ITS FIRE upon payment of the premiums by Plastic Era that Capital Insurance
INSURANCE POLICY. agrees to insure the properties of the former against loss or damage in an
3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS amount not exceeding P100,000.00.
UNWARRANTED AND THAT THE PETITIONER SHOULD HAVE BEEN ABSOLVED The crux of the problem then is whether at the time the insurance policy
FROM THE COMPLAINT, AND CONSEQUENTLY, THE LOWER COURT SHOULD was delivered to Plastic Era on December 17, 1960, the latter was able to
HAVE AWARDED PETITIONER A REASONABLE SUM AND AS ATTORNEY'S pay the stipulated premium. It appears on record that on the day the
FEES P25,000.00. insurance policy was delivered, Plastic Era did not pay the Capital Insurance,
but instead executed an acknowledgment receipt of Policy No. 22760. In have accepted the promissory note in payment of the premium. This
said receipt Plastic Era promised to pay the premium within thirty (30) days rendered the policy immediately operative on the date it was delivered. The
from the effectivity date of the policy on December 17, 1960 and Capital view taken in most cases in the United States:
Insurance accepted it. What then is the effect of accepting such ... is that although one of conditions of an insurance policy is that "it shall
acknowledgment receipt from the Plastic Era? Did the Capital Insurance not be valid or binding until the first premium is paid", if it is silent as to the
mean to agree to make good its undertaking under the policy if the mode of payment, promissory notes received by the company must be
premium could be paid on or before January 16, 1961? And what would be deemed to have been accepted in payment of the premium. In other words,
the effect of the delivery to Capital Insurance on January 8, 1961 of a a requirement for the payment of the first or initial premium in advance or
postdated check (January 16, 1961) in the amount of P1,000.00, payable to actual cash may be waived by acceptance of a promissory note ... 7
the order of the latter? Could not this have been considered a valid Precisely, this was what actually happened when the Capital Insurance
payment of the insurance premium? Pursuant to Article 1249 of the New accepted the acknowledgment receipt of the Plastic Era promising to pay
Civil Code: the insurance premium within thirty (30) days from December 17, 1960.
xxx xxx xxx Hence, when the damage or loss of the insured property occurred, the
The delivery of promissory notes payable to order, or bills of exchange or insurance policy was in full force and effect. The fact that the check issued
other mercantile documents shall produce the effect of payment only when by Plastic Era in partial payment of the promissory note was later on
they have been cashed, or when through the fault of the creditor they have dishonored did not in any way operate as a forfeiture of its rights under the
been impaired. policy, there being no express stipulation therein to that effect.
xxx xxx xxx In the absence of express agreement or stipulation to that effect in the
In the meantime, the action derived from the original obligation shall be policy, the non-payment at maturity of a note given for and accepted as
held in abeyance. premium on a policy does not operate to forfeit the rights of the insured
Under this provision the mere delivery of a bill of exchange in payment of a even though the note is given for an initial premium, nor does the fact that
debt does not immediately effect payment. It simply suspends the action the collection of the note had been enjoined by the insured in any way
arising from the original obligation in satisfaction of which it was delivered, affect the policy.8
until payment is accomplished either actually or presumptively. 5 Tender of ... If the check is accepted as payment of the premium even though it turns
draft or check in order to effect payment that would extinguish the debtor's out to be worthless, there is payment which will prevent forfeiture. 9
liability should be actually cashed. 6 If the delivery of the check of Plastic Era By accepting its promise to pay the insurance premium within thirty (30)
to Capital Insurance were to be viewed in the light of the foregoing, no days from the effectivity date of the policy — December 17, 1960 Capital
payment of the premium had been effected, for it is only when the check is Insurance had in effect extended credit to Plastic Era. The payment of the
cashed that it is said to effect payment. premium on the insurance policy therefore became an independent
Significantly, in the case before Us the Capital Insurance accepted the obligation the non-fulfillment of which would entitle Capital Insurance to
promise of Plastic Era to pay the insurance premium within thirty (30) days recover. It could just deduct the premium due and unpaid upon the
from the effective date of policy. By so doing, it has implicitly agreed to satisfaction of the loss under the policy. 10 It did not have the right to cancel
modify the tenor of the insurance policy and in effect, waived the provision the policy for nonpayment of the premium except by putting Plastic Era in
therein that it would only pay for the loss or damage in case the same default and giving it personal notice to that effect. This Capital Insurance
occurs after the payment of the premium. Considering that the insurance failed to do.
policy is silent as to the mode of payment, Capital Insurance is deemed to
... Where credit is given by an insurance company for the payment of the SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,
premium it has no right to cancel the policy for nonpayment except by VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO
putting the insured in default and giving him personal notice.... 11 and ROSABELLA M. RORALDO, petitioners,
On the contrary Capital Insurance had accepted a check for P1,000.00 from vs.
Plastic Era in partial payment of the premium on the insurance policy. COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO.,
Although the check was due for payment on January 16, 1961 and Plastic INC., respondents.
Era had sufficient funds to cover it as of January 19, 1961, Capital Insurance  
decided to hold the same for thirty-five (35) days before presenting it for BELLOSILLO, J.:p
payment. Having held the check for such an unreasonable period of time, May a fire insurance policy be valid, binding and enforceable upon mere
Capital Insurance was estopped from claiming a forfeiture of its policy for partial payment of premium?
non-payment even if the check had been dishonored later.1äwphï1.ñët
On 22 January 1987 private respondent Fortune Life and General Insurance
Where the check is held for an unreasonable time before presenting it for Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of
payment, the insurer may be held estopped from claiming a forfeiture if the Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential
check is dishonored. 12 building located at 5855 Zobel Street, Makati City, together with all their
Finally, it is submitted by petitioner that: personal effects therein. The insurance was for P600,000.00 covering the
We are here concerned with a case of reciprocal obligations, and period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the
respondent having failed to comply with its obligation to pay the insurance total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus
premium due on the policy within thirty days from December 17, 1960, leaving a considerable balance unpaid.
petitioner was relieved of its obligation to pay anything under the policy, On 8 March 1987 the insured building was completely destroyed by fire.
without the necessity of first instituting an action for rescission of the Two days later or on 10 March 1987 Violeta Tibay paid the balance of the
contract of insurance entered into by the parties. premium. On the same day, she filed with FORTUNE a claim on the fire
But precisely in this case, Plastic Era has complied with its obligation to pay insurance policy. Her claim was accordingly referred to its adjuster, Goodwill
the insurance premium and therefore Capital Insurance is obliged to make Adjustment Services, Inc. (GASI), which immediately wrote Violeta
good its undertaking to Plastic Era. requesting her to furnish it with the necessary documents for the
WHEREFORE, finding no reversible error in the decision appealed from, We investigation and processing of her claim. Petitioner forthwith complied. On
hereby affirm the same in toto. Costs against the petitioner. 28 March 1987 she signed a non-waiver agreement with GASI to the effect
SO ORDERED. that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred at
5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
Republic of the Philippines
ascertainment of the amount of actual cash value and loss, shall not waive
SUPREME COURT
or invalidate any condition of the policies of such companies held by said
Manila
claimant, nor the rights of either or any of the parties to this agreement, and
FIRST DIVISION such action shall not be, or be claimed to be, an admission of liability on the
part of said companies or any of them.1
G.R. No. 119655 May 24, 1996 In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for
violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
Efforts to settle the case before the Insurance Commission proved futile. On xxx xxx xxx
3 March 1988 Violets and the other petitioners sued FORTUNE for damages Except only in those specific cases where corresponding rules and
in the amount of P600,000.00 representing the total coverage of the fire regulations which are or may hereafter be in force provide for the payment
insurance policy plus 12% interest per annum, P100,000.00 moral damages, of the stipulated premiums in periodic installments at fixed percentage, it is
and attorney's fees equivalent to 20% of the total claim. hereby declared, agreed and warranted that this policy shall be deemed
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE effective, valid and binding upon the Company only when the premiums
liable for the total value of the insured building and personal properties in therefor have actually been paid in full and duly acknowledged in a receipt
the amount of P600,000.00 plus interest at the legal rate of 6% per annum signed by any authorized official or representative/agent of the Company in
from the filing of the complaint until full payment, and attorney's fees such manner as provided herein. (emphasis supplied). 6
equivalent to 20% of the total amount claimed plus costs of suit. 2 Clearly the Policy provides for payment of premium in full. Accordingly,
On 24 March 1995 the Court of Appeals reversed the court a quo by where the premium has only been partially paid and the balance paid only
declaring FORTUNE not to be liable to plaintiff-appellees therein but after the peril insured against has occurred, the insurance contract did not
ordering defendant-appellant to return to the former the premium of take effect and the insured cannot collect at all on the policy. This is fully
P2,983.50 plus 12% interest from 10 March 1987 until full payment. 3 supported by Sec. 77 of the Insurance Code which provides —
Hence this petition for review with petitioners contending mainly that Sec. 77. An insurer is entitled to payment of the premium as soon as the
contrary to the conclusion of the appellate court, FORTUNE remains liable thing insured is exposed to the peril insured against. Notwithstanding any
under the subject fire insurance policy in spite of the failure of petitioners to agreement to the contrary, no policy or contract of insurance issued by an
pay their premium in full. insurance company is valid and binding unless and until the premium
We find no merit in the petition; hence, we affirm the Court of Appeals. thereof has been paid, except in the case of a life or an industrial life policy
Insurance is a contract whereby one undertakes for a consideration to whenever the grace period provision applies (emphasis supplied).
indemnify another against loss, damage or liability arising from an unknown Apparently the crux of the controversy lies in the phrase "unless and until
or contingent event.4 The consideration is the premium, which must be paid the premium thereof has been paid." This leads us to the manner of
at the time and in the way and manner specified in the policy, and if not so payment envisioned by the law to make the insurance policy operative and
paid, the policy will lapse and be forfeited by its own terms. 5 binding. For whatever judicial construction may be accorded the disputed
The pertinent provisions in the Policy on premium read — phrase must ultimately yield to the clear mandate of the law. The principle
that where the law does not distinguish the court should neither distinguish
THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the
assumes that the legislature made no qualification on the use of a general
Company in accordance with Policy Condition No. 2 of the total premiums by
word or expression. In Escosura v.  San Miguel Brewery, Inc.,7 the Court
the insured as stipulated above for the period aforementioned for insuring
through Mr. Justice Jesus G. Barrera, interpreting the phrase "with pay"
against Loss or Damage by Fire or Lightning as herein appears, the Property
used in connection with leaves of absence with pay granted to employees,
herein described . . .
ruled —
2. This policy including any renewal thereof and/or any endorsement
. . . the legislative practice seems to be that when the intention is to
thereon is not in force until the premium has been fully paid to and duly
distinguish between full and partial payment, the modifying term is used . . .
receipted by the Company in the manner provided herein.
Citing C.A. No. 647 governing maternity leaves of married women in
Any supplementary agreement seeking to amend this condition prepared by
government, R. A. No. 679 regulating employment of women and children,
agent, broker or Company official, shall be deemed invalid and of no effect.
R.A. No. 843 granting vacation and sick leaves to judges of municipal courts
and justices of the peace, and finally, Art. 1695 of the New Civil Code premium since the parties had not otherwise stipulated that prepayment of
providing that every househelp shall be allowed four (4) days vacation each the premium in full was a condition precedent to the existence of a
month, which laws simply stated "with pay," the Court concluded that it was contract.
undisputed that in all these laws the phrase "with pay" used without any In Phoenix, by accepting the initial payment of P3,000.00 and then later
qualifying adjective meant that the employee was entitled to full demanding the remainder of the premium without any other precondition
compensation during his leave of absence. to its enforceability as in the instant case, the insurer in effect had shown its
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the intention to continue with the existing contract of insurance, as in fact it
policy despite partial payment of the premium due and the express was enforcing its right to collect premium, or exact specific performance
stipulation thereof to the contrary, petitioners rely heavily on the 1967 case from the insured. This is not so here. By express agreement of the parties,
of Philippine Phoenix and Insurance Co., Inc.  v.  Woodworks, Inc.8 where the no vinculum juris or bond of law was to be established until full payment
Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial was effected prior to the occurrence of the risk insured against.
court that partial payment of the premium made the policy effective during In Makati Tuscany Condominium Corp.  v.  Court of Appeals9 the parties
the whole period of the policy. In that case, the insurance company mutually agreed that the premiums could be paid in installments, which in
commenced action against the insured for the unpaid balance on a fire fact they did for three (3) years, hence, this Court refused to invalidate the
insurance policy. In its defense the insured claimed that nonpayment of insurance policy. In giving effect to the policy, the Court quoted with
premium produced the cancellation of the insurance contract. Ruling approval the Court of Appeals —
otherwise the Court held — The obligation to pay premiums when due is ordinarily an indivisible
It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued obligation to pay the entire premium. Here, the parties . . . agreed to make
by appellee and delivered to appellant, and that on September 22 of the the premiums payable in installments, and there is no pretense that the
same year, the latter paid to the former the sum of P3,000.00 on account of parties never envisioned to make the insurance contract binding between
the total premium of P6,051.95 due thereon. There is, consequently, no them. It was renewed for two succeeding years, the second and third
doubt at all that, as between the insurer and the insured, there was not only policies being a renewal/replacement for the previous one. And the insured
a perfected contract of insurance but a partially performed one as far as the never informed the insurer that it was terminating the policy because the
payment of the agreed premium was concerned. Thereafter the obligation terms were unacceptable.
of the insurer to pay the insured the amount, for which the policy was While it may be true that under Section 77 of the Insurance Code, the
issued in case the conditions therefor had been complied with, arose and parties may not agree to make the insurance contract valid and binding
became binding upon it, while the obligation of the insured to pay the without payment of premiums, there is nothing in said section which
remainder of the total amount of the premium due became demandable. suggests that the parties may not agree to allow payment of the premiums
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant in installment, or to consider the contract as valid and binding upon
dispute. For one, the factual scenario is different. In Phoenix it was the payment of the first premium. Otherwise we would allow the insurer to
insurance company that sued for the balance of the premium, i.e., it renege on its liability under the contract, had a loss incurred (sic) before
recognized and admitted the existence of an insurance contract with the completion of payment of the entire premium, despite its voluntary
insured. In the case before us, there is, quite unlike in Phoenix, a specific acceptance of partial payments, a result eschewed by basic considerations
stipulation that (t)his policy  . . .  is not in force until the premium has been of fairness and equity . . .
fully paid and duly receipted by the Company  . . .  Resultantly, it is correct to These two (2) cases, Phoenix and Tuscany, adequately demonstrate the
say that in Phoenix a contract was perfected upon partial payment of the waiver, either express or implied, of prepayment in full by the insurer:
impliedly, by suing for the balance of the premium as in Phoenix, and payment bears to the whole
12
expressly, by agreeing to make premiums payable in installments as in payment.
Tuscany. But contrary to the stance taken by petitioners, there is no waiver Applying further the rules of statutory construction, the position maintained
express or implied in the case at bench. Precisely, the insurer and the by petitioners becomes even more untenable. The case of South Sea Surety
insured expressly stipulated that (t)his policy including any renewal thereof and Insurance Company, Inc. v. Court Of Appeals, 13 speaks only of two (2)
and/or any indorsement thereon is not in force until the premium has been statutory exceptions to the requirement of payment of the entire premium
fully paid to and duly receipted by the Company  . . . and that this policy shall as a prerequisite to the validity of the insurance contract. These exceptions
be deemed effective, valid and binding upon the Company only when the are: (a) in case the insurance coverage relates to life or industrial life
premiums therefor have actually been paid in full and duly acknowledged. (health) insurance when a grace period applies, and (b) when the insurer
Conformably with the aforesaid stipulations explicitly worded and taken in makes a written acknowledgment of the receipt of premium, this
conjunction with Sec. 77 of the Insurance Code the payment of partial acknowledgment being declared by law to be then conclusive evidence of
premium by the assured in this particular instance should not be considered the premium payment. 14
the payment required by the law and the stipulation of the parties. Rather, A maxim of recognized practicality is the rule that the expressed exception
it must be taken in the concept of a deposit to be held in trust by the insurer or exemption excludes others. Exceptio firmat regulim in casibus non
until such time that the full amount has been tendered and duly receipted exceptis. The express mention of exceptions operates to exclude other
for. In other words, as expressly agreed upon in the contract, full payment exceptions; conversely, those which are not within the enumerated
must be made before the risk occurs for the policy to be considered exceptions are deemed included in the general rule. Thus, under Sec. 77, as
effective and in force. well as Sec. 78, until the premium is paid, and the law has not expressly
Thus, no vinculum juris whereby the insurer bound itself to indemnify the excepted partial payments, there is no valid and binding contract. Hence, in
assured according to law ever resulted from the fractional payment of the absence of clear waiver of prepayment in full by the insurer, the insured
premium. The insurance contract itself expressly provided that the policy cannot collect on the proceeds of the policy.
would be effective only when the premium was paid in full. It would have In the desire to safeguard the interest of the assured, it must not be ignored
been altogether different were it not so stipulated. Ergo, petitioners had that the contract of insurance is primarily a risk distributing device, a
absolute freedom of choice whether or not to be insured by FORTUNE mechanism by which all members of a group exposed to a particular risk
under the terms of its policy and they freely opted to adhere thereto. contribute premiums to an insurer. From these contributory funds are paid
Indeed, and far more importantly, the cardinal polestar in the construction whatever losses occur due to exposure to the peril insured against. Each
of an insurance contract is the intention of the parties as expressed in the party therefore takes a risk: the insurer, that of being compelled upon the
policy. 10 Courts have no other function but to enforce the same. The rule happening of the contingency to pay the entire sum agreed upon, and the
that contracts of insurance will be construed in favor of the insured and insured, that of parting with the amount required as premium, without
most strongly against the insurer should not be permitted to have the effect receiving anything therefor in case the contingency does not happen. To
of making a plain agreement ambiguous and then construe it in favor of the ensure payment for these losses, the law mandates all insurance companies
insured. 11 Verily, it is elemental law that the payment of premium is to maintain a legal reserve fund in favor of those claiming under their
requisite to keep the policy of insurance in force. If the premium is not paid policies. 15 It should be understood that the integrity of this fund cannot be
in the manner prescribed in the policy as intended by the parties the policy secured and maintained if by judicial fiat partial offerings of premiums were
is ineffective. Partial payment even when accepted as a partial payment will to be construed as a legal nexus between the applicant and the insurer
not keep the policy alive even for such fractional part of the year as the part despite an express agreement to the contrary. For what could prevent the
insurance applicant from deliberately or wilfully holding back full premium naught what has taken actuarians centuries to devise to arrive at a fair and
payment and wait for the risk insured against to transpire and then equitable distribution of risks and benefits between the insurer and the
conveniently pass on the balance of the premium to be deducted from the insured.
proceeds of the insurance? Worse, what if the insured makes an initial The terms of the insurance policy constitute the measure of the insurer's
payment of only 10%, or even 1%, of the required premium, and when the liability. In the absence of statutory prohibition to the contrary, insurance
risk occurs simply points to the proceeds from where to source the balance? companies have the same rights as individuals to limit their liability and to
Can an insurance company then exist and survive upon the payment of 1%, impose whatever conditions they deem best upon their obligations not
or even 10%, of the premium stipulated in the policy on the basis that, after inconsistent with public policy. 17 The validity of these limitations is by law
all, the insurer can deduct from the proceeds of the insurance should the passed upon by the Insurance Commissioner who is empowered to approve
risk insured against occur? all forms of policies, certificates or contracts of insurance which insurers
Interpreting the contract of insurance stringently against the insurer but intend to issue or deliver. That the policy contract in the case at bench was
liberally in favor of the insured despite clearly defined obligations of the approved and allowed issuance simply reaffirms the validity of such policy,
parties to the policy can be carried out to extremes that there is the danger particularly the provision in question.
that we may, so to speak, "kill the goose that lays the golden egg." We are WHEREFORE, the petition is DENIED and the assailed Decision of the Court
well aware of insurance companies falling into the despicable habit of of Appeals dated 24 March 1995 is AFFIRMED.
collecting premiums promptly yet resorting to all kinds of excuses to deny or SO ORDERED.
delay payment of just insurance claims. But, in this case, the law is
Kapunan and Hermosisima, Jr., JJ., concur.
manifestly on the side of the insurer. For as long as the current Insurance
Code remains unchanged and partial payment of premiums is not
mentioned at all as among the exceptions provided in Sees. 77 and 78, no Republic of the Philippines
policy of insurance can ever pretend to be efficacious or effective until SUPREME COURT
premium has been fully paid. Manila
And so it must be. For it cannot be disputed that premium is the elixir FIRST DIVISION
vitae of the insurance business because by law the insurer must maintain a
legal reserve fund to meet its contingent obligations to the public, hence, G.R. No. 95546 November 6, 1992
the imperative need for its prompt payment and full satisfaction. 16 It must MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
be emphasized here that all actuarial calculations and various tabulations of vs.
probabilities of losses under the risks insured against are based on the THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented
sound hypothesis of prompt payment of premiums. Upon this bedrock by American International Underwriters (Phils.), Inc., respondent.
insurance firms are enabled to offer the assurance of security to the public
at favorable rates. But once payment of premium is left to the whim and BELLOSILLO, J.:
caprice of the insured, as when the courts tolerate the payment of a mere
This case involves a purely legal question: whether payment by installment
P600.00 as partial undertaking out of the stipulated total premium of
of the premiums due on an insurance policy invalidates the contract of
P2,983.50 and the balance to be paid even after the risk insured against has
insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance
occurred, as petitioners have done in this case, on the principle that the
Code, as amended, which provides:
strength of the vinculum juris is not measured by any specific amount of
premium payment, we will surely wreak havoc on the business and set to
Sec. 77. An insurer is entitled to the payment of the premium as soon as the 2. Acceptance of this payment shall not waive any of the company rights to
thing is exposed to the peril insured against. Notwithstanding any deny liability on any claim under the policy arising before such payments or
agreement to the contrary, no policy or contract of insurance issued by an after the expiration of the credit clause of the policy; and
insurance company is valid and binding unless and until the premium 3. Subject to no loss prior to premium payment. If there be any loss such is
thereof has been paid, except in the case of a life or an industrial life policy not covered.
whenever the grace period provision applies. Petitioner further claimed that the policy was never binding and valid, and
Sometime in early 1982, private respondent American Home Assurance Co. no risk attached to the policy. It then pleaded a counterclaim for
(AHAC), represented by American International Underwriters (Phils.), Inc., P152,000.00 for the premiums already paid for 1984-85, and in its answer
issued in favor of petitioner Makati Tuscany Condominium Corporation with amended counterclaim, sought the refund of P924,206.10 representing
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building the premium payments for 1982-85.
and premises, for a period beginning 1 March 1982 and ending 1 March After some incidents, petitioner and private respondent moved for
1983, with a total premium of P466,103.05. The premium was paid on summary judgment.
installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16
On 8 October 1987, the trial court dismissed the complaint and the
November 1982, all of which were accepted by private respondent.
counterclaim upon the following findings:
On 10 February 1983, private respondent issued to petitioner Insurance
While it is true that the receipts issued to the defendant contained the
Policy No. AH-CPP-9210596, which replaced and renewed the previous
aforementioned reservations, it is equally true that payment of the
policy, for a term covering 1 March 1983 to 1 March 1984. The premium in
premiums of the three aforementioned policies (being sought to be
the amount of P466,103.05 was again paid on installments on 13 April 1983,
refunded) were made during the lifetime or term of said policies, hence, it
13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All
could not be said, inspite of the reservations, that no risk attached under
payments were likewise accepted by private respondent.
the policies. Consequently, defendant's counterclaim for refund is not
On 20 January 1984, the policy was again renewed and private respondent justified.
issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651,
March 1984 to 1 March 1985. On this renewed policy, petitioner made two
in view of the reservation in the receipts ordinarily issued by the plaintiff on
installment payments, both accepted by private respondent, the first on 6
premium payments the only plausible conclusion is that plaintiff has no right
February 1984 for P52,000.00 and the second, on 6 June 1984 for
to demand their payment after the lapse of the term of said policy on March
P100,000.00. Thereafter, petitioner refused to pay the balance of the
1, 1985. Therefore, the defendant was justified in refusing to pay the
premium.
same. 1
Consequently, private respondent filed an action to recover the unpaid
Both parties appealed from the judgment of the trial court. Thereafter, the
balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
Court of Appeals rendered a decision 2 modifying that of the trial court by
In its answer with counterclaim, petitioner admitted the issuance of ordering herein petitioner to pay the balance of the premiums due on Policy
Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
payment of premiums because the policy did not contain a credit clause in affirming the denial of the counterclaim. The appellate court thus explained
its favor and the receipts for the installment payments covering the policy —
for 1984-85, as well as the two (2) previous policies, stated the following
The obligation to pay premiums when due is ordinarily as indivisible
reservations:
obligation to pay the entire premium. Here, the parties herein agreed to
make the premiums payable in installments, and there is no pretense that
the parties never envisioned to make the insurance contract binding We hold that the subject policies are valid even if the premiums were paid
between them. It was renewed for two succeeding years, the second and on installments. The records clearly show that petitioner and private
third policies being a renewal/replacement for the previous one. And the respondent intended subject insurance policies to be binding and effective
insured never informed the insurer that it was terminating the policy notwithstanding the staggered payment of the premiums. The initial
because the terms were unacceptable. insurance contract entered into in 1982 was renewed in 1983, then in 1984.
While it may be true that under Section 77 of the Insurance Code, the In those three (3) years, the insurer accepted all the installment payments.
parties may not agree to make the insurance contract valid and binding Such acceptance of payments speaks loudly of the insurer's intention to
without payment of premiums, there is nothing in said section which honor the policies it issued to petitioner. Certainly, basic principles of equity
suggests that the parties may not agree to allow payment of the premiums and fairness would not allow the insurer to continue collecting and
in installment, or to consider the contract as valid and binding upon accepting the premiums, although paid on installments, and later deny
payment of the first premium. Otherwise, we would allow the insurer to liability on the lame excuse that the premiums were not prepared in full.
renege on its liability under the contract, had a loss incurred (sic) before We therefore sustain the Court of Appeals. We quote with approval the
completion of payment of the entire premium, despite its voluntary well-reasoned findings and conclusion of the appellate court contained in its
acceptance of partial payments, a result eschewed by a basic considerations Resolution denying the motion to reconsider its Decision —
of fairness and equity. While the import of Section 77 is that prepayment of premiums is strictly
To our mind, the insurance contract became valid and binding upon required as a condition to the validity of the contract, We are not prepared
payment of the first premium, and the plaintiff could not have denied to rule that the request to make installment payments duly approved by the
liability on the ground that payment was not made in full, for the reason insurer, would prevent the entire contract of insurance from going into
that it agreed to accept installment payment. . . . 3 effect despite payment and acceptance of the initial premium or first
Petitioner now asserts that its payment by installment of the premiums for installment. Section 78 of the Insurance Code in effect allows waiver by the
the insurance policies for 1982, 1983 and 1984 invalidated said policies insurer of the condition of prepayment by making an acknowledgment in
because of the provisions of Sec. 77 of the Insurance Code, as amended, and the insurance policy of receipt of premium as conclusive evidence of
by the conditions stipulated by the insurer in its receipts, disclaiming liability payment so far as to make the policy binding despite the fact that premium
for loss for occurring before payment of premiums. is actually unpaid. Section 77 merely precludes the parties from stipulating
It argues that where the premiums is not actually paid in full, the policy that the policy is valid even if premiums are not paid, but does not expressly
would only be effective if there is an acknowledgment in the policy of the prohibit an agreement granting credit extension, and such an agreement is
receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence not contrary to morals, good customs, public order or public policy (De
of an express acknowledgment in the policies of such receipt of the Leon, the Insurance Code, at p. 175). So is an understanding to allow insured
corresponding premium payments, and petitioner's failure to pay said to pay premiums in installments not so proscribed. At the very least, both
premiums on or before the effective dates of said policies rendered them parties should be deemed in estoppel to question the arrangement they
invalid. Petitioner thus concludes that there cannot be a perfected contract have voluntarily accepted. 4
of insurance upon mere partial payment of the premiums because under The reliance by petitioner on Arce vs. Capital Surety and Insurance
Sec. 77 of the Insurance Code, no contract of insurance is valid and binding Co. 5 is unavailing because the facts therein are substantially different from
unless the premium thereof has been paid, notwithstanding any agreement those in the case at bar. In Arce, no payment was made by the insured at all
to the contrary. As a consequence, petitioner seeks a refund of all premium despite the grace period given. In the case before Us, petitioner paid the
payments made on the alleged invalid insurance policies. initial installment and thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the 1984 policy, as indemnity for the burned properties covered by the renewal-
petitioner paid two (2) installments although it refused to pay the balance. replacement policies. The modification consisted in the (1) deletion of the
It appearing from the peculiar circumstances that the parties actually trial court's declaration that three of the policies were in force from August
intended to make three (3) insurance contracts valid, effective and binding, 1991 to August 1992; and (2) reduction of the award of the attorney's fees
petitioner may not be allowed to renege on its obligation to pay the balance from 25% to 10% of the total amount due the Respondent.
of the premium after the expiration of the whole term of the third policy The material operative facts upon which the appealed judgment was based
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by are summarized by the Court of Appeals in its assailed decision as follows:
the appellate court, where the risk is entire and the contract is indivisible, Plaintiff [herein Respondent] obtained from defendant [herein Petitioner]
the insured is not entitled to a refund of the premiums paid if the insurer five (5) insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its
was exposed to the risk insured for any period, however brief or properties [in Pasay City and Manila] . . . .
momentary. All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M.
WHEREFORE, finding no reversible error in the judgment appealed from, the of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs
same is AFFIRMED. Costs against petitioner. properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City
SO ORDERED. were razed by fire. On July 13, 1992, plaintiff tendered, and defendant
accepted, five (5) Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official Receipt Direct
Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant.
On July 14, 1992, Masagana made its formal demand for indemnification for
the burned insured properties. On the same day, defendant returned the
five (5) manager's checks stating in its letter (Exhibit "R" / "8", Record, p.
192) that it was rejecting Masagana's claim on the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for
EN BANC another term;
G.R. No. 137172            April 4, 2001 b) Defendant had put plaintiff and its alleged broker on notice of non-
UCPB GENERAL INSURANCE CO., INC., petitioner, renewal earlier; and
vs. c) The properties covered by the said policies were burned in a fire that took
MASAGANA TELAMART, INC., respondent. place last June 13, 1992, or before tender of premium payment."
RESOLUTION
(Record, p. 5)
DAVIDE, JR., C.J.:
Hence Masagana filed this case.
In our decision of 15 June 1999 in this case, we reversed and set aside the
assailed decision 1 of the Court of Appeals, which affirmed with modification The Court of Appeals disagreed with Petitioner's stand that Respondent's
the judgment of the trial court (a) allowing Respondent to consign the sum tender of payment of the premiums on 13 July 1992 did not result in the
of P225,753.95 as full payment of the premiums for the renewal of the five renewal of the policies, having been made beyond the effective date of
insurance policies on Respondent's properties; (b) declaring the renewal as provided under Policy Condition No. 26, which states:
replacement-renewal policies effective and binding from 22 May 1992 until 26. Renewal Clause. — Unless the company at least forty five days in
22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 advance of the end of the policy period mails or delivers to the assured at
the address shown in the policy notice of its intention not to renew the Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but
policy or to condition its renewal upon reduction of limits or elimination of premium was paid only on February 13, 1990 under O.R. No. 39233 for
coverages, the assured shall be entitled to renew the policy upon payment insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-
of the premium due on the effective date of renewal. 1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but
Both the Court of Appeals and the trial court found that sufficient proof premium therefor was collected only on March 15, 1989 under O.R. NO.
exists that Respondent, which had procured insurance coverage from 38573 for insurance risks coverage from December 15, 1988 to December
Petitioner for a number of years, had been granted a 60 to 90-day credit 15, 1989 (Exhs. "FF" and "FF-1").
term for the renewal of the policies. Such a practice had existed up to the Moreover, according to the Court of Appeals the following circumstances
time the claims were filed. Thus: constitute preponderant proof that no timely notice of non-renewal was
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was made by Petitioner:
issued on May 7, 1990 but premium was paid more than 90 days later on (1) Defendant-appellant received the confirmation (Exhibit "11", Record, p.
August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance 350) from Ultramar Reinsurance Brokers that plaintiff's reinsurance facility
Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, had been confirmed up to 67.5% only on April 15, 1992 as indicated on
1991 was issued by UCPB on May 4, 1990 but premium was collected by Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p.
UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487 320) was sent not earlier than said date, or within 45 days from the expiry
(Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy dates of the policies as provided under Policy Condition No. 26; (2)
No. 34657 covering risks from May 22, 1990 to May 22, 1991 was issued on Defendant insurer unconditionally accepted, and issued an official receipt
May 7, 1990 but premium therefor was paid only on July 19, 1990 under for, the premium payment on July 1[3], 1992 which indicates defendant's
O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 willingness to assume the risk despite only a 67.5% reinsurance cover[age];
covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, and (3) Defendant insurer appointed Esteban Adjusters and Valuers to
1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 investigate plaintiff's claim as shown by the letter dated July 17, 1992
(Exhs. "X" and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage (Exhibit "11", Record, p. 254).
from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but In our decision of 15 June 1999, we defined the main issue to be "whether
premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" the fire insurance policies issued by petitioner to the respondent covering
and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from the period from May 22, 1991 to May 22, 1992 . . . had been extended or
May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium renewed by an implied credit arrangement though actual payment of
therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 premium was tendered on a later date and after the occurrence of the (fire)
(Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks risk insured against." We resolved this issue in the negative in view of
from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. Section 77 of the Insurance Code and our decisions in Valenzuela v. Court of
(Masagana's sister company) dated December 10, 1988 but premium Appeals;  2 South Sea Surety and Insurance Co., Inc. v. Court of
therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set
"BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, aside the decision of the Court of Appeals.
1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for Respondent seasonably filed a motion for the reconsideration of the
insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and adverse verdict. It alleges in the motion that we had made in the decision
"CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989 but our own findings of facts, which are not in accord with those of the trial
premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance court and the Court of Appeals. The courts below correctly found that no
risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1").
notice of non-renewal was made within 45 days before 22 May 1992, or Upon a meticulous review of the records and reevaluation of the issues
before the expiration date of the fire insurance policies. Thus, the policies in raised in the motion for reconsideration and the pleadings filed thereafter
question were renewed by operation of law and were effective and valid on by the parties, we resolved to grant the motion for reconsideration. The
30 June 1992 when the fire occurred, since the premiums were paid within following facts, as found by the trial court and the Court of Appeals, are
the 60- to 90-day credit term. indeed duly established:
Respondent likewise disagrees with our ruling that parties may neither 1. For years, Petitioner had been issuing fire policies to the Respondent, and
agree expressly or impliedly on the extension of credit or time to pay the these policies were annually renewed.
premium nor consider a policy binding before actual payment. It urges the 2. Petitioner had been granting Respondent a 60- to 90-day credit term
Court to take judicial notice of the fact that despite the express provision of within which to pay the premiums on the renewed policies.
Section 77 of the Insurance Code, extension of credit terms in premium 3. There was no valid notice of non-renewal of the policies in question, as
payment has been the prevalent practice in the insurance industry. Most there is no proof at all that the notice sent by ordinary mail was received by
insurance companies, including Petitioner, extend credit terms because Respondent, and the copy thereof allegedly sent to Zuellig was ever
Section 77 of the Insurance Code is not a prohibitive injunction but is merely transmitted to Respondent.
designed for the protection of the parties to an insurance contract. The
4. The premiums for the policies in question in the aggregate amount of
Code itself, in Section 78, authorizes the validity of a policy notwithstanding
P225,753.95 were paid by Respondent within the 60- to 90-day credit term
non-payment of premiums.
and were duly accepted and received by Petitioner's cashier.
Respondent also asserts that the principle of estoppel applies to Petitioner.
The instant case has to rise or fall on the core issue of whether Section 77 of
Despite its awareness of Section 77 Petitioner persuaded and induced
the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to
Respondent to believe that payment of premium on the 60- to 90-day credit
Petitioner's advantage despite its practice of granting a 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days
term for the payment of premiums.
after the due dates. By extending credit and habitually accepting payments
Section 77 of the Insurance Code of 1978 provides:
60 to 90 days from the effective dates of the policies, it has implicitly agreed
to modify the tenor of the insurance policy and in effect waived the SECTION 77. An insurer is entitled to payment of the premium as soon as
provision therein that it would pay only for the loss or damage in case the the thing insured is exposed to the peril insured against. Notwithstanding
same occurred after payment of the premium. 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
Petitioner filed an opposition to the Respondent's motion for
thereof has been paid, except in the case of a life or an industrial life policy
reconsideration. It argues that both the trial court and the Court of Appeals
whenever the grace period provision applies.
overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to
Respondent a notice of non-renewal and sent by personal delivery a copy This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance
thereof to Respondent's broker, Zuellig. Both courts likewise ignored the Code) promulgated on 18 December 1974. In turn, this Section has its
fact that Respondent was fully aware of the notice of non-renewal. A source in Section 72 of Act No. 2427 otherwise known as the Insurance Act
reading of Section 66 of the Insurance Code readily shows that in order for as amended by R.A. No. 3540, approved on 21 June 1963, which read:
an insured to be entitled to a renewal of a non-life policy, payment of the SECTION 72. An insurer is entitled to payment of premium as soon as the
premium due on the effective date of renewal should first be made. thing insured is exposed to the peril insured against, unless there is clear
Respondent's argument that Section 77 is not a prohibitive provision finds agreement to grant the insured credit extension of the premium due. No
no authoritative support. policy issued by an insurance company is valid and binding unless and until
the premium thereof has been paid. (Italic supplied)
It can be seen at once that Section 77 does not restate the portion of installment. Section 78 of the Insurance Code in effect allows waiver by the
Section 72 expressly permitting an agreement to extend the period to pay insurer of the condition of prepayment by making an acknowledgment in
the premium. But are there exceptions to Section 77? the insurance policy of receipt of premium as conclusive evidence of
The answer is in the affirmative. payment so far as to make the policy binding despite the fact that premium
The first exception is provided by Section 77 itself, and that is, in case of a is actually unpaid. Section 77 merely precludes the parties from stipulating
life or industrial life policy whenever the grace period provision applies. that the policy is valid even if premiums are not paid, but does not expressly
prohibit an agreement granting credit extension, and such an agreement is
The second is that covered by Section 78 of the Insurance Code, which
not contrary to morals, good customs, public order or public policy (De
provides:
Leon, The Insurance Code, p. 175). So is an understanding to allow insured
SECTION 78. Any acknowledgment in a policy or contract of insurance of the
to pay premiums in installments not so prescribed. At the very least, both
receipt of premium is conclusive evidence of its payment, so far as to make
parties should be deemed in estoppel to question the arrangement they
the policy binding, notwithstanding any stipulation therein that it shall not
have voluntarily accepted.
be binding until premium is actually paid.
By the approval of the aforequoted findings and conclusion of the Court of
A third exception was laid down in Makati Tuscany Condominium
Appeals, Tuscany has provided a fourth exception to Section 77, namely,
Corporation vs. Court of Appeals, 5 wherein we ruled that Section 77 may
that the insurer may grant credit extension for the payment of the
not apply if the parties have agreed to the payment in installments of the
premium. This simply means that if the insurer has granted the insured a
premium and partial payment has been made at the time of loss. We said
credit term for the payment of the premium and loss occurs before the
therein, thus:
expiration of the term, recovery on the policy should be allowed even
We hold that the subject policies are valid even if the premiums were paid though the premium is paid after the loss but within the credit term.
on installments. The records clearly show that the petitioners and private
Moreover, there is nothing in Section 77 which prohibits the parties in an
respondent intended subject insurance policies to be binding and effective
insurance contract to provide a credit term within which to pay the
notwithstanding the staggered payment of the premiums. The initial
premiums. That agreement is not against the law, morals, good customs,
insurance contract entered into in 1982 was renewed in 1983, then in 1984.
public order or public policy. The agreement binds the parties. Article 1306
In those three years, the insurer accepted all the installment payments.
of the Civil Code provides:
Such acceptance of payments speaks loudly of the insurer's intention to
ARTICLE 1306. The contracting parties may establish such stipulations
honor the policies it issued to petitioner. Certainly, basic principles of equity
clauses, terms and conditions as they may deem convenient, provided they
and fairness would not allow the insurer to continue collecting and
are not contrary to law, morals, good customs, public order, or public policy.
accepting the premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not prepaid in full. Finally in the instant case, it would be unjust and inequitable if recovery on
the policy would not be permitted against Petitioner, which had consistently
Not only that. In Tuscany, we also quoted with approval the following
granted a 60- to 90-day credit term for the payment of premiums despite its
pronouncement of the Court of Appeals in its Resolution denying the
full awareness of Section 77. Estoppel bars it from taking refuge under said
motion for reconsideration of its decision:
Section, since Respondent relied in good faith on such practice. Estoppel
While the import of Section 77 is that prepayment of premiums is strictly
then is the fifth exception to Section 77.
required as a condition to the validity of the contract, We are not prepared
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED
to rule that the request to make installment payments duly approved by the
and SET ASIDE, and a new one is hereby entered DENYING the instant
insurer would prevent the entire contract of insurance from going into
petition for failure of Petitioner to sufficiently show that a reversible error
effect despite payment and acceptance of the initial premium or first
was committed by the Court of Appeals in its challenged decision, which is comprehensive commercial vehicle policy issued by Development Insurance
hereby AFFIRMED  in toto. and Surety Corporation (respondent), viz.:
No pronouncement as to cost. IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and
SO ORDERED. the defendant-appellant ordered to pay the plaintiff-appellee the sum of
₱55,620.60 with interest at 6 percent per annum from the date of the denial
of the claim on October 9, 1996 until payment.
SO ORDERED.5
I
The facts are undisputed. Petitioner was the registered owner of a 1992
Mitsubishi Montero with plate number GTJ-777 (vehicle), while respondent
is a domestic corporation engaged in the insurance business. 6 On September
27, 1996, respondent issued a comprehensive commercial vehicle policy 7 to
petitioner in the amount of ₱1,500,000.00 over the vehicle for a period of
one year commencing on September 27, 1996 up to September 27,
1997.8 Respondent also issued two other commercial vehicle policies to
petitioner covering two other motor vehicles for the same period. 9
To collect the premiums and other charges on the policies, respondent's
agent, Trans-Pacific Underwriters Agency (Trans-Pacific), issued a statement
of account to petitioner's company, Noah's Ark Merchandising (Noah's
Ark).10 Noah's Ark immediately processed the payments and issued a Far
East Bank check dated September 27, 1996 payable to Trans-Pacific on the
same day.11 The check bearing the amount of ₱140,893.50 represents
THIRD DIVISION payment for the three insurance policies, with ₱55,620.60 for the premium
February 27, 2017 and other charges over the vehicle. 12 However, nobody from Trans-Pacific
G.R. No. 190702 picked up the check that day (September 27) because its president and
JAIME T. GAISANO, Petitioner general manager, Rolando Herradura, was celebrating his birthday. Trans-
vs. Pacific informed Noah's Ark that its messenger would get the check the next
DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent day, September 28.13
DECISION In the evening of September 27, 1996, while under the official custody of
Noah's Ark marketing manager Achilles Pacquing (Pacquing) as a service
JARDELEZA, J.:
company vehicle, the vehicle was stolen in the vicinity of SM Megamall at
This is a petition for review on certiorari1 seeking to nullify the Court of Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
Appeals' (CA) September 11, 2009 Decision 2 and November 24, 2009 National Police Traffic Management Command at Camp Crame in Quezon
Resolution3 in CA-G.R. CV No. 81225. The CA reversed the September 24, City.14 Despite search and retrieval efforts, the vehicle was not recovered. 15
2003 Decision4 of the Regional Trial Court (RTC) in Civil Case No. 97-85464.
Oblivious of the incident, Trans-Pacific picked up the check the next day,
The RTC granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the
September 28. It issued an official receipt numbered 124713 dated
September 28, 1996, acknowledging the receipt of ₱55,620.60 for the premium was not yet paid at the time of the loss on September 27, but only
premium and other charges over the vehicle. 16 The check issued to Trans- a day after or on September 28, 1996, when the check was picked up by
Pacific for ₱140,893.50 was deposited with Metrobank for encashment on Trans-Pacific.34 It also found that none of the exceptions to Section 77
October 1, 1996.17 obtains in this case.35 Nevertheless, the CA ordered respondent to return
On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. the premium it received in the amount of ₱55,620.60, with interest at the
Thereafter, petitioner reported the loss and filed a claim with respondent rate of 6% per annum  from the date of the denial of the claim on October 9,
for the insurance proceeds of ₱1,500,000.00. 18 After investigation, 1996 until payment.36
respondent denied petitioner's claim on the ground that there was no Hence petitioner filed this petition. He argues that there was a valid and
insurance contract.19 Petitioner, through counsel, sent a final demand on binding insurance contract between him and respondent. 37 He submits that
July 7, 1997.20 Respondent, however, refused to pay the insurance proceeds it comes within the exceptions to the rule in Section 77 of the Insurance
or return the premium paid on the vehicle. Code that no contract of insurance becomes binding unless and until the
On October 9, 1997, petitioner filed a complaint for collection of sum of premium thereof has been paid. The prohibitive tenor of Section 77 does
money and damages21 with the RTC where it sought . to collect the not apply because the parties stipulated for the payment of
insurance proceeds from respondent. In its Answer, 22 respondent asserted premiums.38 The parties intended the contract of insurance to be
that the non-payment of the premium rendered the policy ineffective. The immediately effective upon issuance, despite non-payment of the premium,
premium was received by the respondent only on October 2, 1996, and because respondent trusted petitioner. 39 He adds that respondent waived
there was no known loss covered by the policy to which the payment could its right to a pre-payment in full of the terms of the policy, and is in
be applied.23 estoppel.40
In its Decision24 dated September 24, 2003, the RTC ruled in favor of Petitioner also argues that assuming he is not entitled to recover insurance
petitioner. It considered the premium paid as of September 27, even if the proceeds, but only to the return of the premiums paid, then he should be
check was received only on September 28 because (1) respondent's agent, able to recover the full amount of ₱140,893.50, and not merely
Trans-Pacific, acknowledged payment of the premium on that date, ₱55,620.60.41 The insurance policy covered three vehicles yet respondent's
September 27, and (2) the check that petitioner issued was honored by intention was merely to disregard the contract for only the lost
respondent in acknowledgment of the authority of the agent to receive vehicle.42 According to petitioner, the principle of mutuality of contracts is
it.25 Instead of returning the premium, respondent sent a checklist of violated, at his expense, if respondent is allowed to be excused from
requirements to petitioner and assigned an underwriter to investigate the performance on the insurance contract only for one vehicle, but not as to
claim.26 The RTC ruled that it would be unjust and inequitable not to allow a the two others, just because no loss is suffered as to the two. To allow this
recovery on the policy while allowing respondent to retain the premium "would be to place exclusively in the hands of one of the contracting parties
paid.27 Thus, petitioner was awarded an indemnity of ₱l,500,000.00 and the right to decide whether the contract should stand or not x x x. " 43
attorney's fees of ₱50,000.00.28 For failure of respondent to file its comment to the petition, we declared
After respondent's motion for reconsideration was denied, 29 it filed a Notice respondent to have waived its right to file a comment in our June 15, 2011
of Appeal.30 Records were forwarded to the CA.31 Resolution.44
The CA granted respondent's appeal. 32 The CA upheld respondent's position The lone issue here is whether there is a binding insurance contract
that an insurance contract becomes valid and binding only after the between petitioner and respondent.
premium is paid pursuant to Section 77 of the Insurance Code (Presidential II
Decree No. 612, as amended by Republic Act No. 10607). 33 It found that the We deny the petition.
Insurance is a contract whereby one undertakes for a consideration to receiving anything therefor in case the contingency does not happen. To
indemnify another against loss, damage or liability arising from an unknown ensure payment for these losses, the law mandates all insurance companies
or contingent event.45 Just like any other contract, it requires a cause or to maintain a legal reserve fund in favor of those claiming under their
consideration. The consideration is the premium, which must be paid at the policies. It should be understood that the integrity of this fund cannot be
time and in the way and manner specified in the policy. 46 If not so paid, the secured and maintained if by judicial fiat partial offerings of premiums were
policy will lapse and be forfeited by its own terms. 47 to be construed as a legal nexus  between the applicant and the insurer
The law, however, limits the parties' autonomy as to when payment of despite an express agreement to the contrary. For what could prevent the
premium may be made for the contract to take effect. The general rule in insurance applicant from deliberately or willfully holding back full premium
insurance laws is that unless the premium is paid, the insurance policy is not payment and wait for the risk insured against to transpire and then
valid and binding.48 Section 77 of the Insurance Code, applicable at the time conveniently pass on the balance of the premium to be deducted from the
of the issuance of the policy, provides: proceeds of the insurance? x x x
Sec. 77. An insurer is entitled to payment of the premium as soon as the xxx
thing insured is exposed to the peril insured against. Notwithstanding any And so it must be. For it cannot be disputed that premium is the elixir
agreement to the contrary, no policy or contract of insurance issued by an vitae  of the insurance business because by law the insurer must maintain a
insurance company is valid and binding unless and until the premium legal reserve fund to meet its contingent obligations to the public, hence,
thereof has been paid, except in the case of a life or an industrial life policy the imperative need for its prompt payment and full satisfaction. It must be
whenever the grace period provision applies. emphasized here that all actuarial calculations and various tabulations of
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. probabilities of losses under the risks insured against are based on the
We explained that in an insurance contract, both the insured and insurer sound hypothesis of prompt payment of premiums. Upon this bedrock
undertake risks. On one hand, there is the insured, a member of a group insurance firms are enabled to offer the assurance of security to the public
exposed to a particular peril, who contributes premiums under the risk of at favorable rates. x x x50 (Citations omitted.)
receiving nothing in return in case the contingency does not happen; on the Here, there is no dispute that the check was delivered to and was accepted
other, there is the insurer, who undertakes to pay the entire sum agreed by respondent's agent, Trans-Pacific, only on September 28, 1996. No
upon in case the contingency happens. This risk-distributing mechanism payment of premium had thus been made at the time of the loss of the
operates under a system where, by prompt payment of the premiums, the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific
insurer is able to meet its legal obligation to maintain a legal reserve fund was informed that the check was ready for pick-up on September 27, 1996,
needed to meet its contingent obligations to the public. The premium, the notice of the availability of the check, by itself, does not produce the
therefore, is the elixir vitae  or source of life of the insurance business: effect of payment of the premium. Trans-Pacific could not be considered in
In the desire to safeguard the interest of the assured, it must not be ignored delay in accepting the check because when it informed petitioner that it will
that the contract of insurance is primarily a risk-distributing device, a only be able to pick-up the check the next day, petitioner did not protest to
mechanism by which all members of a group exposed to a particular risk this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss,
contribute premiums to an insurer. From these contributory funds are paid there was no payment of premium yet to make the insurance policy
whatever losses occur due to exposure to the peril insured against. Each effective.
party therefore takes a risk: the insurer, that of being compelled upon the There are, of course, exceptions to the rule that no insurance contract takes
happening of the contingency to pay the entire sum agreed upon, and the effect unless premium is paid. In UCPB General Insurance Co., Inc. v.
insured, that of parting with the amount required as premium. without Masagana Telamart, Inc.,51 we said:
It can be seen at once that Section 77 does not restate the portion of installment. Section 78 of the Insurance Code in effect allows waiver by the
Section 72 expressly permitting an agreement to extend the period to pay insurer of the condition of prepayment by making an acknowledgment in
the premium. But are there exceptions to Section 77? the insurance policy of receipt of premium as conclusive evidence of
The answer is in the affirmative. payment so far as to make the policy binding despite the fact that premium
The first exception is provided by Section 77 itself, and that is, in case of a is actually unpaid. Section 77 merely precludes the parties from stipulating
life or industrial life policy whenever the grace period provision applies. that the policy is valid even if premiums are not paid, but does not expressly
prohibit an agreement granting credit extension, and such an agreement is
The second is that covered by Section 78 of the Insurance Code, which
not contrary to morals, good customs, public order or public policy (De
provides:
Leon, The Insurance Code, p. 175). So is an understanding to allow insured
SEC. 78. Any acknowledgment in a policy or contract of insurance of the
to pay premiums in installments not so prescribed. At the very least, both
receipt of premium is conclusive evidence of its payment, so far as to make
parties should be deemed in estoppel to question the arrangement they
the policy binding, notwithstanding any stipulation therein that it shall not
have voluntarily accepted.
be binding until premium is actually paid.
By the approval of the aforequoted findings and conclusion of the Court of
A third exception was laid down in Makati Tuscany Condominium
Appeals, Tuscany  has provided a fourth exception to Section 77, namely,
Corporation vs. Court of Appeals,  wherein we ruled that Section 77 may not
that the insurer may grant credit extension for the payment of the
apply if the parties have agreed to the payment in installments of the
premium. This simply means that if the insurer has granted the insured a
premium and partial payment has been made at the time of loss. We said
credit term for the payment of the premium and loss occurs before the
therein, thus:
expiration of the tem1, recovery on the policy should be allowed even
We hold that the subject policies are valid even if the premiums were paid though the premium is paid after the loss but within the credit term.
on installments. The records clearly show that the petitioners and private
xxx
respondent intended subject insurance policies to be binding and effective
Finally in the instant case, it would be unjust and inequitable if recovery on
notwithstanding the staggered payment of the premiums. The initial
the policy would not be permitted against Petitioner, which had consistently
insurance contract entered into in 1982 was renewed in 1983, then in 1984.
granted a 60- to 90-day credit term for the payment of premiums despite its
In those three years, the insurer accepted all the installment payments.
full awareness of Section 77. Estoppel bars it from taking refuge under said
Such acceptance of payments speaks loudly of the insurer's intention to
Section, since Respondent relied in good faith on such practice. Estoppel
honor the policies it issued to petitioner. Certainly, basic principles of equity
then is the fifth exception to Section 77. 52 (Citations omitted.)
and fairness would not allow the insurer to continue collecting and
accepting the premiums, although paid on installments, and later deny In UCPB General Insurance Co., Inc.,  we summarized the exceptions as
liability on the lame excuse that the premiums were not prepaid in full. follows: (1) in case of life or industrial life policy, whenever the grace period
provision applies, as expressly provided by Section 77 itself; (2) where the
Not only that. In Tuscany,  we also quoted with approval the following
insurer acknowledged in the policy or contract of insurance itself the receipt
pronouncement of the Court of Appeals in its Resolution denying the
of premium, even if premium has not been actually paid, as expressly
motion for reconsideration of its decision:
provided by Section 78 itself; (3) where the parties agreed that premium
While the import of Section 77 is that prepayment of premiums is strictly
payment shall be in installments and partial payment has been made at the
required as a condition to the validity of the contract, We are not prepared
time of loss, as held in Makati Tuscany Condominium Corp. v. Court of
to rule that the request to make installment payments duly approved by the
Appeals;53(4) where the insurer granted the insured a credit term for the
insurer would prevent the entire contract of insurance from going into
payment of the premium, and loss occurs before the expiration of the term,
effect despite payment and acceptance of the initial premium or first
as held in Makati Tuscany Condominium Corp.;  and (5) where the insurer is unless and until the premium thereof has been paid, x x x." Moreover, the
in estoppel  as when it has consistently granted a 60 to 90-day credit term policy itself states:
for the payment of premiums. WHEREAS THE INSURED, by his corresponding proposal and declaration, and
The insurance policy in question does not fall under the first to third which shall be the basis of this Contract and deemed incorporated herein,
exceptions laid out in UCPB General Insurance Co., Inc.:  (1) the policy is not has applied to the company for the insurance hereinafter contained, subject
a life or industrial life policy; (2) the policy does not contain an to the payment of the Premium as consideration for such
acknowledgment of the receipt of premium but merely a statement of insurance.57 (Emphasis supplied.)
account on its face;54 and (3) no payment of an installment was made at the The policy states that the insured's application for the insurance is subject
time of loss on September 27. to the payment of the premium.1âwphi1 There is no waiver of pre-
Petitioner argues that his case falls under the fourth and fifth exceptions payment, in full or in installment, of the premiums under the policy.
because the parties intended the contract of insurance to be immediately Consequently, respondent cannot be placed in estoppel.
effective upon issuance, despite non-payment of the premium. This waiver Thus, we find that petitioner is not entitled to the insurance proceeds
to a pre-payment in full of the premium places respondent in estoppel. because no insurance policy became effective for lack of premium payment.
We do not agree with petitioner. The consequence of this declaration is that petitioner is entitled to a return
The fourth and fifth exceptions to Section 77 operate under the facts of the premium paid for the vehicle in the amount of ₱55,620.60 under the
obtaining in Makati Tuscany Condominium Corp.  and UCPB General principle of unjust enrichment. There is unjust enrichment when a person
Insurance Co., Inc.  Both contemplate situations where the insurers have unjustly retains a benefit to the loss of another, or when a person retains
consistently granted the insured a credit extension or term for the payment money or property of another against the fundamental principles of justice,
of the premium. Here, however, petitioner failed to establish the fact of a equity and good conscience. 58 Petitioner cannot claim the full amount of
grant by respondent of a credit term in his favor, or that the grant has been ₱140,893.50, which includes the payment of premiums for the two other
consistent. While there was mention of a credit agreement between Trans- vehicles. These two policies are not affected by our ruling on the policy
Pacific and respondent, such arrangement was not proven and was internal subject of this case because they were issued as separate and independent
between agent and principal.55 Under the principle of relativity of contracts, contracts of insurance.59 We, however, find that the award shall earn legal
contracts bind the parties who entered into it. It cannot favor or prejudice a interest of 6% from the time of extra judicial demand on July 7, 1997. 60
third person, even if he is aware of the contract and has acted with WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated
knowledge.56 September 11, 2009 and the Resolution dated November 24, 2009
We cannot sustain petitioner's claim that the parties agreed that the are AFFIRMED with the MODIFICATION that respondent should return the
insurance contract is immediately effective upon issuance despite amount of P55,620.60 with the legal interest computed at the rate of
nonpayment of the premiums.1âwphi1 Even if there is a waiver of pre- 6% per annum  reckoned from July 7, 1997 until finality of this judgment.
payment of premiums, that in itself does not become an exception to Thereafter, the total amount shall earn interest at the rate of 6% per
Section 77, unless the insured clearly gave a credit term or extension. This is annum  from the finality of this judgment until its full satisfaction.
the clear import of the fourth exception in the UCPB General Insurance Co., SO ORDERED.
Inc.  To rule otherwise would render nugatory the requirement in Section 77
that "[n]otwithstanding any agreement to the contrary, no policy or
 
contract of insurance issued by an insurance company is valid and binding