SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, to return to the former the premium of P2,983.
turn to the former the premium of P2,983.50 plus 12% interest from 10 March 1987
VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and
ROSABELLA M. RORALDO, petitioners, vs. CA and FORTUNE LIFE AND GENERAL
INSURANCE CO., INC. [G.R. No. 119655. May 24, 1996]
May a fire insurance policy be valid, binding and enforceable upon mere partial payment
of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc.
(FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or
Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street,
Makati City, together with all their personal effects therein. The insurance was for
P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January
1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus
leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days
later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day,
she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly
referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately
wrote Violeta requesting her to furnish it with the necessary documents for the
investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987
she signed a non-waiver agreement with GASI to the effect that any action taken by the
companies or their representatives in investigating the claim made by the claimant for his loss which
occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of
the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of
such companies held by said claimant, nor the rights of either or any of the parties to this agreement,
and such action shall not be, or be claimed to be, an admission of liability on the part of said
companies or any of them.[1]
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of
Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before
the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners
sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage
of the fire insurance policy plus 12% interest per annum, P 100,000.00 moral damages, and
attorneys fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable
for the total value of the insured building and personal properties in the amount of
P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint
until full payment, and attorneys fees equivalent to 20% of the total amount claimed plus
costs of suit.[2]
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring
FORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellant
until full payment.[3]
Hence this petition for review with petitioners contending mainly that contrary to
the conclusion of the appellate court, FORTUNE remains liable under the subject fire
insurance policy inspite of the failure of petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. [4] The
consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own
terms.[5]
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in
accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above
for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as
herein appears, the Property herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon is not in
force until the premium has been fully paid to and duly receipted by the Company in the
manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker
or Company official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or
may hereafter be in force provide for the payment of the stipulated premiums in periodic
installments at fixed percentage, it is hereby declared, agreed and warranted that this policy
shall be deemed effective, valid and binding upon the Company only when the premiums therefor
have actually been paid in full and duly acknowledged in a receipt signed by any authorized
official or representative/agent of the Company in such manner as provided herein, (Italics
supplied).[6]
Clearly the Policy provides for payment of premium in full. Accordingly, where the
premium has only been partially paid and the balance paid only after the peril insured
against has occurred, the insurance contract did not take effect and the insured cannot
collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which
provides
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies (Italics supplied).
Apparently the crux of the controversy lies in the phrase unless and until the premium
thereof has been paid. This leads us to the manner of payment envisioned by the law to make
the insurance policy operative and binding. For whatever judicial construction may be
accorded the disputed phrase must ultimately yield to the clear mandate of the law. The
principle that where the law does not distinguish the court should neither distinguish
assumes that the legislature made no qualification on the use of a general word or
expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court through Mr. Justice Jesus G.
Barrera, interpreting the phrase with pay used in connection with leaves of absence with
pay granted to employees, ruled -
x x x the legislative practice seems to be that when the intention is to distinguish between
full and partial payment, the modifying term is used x x x
Citing C. A. No. 647 governing maternity leaves of married women in government, R. A.
No. 679 regulating employment of women and children, R.A. No. 843 granting vacation
and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. 1695
of the New Civil Code providing that every househelp shall be allowed four (4) days
vacation each month, which laws simply stated with pay, the Court concluded that it was
undisputed that in all these laws the phrase with pay used without any qualifying adjective
meant that the employee was entitled to full compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy
despite partial payment of the premium due and the express stipulation thereof to the
contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co.,
Inc. v. Woodworks, Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained
the ruling of the trial court that partial payment of the premium made the policy effective
during the whole period of the policy. In that case, the insurance company commenced
action against the insured for the unpaid balance on a fire insurance policy. In its defense
the insured claimed that nonpayment of premium produced the cancellation of the
insurance contract. Ruling otherwise the Court held
It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee
and delivered to appellant, and that on September 22 of the same year, the latter paid to the
former the sum of P3,000.00 on account of the total premium of P6,051.95 due
thereon. There is, consequently, no doubt at all that, as between the insurer and the
insured, there was not only a perfected contract of insurance but a partially performed one
as far as the payment of the agreed premium was concerned. Thereafter the obligation of
the insurer to pay the insured the amount, for which the policy was issued in case the
conditions therefor had been complied with, arose and became binding upon it, while the
obligation of the insured to pay the remainder of the total amount of the premium due
became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one,
the factual scenario is different. In Phoenix it was the insurance company that sued for the
balance of the premium, i.e., it recognized and admitted the existence of an insurance
contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific
stipulation that (t)his policy xxx is not in force until the premium has been fully paid and duly
receipted by the Company x x x. Resultantly, it is correct to say that in Phoenix a contract was
perfected upon partial payment of the premium since the parties had not otherwise
stipulated that prepayment of the premium in full was a condition precedent to the
existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the
remainder of the premium without any other precondition to its enforceability as in the
instant case, the insurer in effect had shown its intention to continue with the existing
contract of insurance, as in fact it was enforcing its right to collect premium, or exact
specific performance from the insured. This is not so here. By express agreement of the
parties, novinculum juris or bond of law was to be established until full payment was
effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed
that the premiums could be paid in installments, which in fact they did for three (3) years,
hence, this Court refused to invalidate the insurance policy. In giving effect to the policy,
the Court quoted with approval the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the
entire premium. Here, the parties x x x agreed to make the premiums payable in
installments, and there is no pretense that the parties never envisioned to make the
insurance contract binding between them. It was renewed for two succeeding years, the
second and third policies being a renewal/replacement for the previous one. And the
insured never informed the insurer that it was terminating the policy because the terms
were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties may not agree
to make the insurance contract valid and binding without payment of premiums, there is
nothing in said section which suggests that the parties may not agree to allow payment of
the premiums in installment, or to consider the contract as valid and binding upon
payment of the first premium. Otherwise we would allow the insurer to renege on its
liability under the contract, had a loss incurred (sic) before completion of payment of the
entire premium, despite its voluntary acceptance of partial payments, a result eschewed by
basic considerations of fairness and equity x x x.
 These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either
express or implied, of prepayment in full by the insurer: impliedly, by suing for the balance
of the premium as inPhoenix, and expressly, by agreeing to make premiums payable in
installments as in Tuscany. But contrary to the stance taken by petitioners, there is no
waiver express or implied in the case at bench. Precisely, the insurer and the insured
expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement
thereon is not in force until the premium has been fully paid to and duly receipted by the Company x
x x and that this policy shall be deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in
conjunction with Sec. 77 of the Insurance Code the payment of partial premium by the
assured in this particular instance should not be considered the payment required by the
law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to
be held in trust by the insurer until such time that the full amount has been tendered and
duly receipted for. In other words, as expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured
according to law ever resulted from the fractional payment of premium. The insurance
contract itself expressly provided that the policy would be effective only when the
premium was paid in full. It would have been altogether different were it not so
stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured
by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an
insurance contract is the intention of the parties as expressed in the policy.[10] Courts have
no other function but to enforce the same. The rule that contracts of insurance will be
construed in favor of the insured and most strongly against the insurer should not be
permitted to have the effect of making a plain agreement ambiguous and then construe it
in favor of the insured.[11] Verily, it is elemental law that the payment of premium is
requisite to keep the policy of insurance in force. If the premium is not paid in the manner
prescribed in the policy as intended by the parties the policy is ineffective. Partial payment
even when accepted as a partial payment will not keep the policy alive even for such
fractional part of the year as the part payment bears to the whole payment.[12]
Applying further the rules of statutory construction, the position maintained by
petitioners becomes even more untenable. The case ofSouth Sea Surety and Insurance
Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutory exceptions to the
requirement of payment of the entire premium as a prerequisite to the validity of the
insurance contract. These exceptions are: (a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace period applies, and (b) when the insurer
makes a written acknowledgment of the receipt of premium, this acknowledgment being
declared by law to, be then conclusive evidence of the premium payment. [14]
A maxim of recognized practicality is the rule that the expressed exception or
exemption excludes others. Exceptio firm at regulim in casibus non exceptis. The express
mention of exceptions operates to exclude other exceptions; conversely, those which are not
within the enumerated exceptions are deemed included in the general rule. Thus, under
Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted
partial payments, there is no valid and binding contract. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of
the policy.
In the desire to safeguard the interest of the assured, itmust not be ignored that the
contract of insurance is primarily a risk-distributing device, a mechanism by which all
members of a group exposed to a particular risk contribute premiums to an insurer. From
these contributory funds are paid whatever losses occur due to exposure to the peril
insured against. Each party therefore takes a risk: the insurer, that of being compelled upon
the happening of the contingency to pay the entire sum agreed upon, and the insured, that
of parting with the amount required as premium, without receiving anything therefor in
case the contingency does not happen. To ensure payment for these losses, the law
mandates all insurance companies to maintain a legal reserve fund in favor of those
claiming under their policies.[15] It should be understood that the integrity of this fund
cannot be secured and maintained if by judicial fiat partial offerings of premiums were to
be construed as a legal nexus between the applicant and the insurer despite an express
agreement to the contrary. For what could prevent the insurance applicant from
deliberately or wilfully holding back full premium payment and wait for the risk insured
against to transpire and then conveniently pass on the balance of the premium to be
deducted from the proceeds of the insurance? Worse, what if the insured makes an initial
payment of only 10%, or even 1%, of the required premium, and when the risk occurs
simply points to the proceeds from where to source the balance? Can an insurance
company then exist and survive upon the payment of 1%, or even 10%, of the premium
stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds
of the insurance should the risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in
favor of the insured despite clearly defined obligations of the parties to the policy can be
carried out to extremes that there is the danger that we may, so to speak, kill the goose that
lays the golden egg. We are well aware of insurance companies falling into the despicable
habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay
payment of just insurance claims. But, in this case, the law is manifestly on the side of the
insurer. For as long as the current Insurance Code remains unchanged and partial payment
of premiums is not mentioned at all as among the exceptions provided in Secs. 77 and 78,
no policy of insurance can ever pretend to be efficacious or effective until premium has
been fully paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the
insurance business because by law the insurer must maintain a legal reserve fund to meet
its contingent obligations to the public, hence, the imperative need for its prompt payment
and full satisfaction.[16] It must be emphasized here that all actuarial calculations and
various tabulations of probabilities of losses under the risks insured against are based on
the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms
are enabled to offer the assurance of security to the public at favorable rates. But once
payment of premium is left to the whim and caprice of the insured, as when the courts
tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total
premium of P2,983.50 and the balance to be paid even after the risk insured against has
occurred, as petitioners have done in this case, on the principle that the strength of
the vinculumjuris is not measured by any specific amount of premium payment, we will
surely wreak havoc on the business and set to naught what has taken actuarians centuries
to devise to arrive at a fair and equitable distribution of risks and benefits between the
insurer and the insured.

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

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals dated 24 March 1995 is AFFIRMED.
AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.
[G.R. No. 138941. October 8, 2001]
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of
Appeals in CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in
toto the Decision of the Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51
dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and
refining industry. It owns two oil mills. Both are located at its factory compound at Iyam,
Lucena City. It appears that respondent commenced its business operations with only one
oil mill. In 1988, it started operating its second oil mill. The latter came to be commonly
referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued by
petitioner American Home Assurance Co., Philippine Branch.[1] The first oil mill was
insured for three million pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the
period March 1, 1991 to 1992.[2] The new oil mill was insured for six million pesos
(P6,000,000.00) under Policy No. 306-7432321-9 for the same term.[3] Official receipts
indicating payment for the full amount of the premium were issued by the petitioner's
agent.[4]
A fire that broke out in the early morning of September 30,1991 gutted and
consumed the new oil mill. Respondent immediately notified the petitioner of the
incident. The latter then sent its appraisers who inspected the burned premises and the
properties destroyed. Thereafter, in a letter dated October 15, 1991, petitioner rejected
respondents claim for the insurance proceeds on the ground that no policy was issued by it
covering the burned oil mill. It stated that the description of the insured establishment
referred to another building thus: Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4
(Ps 3M) extend insurance coverage to your oil mill under Building No. 5, whilst the
affected oil mill was under Building No. 14.[5]
A complaint for specific performance and damages was consequently instituted by
the respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the
lower court rendered a Decision finding the petitioner liable on the insurance policy thus:
WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay
plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest
at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorneys fees; and
(d) Pay the costs.SO ORDERED.[6]
Petitioner assailed this judgment before the Court of Appeals. The appellate court
upheld the same in a Decision promulgated on January 14, 1999, the pertinent portion of
which states:WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and
the trial courts Decision dated October 16, 1995 is hereby AFFIRMED in toto.SO
ORDERED.[7]
Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in
a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court
the following errors:
(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the
premium was beyond its jurisdiction because it was raised for the first time on
appeal.[8]
(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing
Appliances Warranty' of the policy.[9]
(3) With due respect, the conclusion of the Court of Appeals giving no regard to the
parole evidence rule and the principle of estoppel is erroneous.[10] The petition is
devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the
respondent is that the burned oil mill is not covered by any insurance policy. According to
it, the oil mill insured is specifically described in the policy by its boundaries in the
following manner:
Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance.
However, it argues that this specific boundary description clearly pertains, not to the
burned oil mill, but to the other mill. In other words, the oil mill gutted by fire was not the
one described by the specific boundaries in the contested policy.
What exacerbates respondents predicament, petitioner posits, is that it did not have
the supposed wrong description or mistake corrected. Despite the fact that the policy in
question was issued way back in 1988, or about three years before the fire, and despite the
Important Notice in the policy that Please read and examine the policy and if incorrect, return it
immediately for alteration, respondent apparently did not call petitioners attention with
respect to the misdescription.
By way of conclusion, petitioner argues that respondent is barred by the parole
evidence rule from presenting evidence (other than the policy in question) of its self-
serving intention (sic) that it intended really to insure the burned oil mill, just as it is barred
by estoppel from claiming that the description of the insured oil mill in the policy was
wrong, because it retained the policy without having the same corrected before the fire by
an endorsement in accordance with its Condition No. 28.
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality
is shown by the courts in giving effect to the insurance.[11] In view of the custom of
insurance agents to examine buildings before writing policies upon them, and since a
mistake as to the identity and character of the building is extremely unlikely, the courts are
inclined to consider that the policy of insurance covers any building which the parties
manifestly intended to insure, however inaccurate the description may be.[12]
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to
our mind, that what the parties manifestly intended to insure was the new oil mill. This is
obvious from the categorical statement embodied in the policy, extending its protection:
On machineries and equipment with complete accessories usual to a coconut oil mill
including stocks of copra, copra cake and copra mills whilst contained in the new oil
mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM,
LUCENA CITY UNBLOCKED.[13](emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no need to specify it
as new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill
for different amounts and leave uncovered its second one. As mentioned earlier, the first
oil mill is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is
unthinkable for respondent to obtain the other policy from the very same company. The
latter ought to know that a second agreement over that same realty results in its
overinsurance.
The imperfection in the description of the insured oil mills boundaries can be
attributed to a misunderstanding between the petitioners general agent, Mr. Alfredo Borja,
and its policy issuing clerk, who made the error of copying the boundaries of the first oil
mill when typing the policy to be issued for the new one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco
is to cover the new oil mill that is why when I presented the existing policy of the
old policy, the policy issuing clerk just merely (sic) copied the wording from the
old policy and what she typed is that the description of the boundaries from the
old policy was copied but she inserted covering the new oil mill and to me at
that time the important thing is that it covered the new oil mill because it is just
within one compound and there are only two oil mill[s] and so just enough, I
had the policy prepared. In fact, two policies were prepared having the same
date one for the old one and the other for the new oil mill and exactly the same
policy period, sir.[14] (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the
written contract.
These facts lead us to hold that the present case falls within one of the recognized
exceptions to the parole evidence rule. Under the Rules of Court, a party may present
evidence to modify, explain or add to the terms of the written agreement if he puts in issue
in his pleading, among others, its failure to express the true intent and agreement of the
parties thereto.[15] Here, the contractual intention of the parties cannot be understood from
a mere reading of the instrument. Thus, while the contract explicitly stipulated that it was
for the insurance of the new oil mill, the boundary description written on the policy
concededly pertains to the first oil mill. This irreconcilable difference can only be clarified
by admitting evidence aliunde, which will explain the imperfection and clarify the intent of
the parties.
Anent petitioners argument that the respondent is barred by estoppel from claiming
that the description of the insured oil mill in the policy was wrong, we find that the same
proceeds from a wrong assumption. Evidence on record reveals that respondents operating
manager, Mr. Edison Tantuco, notified Mr. Borja (the petitioners agent with whom
respondent negotiated for the contract) about the inaccurate description in the
policy. However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will
distinguish the insured property. The assurance convinced respondent that, despite the
impreciseness in the specification of the boundaries, the insurance will cover the new oil
mill. This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what
the policy contents.(sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2
particularly the boundaries of the property insured by the insurance policy
Exhibit A, will you tell us as the manager of the company whether the
boundaries stated in Exhibit A-2 are the boundaries of the old (sic) mill that was
burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can
never insured (sic) one property with two (2) policies, you will only do that if
you will make to increase the amount and it is by indorsement not by another
policy, sir."[16]
We again stress that the object of the court in construing a contract is to ascertain the
intent of the parties to the contract and to enforce the agreement which the parties have
entered into. In determining what the parties intended, the courts will read and construe
the policy as a whole and if possible, give effect to all the parts of the contract, keeping in
mind always, however, the prime rule that in the event of doubt, this doubt is to be
resolved against the insurer. In determining the intent of the parties to the contract, the
courts will consider the purpose and object of the contract.[17]
In a further attempt to avoid liability, petitioner claims that respondent forfeited the
renewal policy for its failure to pay the full amount of the premium and breach of the Fire
Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the
admission of respondents own witness, Mr. Borja, which the petitioner cited, the former
only paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues,
suffices to invalidate the policy, in accordance with Section 77 of the Insurance Code. [18]
The Court of Appeals refused to consider this contention of the petitioner. It held that
this issue was raised for the first time on appeal, hence, beyond its jurisdiction to resolve,
pursuant to Rule 46, Section 18 of the Rules of Court.[19]
Petitioner, however, contests this finding of the appellate court. It insists that the
issue was raised in paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of the policy and renewal certificate
that the renewal premium should be paid on or before renewal date.
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or
rebate, which rebate under Sec. 361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in
paragraph 24 of its Answer ostensibly spoke of the policys condition for payment of the
renewal premium on time and respondents non-compliance with it. Yet, it did not contain
any specific and definite allegation that respondent did not pay the premium, or that it did
not pay the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-
trial proceedings, the question of the supposed inadequate payment was never
raised. Most significant to point, petitioner fatally neglected to present, during the whole
course of the trial, any witness to testify that respondent indeed failed to pay the full
amount of the premium. The thrust of the cross-examination of Mr. Borja, on the other
hand, was not for the purpose of proving this fact. Though it briefly touched on the alleged
deficiency, such was made in the course of discussing a discount or rebate, which the agent
apparently gave the respondent. Certainly, the whole tenor of Mr. Borjas testimony, both
during direct and cross examinations, implicitly assumed a valid and subsisting insurance
policy. It must be remembered that he was called to the stand basically to demonstrate that
an existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire
Extinguishing Appliances Warranty. The said warranty provides:
WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances
as mentioned below shall be maintained in efficient working order on the premises
to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the Company
shall no longer be liable for any loss which may occur.[20]
Petitioner argues that the warranty clearly obligates the insured to maintain all the
appliances specified therein. The breach occurred when the respondent failed to install
internal fire hydrants inside the burned building as warranted. This fact was admitted by
the oil mills expeller operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts conclusion that
the aforementioned warranty did not require respondent to provide for all the fire
extinguishing appliances enumerated therein. Additionally, we find that neither did it
require that the appliances are restricted to those mentioned in the warranty. In other
words, what the warranty mandates is that respondent should maintain in efficient
working condition within the premises of the insured property, fire fighting equipments
such as, but not limited to, those identified in the list, which will serve as the oil mills first
line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of
the new oil mill can be found the following devices: numerous portable fire extinguishers,
two fire hoses,[21] fire hydrant,[22] and an emergency fire engine.[23] All of these equipments
were in efficient working order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the
insurer, but they should, likewise, by themselves be reasonably interpreted.[24] That
reasonableness is to be ascertained in light of the factual conditions prevailing in each
case. Here, we find that there is no more need for an internal hydrant considering that
inside the burned building were: (1) numerous portable fire extinguishers, (2) an
emergency fire engine, and (3) a fire hose which has a connection to one of the external
hydrants. IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the
instant petition is hereby DISMISSED.
THE CAPITAL INSURANCE & SURETY CO., INC. vs. PLASTIC ERA CO., INC., AND
COURT OF APPEALS. G.R. No. L-22375 July 18, 1975
Petition for review of a decision of the Court of Appeals affirming the decision of the Court
of First Instance of Manila in Civil Case No. 47934 entitled "Plastic Era Manufacturing Co.,
Inc. versus The Capital Insurance and Surety Co., Inc."
On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. (hereinafter referred
to as Capital Insurance) delivered to the respondent Plastic Era Manufacturing Co., Inc.,
(hereinafter referred to as Plastic Era) its open Fire Policy No. 227601 wherein the former
undertook to insure the latter's building, equipments, raw materials, products and
accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly provides
that if the property insured would be destroyed or damaged by fire after the payment of
the premiums, at anytime between the 15th day of December 1960 and one o'clock in the
afternoon of the 15th day of December 1961, the insurance company shall make good all
such loss or damage in an amount not exceeding P100,000.00. When the policy was
delivered, Plastic Era failed to pay the corresponding insurance premium. However,
through its duly authorized representative, it executed the following acknowledgment
receipt:
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 ---------------------
(Date)
On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to
Capital Insurance, a check2 for the amount of P1,000.00 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 check only on February 20, 1961 and the same was
dishonored by the bank for lack of funds. The records show that as of January 19, 1961
Plastic Era had a balance of P1,193.41 with the Bank of America.
On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to
5:00 o'clock in the morning, the property insured by Plastic Era was destroyed by fire. In
due time, the latter notified Capital Insurance of the loss of the insured property by
fire3 and accordingly filed its claim for indemnity thru the Manila Adjustment
Company.4 The loss and/or damage suffered by Plastic Era was estimated by the Manila
Adjustment Company to be P283,875. However, according to the records the same
property has been insured by Plastic Era with the Philamgen Insurance Company for
P200,000.00.
In less than a month Plastic Era demanded from Capital Insurance the payment of the sum
of P100,000.00 as indemnity for the loss of the insured property under Policy No. 22760 but
the latter refused for the reason that, among others, Plastic Era failed to pay the insurance
premium.
On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the
recovery of the sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for
additional expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for
attorney's fees.
On November 15, 1961, the trial court rendered judgment, the dispositive portion of which
reads as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant for the sum of P88,325.63 with interest at the
legal rate from the filing of the complaint and to pay the costs.
From said decision, Capital Insurance appealed to the Court of Appeals.
On December 5, 1963, the Court of Appeals rendered its decision affirming that of the trial
court. Hence, this petition for review by certiorari to this Court.
Assailing the decision of the Court of Appeals petitioner assigns the following errors, to
wit:
1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER
TO PAY PLASTIC ERA THE SUM OF P88,325.63 PLUS INTEREST,
AND COST OF SUIT, ALTHOUGH PLASTIC ERA NEVER PAID
PETITIONER THE INSURANCE PREMIUM OF P2,220.88.
2. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER SHOULD HAVE INSTITUTED AN ACTION FOR
RESCISSION OF THE INSURANCE CONTRACT ENTERED INTO
BETWEEN IT AND PLASTIC ERA BEFORE PETITIONER COULD BE
RELIEVED OF RESPONSIBILITY UNDER ITS FIRE INSURANCE
POLICY.
3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS
UNWARRANTED AND THAT THE PETITIONER SHOULD HAVE
BEEN ABSOLVED FROM THE COMPLAINT, AND
CONSEQUENTLY, THE LOWER COURT SHOULD HAVE
 AWARDED PETITIONER A REASONABLE SUM AND AS
ATTORNEY'S FEES P25,000.00.
The pivotal issue in this petition is whether or not a contract of insurance has been duly
perfected between the petitioner, Capital Insurance, and respondent Plastic Era.
Necessarily, the issue calls for a correct interpretation of the insurance policy which states:
This Policy of Insurance Witnesseth That in consideration of PLASTIC
ERA MANUFACTURING COMPANY, INC. hereinafter called the
Insured, paying to the Capital Insurance & Surety Co., Inc., hereinafter
called the Company, the sum of PESOS TWO THOUSAND ONE
HUNDRED EIGHTY EIGHT the premium for the first period
hereinafter mentioned, for insuring against Loss or Damage by only
Fire or Lightning, as hereinafter appears, the Property hereinafter
described and contained, or described herein and not elsewhere, in the
several sums following namely: PESOS ONE HUNDRED THOUSAND
ONLY, PHILIPPINE CURRENCY; ... THE COMPANY HEREBY
AGREES with the Insured but subject to the terms and conditions
endorsed or otherwise expressed hereon, which are to be taken as part
of this Policy), that if the Property described, or any part thereof, shall
be destroyed or damaged by Fire or Lightning after payment of the
Premiums, at anytime between the 15th day of December One
Thousand Nine Hundred and Sixty and 1 'clock in the afternoon of the
15th day of December One Thousand Nine Hundred and Sixty-One of
the last day of any subsequent period in respect of which the insured,
or a successor in interest to whom the insurance is by an endorsement
hereon declared to be or is otherwise continued, shall pay to the
Company and the Company shall accept the sum required for the
renewal of this Policy, the Company will pay or make good all such
loss or Damage, to an amount not exceeding during any one period of
the insurance in respect of the several matters specified, the sum; set
opposite thereto respectively, and not exceeding the whole sum of
PESOS, ONE HUNDRED THOUSAND ONLY, PHIL. CUR....
In clear and unequivocal terms the insurance policy provides that it is only upon payment
of the premiums by Plastic Era that Capital Insurance agrees to insure the properties of the
former against loss or damage in an amount not exceeding P100,000.00.
The crux of the problem then is whether at the time the insurance policy was delivered to
Plastic Era on December 17, 1960, the latter was able to pay the stipulated premium. It
appears on record that on the day the insurance policy was delivered, Plastic Era did not
pay the Capital Insurance, but instead executed an acknowledgment receipt of Policy No.
22760. In said receipt Plastic Era promised to pay the premium within thirty (30) days from
the effectivity date of the policy on December 17, 1960 and Capital Insurance accepted it.
What then is the effect of accepting such acknowledgment receipt from the Plastic Era? Did
the Capital Insurance mean to agree to make good its undertaking under the policy if the
premium could be paid on or before January 16, 1961? And what would be the effect of the
delivery to Capital Insurance on January 8, 1961 of a postdated check (January 16, 1961) in
the amount of P1,000.00, payable to the order of the latter? Could not this have been
considered a valid payment of the insurance premium? Pursuant to Article 1249 of the
New Civil Code:
xxx xxx xxx
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the
creditor they have been impaired.
xxx xxx xxx
In the meantime, the action derived from the original obligation shall
be held in abeyance.
Under this provision the mere delivery of a bill of exchange in payment of a debt does not
immediately effect payment. It simply suspends the action arising from the original
obligation in satisfaction of which it was delivered, until payment is accomplished either
actually or presumptively.5 Tender of draft or check in order to effect payment that would
extinguish the debtor's liability should be actually cashed.6 If the delivery of the check of
Plastic Era to Capital Insurance were to be viewed in the light of the foregoing, no payment
of the premium had been effected, for it is only when the check is cashed that it is said to
effect payment.
Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic
Era to pay the insurance premium within thirty (30) days from the effective date of policy.
By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in
effect, waived the provision therein that it would only pay for the loss or damage in case
the same occurs after the payment of the premium. Considering that the insurance policy is
silent as to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This rendered the policy immediately
operative on the date it was delivered. The view taken in most cases in the United States:
... is that although one of conditions of an insurance policy is that "it
shall not be valid or binding until the first premium is paid", if it is
silent as to the mode of payment, promissory notes received by the
 company must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment of the first or
initial premium in advance or actual cash may be waived by
acceptance of a promissory note ...7
Precisely, this was what actually happened when the Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium within
thirty (30) days from December 17, 1960. Hence, when the damage or loss of the insured
property occurred, the insurance policy was in full force and effect. The fact that the check
issued by Plastic Era in partial payment of the promissory note was later on dishonored did
not in any way operate as a forfeiture of its rights under the policy, there being no express
stipulation therein to that effect.
In the absence of express agreement or stipulation to that effect in the
policy, the non-payment at maturity of a note given for and accepted
as premium on a policy does not operate to forfeit the rights of the
insured even though the note is given for an initial premium, nor does
the fact that the collection of the note had been enjoined by the insured
in any way affect the policy.8
... If the check is accepted as payment of the premium even though it
turns out to be worthless, there is payment which will prevent
forfeiture. 9
Capital Insurance was estopped from claiming a forfeiture of its policy for non-payment
even if the check had been dishonored later.1äwphï1.ñët
Where the check is held for an unreasonable time before presenting it
for payment, the insurer may be held estopped from claiming a
forfeiture if the check is dishonored. 12
Finally, it is submitted by petitioner that:
We are here concerned with a case of reciprocal obligations, and
respondent having failed to comply with its obligation to pay the
insurance premium due on the policy within thirty days from
December 17, 1960, petitioner was relieved of its obligation to pay
anything under the policy, without the necessity of first instituting an
action for rescission of the contract of insurance entered into by the
parties.
But precisely in this case, Plastic Era has complied with its obligation to pay the insurance
premium and therefore Capital Insurance is obliged to make good its undertaking to
Plastic Era.
WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm
the same in toto. Costs against the petitioner.

By accepting its promise to pay the insurance premium within thirty (30) days from the
effectivity date of the policy — December 17, 1960 Capital Insurance had in effect extended
credit to Plastic Era. The payment of the premium on the insurance policy therefore became
an independent obligation the non-fulfillment of which would entitle Capital Insurance to
recover. It could just deduct the premium due and unpaid upon the satisfaction of the loss
under the policy. 10 It did not have the right to cancel the policy for nonpayment of the
premium except by putting Plastic Era in default and giving it personal notice to that effect.
This Capital Insurance failed to do.

... Where credit is given by an insurance company for the payment of

the premium it has no right to cancel the policy for nonpayment except
by putting the insured in default and giving him personal notice.... 11

On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic Era in
partial payment of the premium on the insurance policy. Although the check was due for
payment on January 16, 1961 and Plastic 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 payment. Having held the check for such an unreasonable period of time,
JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL
STEPHEN ADOLFSON v. MALAYAN INSURANCE CO., INC. [G.R. No. L-34768.
February 24, 1984.]
This is an appeal by Malayan Insurance Company, Inc. (MALAYAN) from a decision of
Court of First Instance of Manila ordering it to pay the insured under a car insurance policy
issued by MALAYAN to Daniel Stephen Adolfson against own damage as well as third
party liability.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The facts are not in dispute, Adolfson had a subsisting MALAYAN car insurance policy
with the above coverage on November 23, 1969 when his car collided with a car owned by
Cesar Poblete, resulting in damage to both vehicles. At the time of the accident, Adolfson’s
car was being driven by James Stokes, who was authorized to do so by Adolfson. Stokes,
an Irish citizen who had been in the Philippines as a tourist for more than ninety days, had
a valid and subsisting Irish driver’s license but without a Philippine driver’s license.
After the collision, Adolfson filed a claim with MALAYAN but the latter refused to pay,
contending that Stokes was not an authorized driver under the "Authorized Driver" clause
of the insurance policy in relation to Section 21 of the Land Transportation and Traffic
Code.
Under the insurance policy, "authorized driver" refers to —
"(a) The insured
"(b) Any person driving on the insured’s order or with his permission.
"PROVIDED that the person driving is permitted in accordance with the licensing or other
laws or regulations to drive the motor vehicle and is not disqualified from driving such
motor vehicle by order of a court of law or by reason of any enactment or regulation in that
behalf."cralaw virtua1aw library
The cited Section 21 of the Land Transportation and Traffic Code
provides:jgc:chanrobles.com.ph
"Operation of motor vehicles by tourists. — Bona fide tourists and similar transients who
are duly licensed to operate motor vehicles in their respective countries may be allowed to
operate motor vehicles during but not after ninety days of their sojourn in the Philippines.
x x x to drive the motor vehicle and is not disqualified from so doing under any enactment or
"After ninety days, any tourist or transient desiring to operate motor vehicles shall pay fees
and obtain and carry a license as hereinafter provided." (Emphasis supplied.)
Unable to convince MALAYAN to pay, Stokes and Adolfson brought suit before the Court
of First Instance of Manila and succeeded in getting a favorable judgment, although Stokes
had ceased to be authorized to drive a motor vehicle in the Philippines at the time of the
accident, he having stayed therein as a tourist for over 90 days without having obtained a
Philippine driver’s license. The Court held that Stokes’ lack of a Philippine driver’s license
was not fatal to the enforcement of the insurance policy; and the MALAYAN was estopped
from denying liability under the insurance policy because it accepted premium payment
made by the insured one day after the accident. It said:jgc:chanrobles.com.ph
"Defendant cannot evade liability under the policy by virtue of the above provision of the
Land Transportation and Traffic Code. This is an insurance case. The basis of insurance
contracts is good faith and trust between the insurer and the insured. The matter of the
failure on the part of Stokes to have a Philippine driver’s license is not such a defect that
can be considered as fatal to the contract of insurance, because the fact is that Stokes still
had a valid and unexpired Irish license. As a matter of fact, the traffic officer who
investigated the incident gave Stokes a traffic violation receipt and not a ticket for driving
without license.
"Then the Court believes that defendant is in estoppel in this case because it allowed the
plaintiff to pay the insurance premium even after the accident occurred. Admitting for the
sake of argument that there was a violation of the terms of the policy before the incident,
the admission or acceptance by the insurance company of the premium should be
considered as a waiver on its part to contest the claim of the plaintiffs."cralaw virtua1aw
library
In this appeal, the two issues resolved by the court a quo are raised anew. We find the
appeal meritorious.
1. A contract of insurance is a contract of indemnity upon the terms and conditions
specified therein. When the insurer is called upon to pay in case of loss or damage, he has
the right to insist upon compliance with the terms of the contract. If the insured cannot
bring himself within the terms and conditions of the contract, he is not entitled as a rule to
recover for the loss or damage suffered. For the terms of the contract constitute the measure
of the insurer’s liability, and compliance therewith is a condition precedent to the right of
recovery. (Young v. Midland Textile Insurance Co., 30 Phil. 617.)
Under the "authorized driver" clause, an authorized driver must not only be permitted to
drive by the insured. It is also essential that he is permitted under the law and regulations
regulation.chanrobles virtual lawlibrary
At the time of the accident, Stokes had been in the Philippines for more than 90 days.
Hence, under the law, he could not drive a motor vehicle without a Philippine driver’s
license. He was therefore not an "authorized driver" under the terms of the insurance
policy in question, and MALAYAN was right in denying the claim of the
insured.cralawnad
2. Acceptance of premium within the stipulated period for payment thereof, including the
agreed period of grace, merely assures continued effectivity of the insurance policy in
accordance with its terms. Such acceptance does not estop the insurer from interposing any
valid defense under the terms of the insurance policy.
The principle of estoppel is an equitable principle rooted upon natural justice which
prevents a person from going back on his own acts and representations to the prejudice of
another whom he has led to rely upon them. The principle does not apply to the instant
case. In accepting the premium payment of the insured, MALAYAN was not guilty of any
inequitable act or representation. There is nothing inconsistent between acceptance of
premium due under an insurance policy and the enforcement of its
terms.chanroblesvirtualawlibrary
WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs
against the appellees.
Malayan Insurance Co., Inc. V. Arnaldo (1987). G.R. No. L-67835 October 12, 1987
Lessons Applicable: Authority to Receive Payment/Effect of Payment (Insurance)
Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the Insurance Code
 June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion Pinca, Fire
Insurance Policy for her property effective July 22, 1981, until July 22, 1982
 October 15,1981: MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca
 December 24, 1981: payment of the premium for Pinca was received by Domingo
Adora, agent of MICO
 January 15, 1982: Adora remitted this payment to MICO,together with other
payments
 January 18, 1982: Pinca's property was completely burned
 February 5, 1982: Pinca's payment was returned by MICO to Adora on the ground
that her policy had been cancelled earlier but Adora refused to accept it and instead
demanded for payment
 Under Section 416 of the Insurance Code, the period for appeal is thirty days from
notice of the decision of the Insurance Commission. The petitioner filed its motion for
reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary
period began to run again after June 13, 1981, date of its receipt of notice of the denial
of the said motion for reconsideration. As the herein petition was filed on July 2,
1981, or nineteen days later, there is no question that it is tardy by four days.
 Insurance Commission: favored Pinca. MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was authorized to receive it
HELD: YES. petition is DENIED
 SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.
 SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance broker a policy
or contract of insurance shall be demmed to have authorized such agent or broker to
receive on its behalf payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due thereon.
 Payment to an agent having authority to receive or collect payment is equivalent to
payment to the principal himself; such payment is complete when the money
delivered is into the agent's hands and is a discharge of the indebtedness owing to
the principal.
 SEC. 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the effective date of the policy, of
one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured
against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
 SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
and shall state (a) which of the grounds set forth in section sixty-four is relied upon
and (b) that, upon written request of the named insured, the insurer will furnish the
facts on which the cancellation is based.
 A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the policy, of
one or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at
the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b)
that upon written request of the insured, the insurer will furnish the facts on which the
cancellation is based.
 All MICO's offers to show that the cancellation was communicated to the insured is
its employee's testimony that the said cancellation was sent "by mail through our
mailing section." without more
 It stands to reason that if Pinca had really received the said notice, she would not
have made payment on the original policy on December 24, 1981. Instead, she would
have asked for a new insurance, effective on that date and until one year later, and so
taken advantage of the extended period.
 Incidentally, Adora had not been informed of the cancellation either and saw no
reason not to accept the said payment
 Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982,
MICO sought to return it to Adora only on February 5, 1982, after it presumably had
learned of the occurrence of the loss insured against on January 18, 1982 make the
motives of MICO highly suspicious
Valenzuela v CA G.R. No. 83122 October 19, 1990
J. Gutierrez Jr.
Petitioner Valenzuela, a General Agent respondent Philamgen, was authorized to solicit
and sell all kinds of non-life insurance. He had a 32.5% commission rate. From 1973 to 1975,
Valenzuela solicited marine insurance from Delta Motors, Inc. in the amount of P4.4
Million from which he was entitled to a commission of 32%. However, Valenzuela did not
receive his full commission which amounted to P1.6 Million from the P4.4 Million.
Premium payments amounting to P1,946,886.00 were paid directly to Philamgen.
Valenzuela’s commission amounted to P632,737.00.
Philamgen wanted to cut Valenzuela’s commission to 50% of the amount. He declined.
When Philamgen offered again, Valenzuela firmly reiterated his objection.
Philamgen took drastic action against Valenzuela. They: reversed the commission due him,
threatened the cancellation of policies issued by his agency, and started to leak out news
that Valenzuela has a substantial debt with Philamgen. His agency contract was
terminated.
The petitioners sought relief by filing the complaint against the private respondents. The
trial court found that the principal cause of the termination as agent was his refusal to
share his Delta commission.
The court considered these acts as harassment and ordered the company to pay for the
resulting damage in the value of the commission. They also ordered the company to pay
350,000 in moral damages.
The company appealed. The CA ordered Valenzuela to pay the entire amount of the
commission. Hence, this appeal by Valenzuela.
Issue:
1. WON the agency contract is coupled with interest on the part of agent Valenzuela.
2. Whether or not Philamgen can be held liable for damages due to the termination of the
General Agency Agreement it entered into with the petitioners.
3. WON Valenzuela should pay the premiums he collected.
Held: Yes. Yes. Petition granted
Ratio:
1. In any event the principal's power to revoke an agency at will is so pervasive, that the
Supreme Court has consistently held that termination may be effected even if the principal
acts in bad faith, subject only to the principal's liability for damages.
The Supreme Court accorded great weight on the trial court’s factual findings and found
the cause of the conflict to be Valenzuela’s refusal to share the commission. Philamgen told
the petitioners of its desire to share the Delta Commission with them. It stated that should
Delta back out from the agreement, the petitioners would be charged interests through a
reduced commission after full payment by Delta.
Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an
agent's commission of 16.25%. The company insisted on the reduction scheme. The
company pressured the agents to share the income with the threat to terminate the agency.
The petitioners were also told that the Delta commissions would not be credited to their
account. This continued until the agency was terminated.
Records also show that the agency is one "coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the company.
The records sustain the finding that the private respondent started to covet a share of the
insurance business that Valenzuela had built up, developed and nurtured. The company
appropriated the entire insurance business of Valenzuela. Worse, despite the termination of
the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the
insured for unpaid premiums.
Under these circumstances, it is clear that Valenzuela had an interest in the continuation of
the agency when it was unceremoniously terminated not only because of the commissions
he procured, but also Philamgen’s stipulation liability against him for unpaid premiums.
The respondents cannot state that the agency relationship between Valenzuela and
Philamgen is not coupled with interest.
There is an exception to the principle that an agency is revocable at will and that is when
the agency has been given not only for the interest of the principal but also for the mutual
interest of the principal and the agent. The principal may not defeat the agent's right to
indemnification by a termination of the contract of agency. Also, if a principal violates a
contractual or quasi-contractual duty which he owes his agent, the agent may as a rule
bring an appropriate action for the breach of that duty.
2. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency,
then he is liable in damages. The Civil Code says that "every person must in the exercise of
his rights and in the performance of his duties act with justice, give every one his due, and
observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to
law, wilfully or negligently causes damages to another, shall indemnify the latter for the
same (Art. 20, Civil Code).
3. As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid
and uncollected premiums which the appellate court ordered Valenzuela to pay, the
respondent court erred in holding Valenzuela liable.
Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to
put an end to and render the insurance policy not binding.
Philippine Phoenix- non-payment of premium does not merely suspend but puts an end to
an insurance contract since the time of the payment is peculiarly of the essence of the
contract.
Section 776 of the insurance Code says that no contract of insurance by an insurance
company is valid and binding unless and until the premium has been paid,
notwithstanding any agreement to the contrary
Since the premiums have not been paid, the policies issued have lapsed. The insurance
coverage did not go into effect or did not continue and the obligation of Philamgen as
insurer ceased. Philam can’t demand from or sue Valenzuela for the unpaid premiums.
The court held that the CA’s giving credence to an audit that showed Valenzuela owing
Philamgen P1,528,698.40 was unwarranted. Valenzuela had no unpaid account with
Philamgen. But, facts show that the beginning balance of Valenzuela's account with
Philamgen amounted to P744,159.80. 4 statements of account were sent to the agent.
It was only after the filing of the complaint that a radically different statement of accounts
surfaced in court. Certainly, Philamgen's own statements made by its own accountants
over a long period of time and covering examinations made on four different occasions
must prevail over unconfirmed and unaudited statements made to support a position
made in the course of defending against a lawsuit.
The records of Philamgen itself are the best refutation against figures made as an
afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where
the figures would be reconciled. Philamgen refused to meet with him and, instead,
terminated the agency agreement.
After off-setting the amount, Valenzuela had overpaid Philamgen the amount of
P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it
committed a mistake in its computation. The alleged error may be given credence if
committed only once. But as earlier stated, the reconciliation of accounts was arrived at
four (4) times on different occasions where Philamgen was duly represented by its account
executives. On the basis of these admissions and representations, Philamgen cannot later
on assume a different posture and claim that it was mistaken in its representation with
respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The audit
report commissioned by Philamgen is unreliable since its results are admittedly based on
an unconfirmed and unaudited beginning balance of P1,758,185.43.
Philamgen has been appropriating for itself all these years the gross billings and income
that it took away from the petitioners. A principal can be held liable for damages in cases of
unjust termination of agency. This Court ruled that where no time for the continuance of
the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only
to the ordinary requirements of good faith. The right of the principal to terminate his
authority is absolute and unrestricted, except only that he may not do so in bad faith.
The circumstances of the case, however, require that the contractual relationship between
the parties shall be terminated upon the satisfaction of the judgment. No more claims
arising from or as a result of the agency shall be entertained by the courts after that date.